Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

As of ~~October 22, 2019,~~May 4, 2020, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was ~~36,180,604.~~

	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(In thousands, except per share data)						(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	413,102			418,100		$	343,472		$	398,946
Trade receivables, net		235,619			202,165			118,640			107,626
Unbilled receivables								129,310			140,534
Inventories, net		201,655			191,194			197,035			205,062
Prepaids and other current assets		28,343			41,522			37,834			28,321
Total current assets		878,719			852,981			826,291			880,489
Operating lease right of use assets		5,328			-			5,047			5,144
Property, plant and equipment, net		259,423			274,123			244,495			258,497
Deferred income taxes		8,012			7,995			17,879			8,936
Goodwill		7,384			7,714			-			7,947
Intangible assets		33,101			34,974			31,204			32,245
Other assets		13,668			14,723			11,194			13,307
Total assets	$	1,205,635			1,192,510		$	1,136,110		$	1,206,565
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	45,785			26,693		$	49,817		$	46,324
Accrued income taxes		5,899			3,138			6,943			4,561
Customer prepayments		7,972			9,648
Contract liabilities								6,431			6,901
Accrued compensation		11,311			10,537			6,916			13,599
Operating lease liabilities		1,295			-			1,213			1,314
Other accrued liabilities		24,271			32,242			22,126			24,241
Total current liabilities		96,533			82,258			93,446			96,940
Deferred income taxes		2,259			2,466			3,495			4,150
Income tax payable		9,977			9,623			8,988			8,868
Operating lease liabilities, long-term		4,011			-			3,809			3,801
Other long-term liabilities		183			2,001			2,171			2,105
Total liabilities		112,963			96,348			111,909			115,864
Commitments and contingencies (Note 12)
Contingencies (Note 12)
Stockholders' equity:
Preferred stock: 10,000,000 shares authorized at $0.01 par value (NaN issued)		-			-
Preferred stock: 10,000,000 shares authorized at $0.01 par value (0ne issued)								-			-
Common stock:
100,000,000 shares authorized at $0.01 par value, 36,180,104 and 36,264,001 shares issued and outstanding at September 30, 2019 and December 31, 2018		376			376
100,000,000 shares authorized at $0.01 par value, 35,060,690 and 35,859,540 shares issued and outstanding at March 31, 2020 and December 31, 2019								363			371
Additional paid-in capital		52,896			34,953			56,045			52,870
Retained earnings		1,194,824			1,205,946			1,136,335			1,181,023
Accumulated other comprehensive losses		(155,424	)		(145,113	)		(168,542	)		(143,563	)
Total stockholders' equity		1,092,672			1,096,162			1,024,201			1,090,701
Total liabilities and stockholders' equity	$	1,205,635			1,192,510		$	1,136,110		$	1,206,565

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
	(In thousands, except per share data)												(In thousands, except per share data)
Revenues:
Products	$	81,851		$	63,246		$	224,518		$	199,010		$	67,558		$	65,434
Services		17,884			17,542			52,936			53,003			18,814			18,476
Leasing		8,492			12,469			28,899			35,278			9,626			10,407
Total revenues		108,227			93,257			306,353			287,291			95,998			94,317
Cost and expenses:
Cost of sales:
Products		58,632			53,342			163,750			168,602			53,645			51,544
Services		8,451			9,329			27,906			27,242			9,688			9,237
Leasing		8,940			8,442			27,615			24,292			8,081			8,595
Total cost of sales		76,023			71,113			219,271			220,136			71,414			69,376
Selling, general and administrative		27,962			27,093			75,332			76,711			21,416			24,544
Engineering and product development		3,754			5,404			12,531			15,124			5,525			3,617
Impairments														7,719			-
Restructuring and other charges		546			3,745			3,961			4,345			32,713			2,396
Gain on sale of assets		(280	)		(14	)		(1,483	)		(5,113	)		(467	)		(13	)
Total costs and expenses		108,005			107,341			309,612			311,203			138,320			99,920
Operating income (loss)		222			(14,084	)		(3,259	)		(23,912	)
Operating loss														(42,322	)		(5,603	)
Interest income		1,906			1,893			6,592			5,965			1,206			2,006
Interest expense		(26	)		(195	)		(148	)		(545	)		(191	)		(121	)
Income (loss) before income taxes		2,102			(12,386	)		3,185			(18,492	)
Loss before income taxes														(41,307	)		(3,718	)
Income tax provision (benefit)		3,412			(2,028	)		8,864			2,291			(21,609	)		2,333
Net loss		(1,310	)		(10,358	)		(5,679	)		(20,783	)		(19,698	)		(6,051	)
Loss per common share:
Basic	$	(0.04	)	$	(0.28	)	$	(0.16	)	$	(0.56	)	$	(0.55	)	$	(0.17	)
Diluted	$	(0.04	)	$	(0.28	)	$	(0.16	)	$	(0.56	)	$	(0.55	)	$	(0.17	)
Weighted average common shares outstanding:
Basic		35,559			37,119			35,827			37,349			35,695			35,559
Diluted		35,559			37,119			35,827			37,349			35,695			35,559

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
	(In thousands)												(In thousands)
Net loss	$	(1,310	)	$	(10,358	)	$	(5,679	)	$	(20,783	)	$	(19,698	)	$	(6,051	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(9,621	)		(5,566	)		(10,311	)		(14,111	)		(24,979	)		1,627
Total comprehensive loss		(10,931	)		(15,924	)		(15,990	)		(34,894	)	$	(44,677	)	$	(4,424	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Nine months ended						Three months ended
	September 30,						March 31,
	2019			2018			2020			2019
	(In thousands)						(In thousands)
Operating activities
Net loss	$	(5,679	)	$	(20,783	)	$	(19,698	)	$	(6,051	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		25,155			25,966			8,873			8,356
Release of contingent consideration		(2,001	)		-
Stock-based compensation expense		15,746			9,950			3,176			4,862
Impairments								7,719			-
Restructuring and other charges		162			-			32,713			1,271
Gain on sale of assets		(1,483	)		(5,113	)		(467	)		(13	)
Deferred income taxes		(534	)		(914	)		(10,862	)		(73	)
Changes in operating assets and liabilities:
Trade receivables, net		(35,466	)		298			(19,444	)		15,768
Unbilled receivables								11,224			(21,365	)
Inventories, net		(15,624	)		32,610			(15,537	)		(2,700	)
Prepaids and other assets		12,744			(9,675	)		(11,723	)		15,960
Accounts payable and accrued expenses		13,667			(41	)		(7,212	)		(14,478	)
Other, net		(63	)		309			1			(699	)
Net cash provided by operating activities		6,624			32,607
Net cash provided by (used in) operating activities								(21,237	)		838
Investing activities
Purchase of property, plant and equipment		(8,620	)		(26,683	)		(4,187	)		(3,527	)
Proceeds from sale of equipment		2,401			11,244			687			341
Net cash used in investing activities		(6,219	)		(15,439	)		(3,500	)		(3,186	)
Financing activities
Repurchase of common shares		(5,365	)		(80,937	)		(25,000	)		(1,116	)
ABL Credit Facility issuance costs		-			(815	)
Proceeds from exercise of stock options		2,327			1,106
Other		(239	)					(85	)		-
Net cash used in financing activities		(3,277	)		(80,646	)		(25,085	)		(1,116	)
Effect of exchange rate changes on cash activities		(2,126	)		(5,649	)		(5,652	)		172
Increase in cash and cash equivalents		(4,998	)		(69,127	)
Decrease in cash and cash equivalents								(55,474	)		(3,292	)
Cash and cash equivalents at beginning of period		418,100			493,180			398,946			418,100
Cash and cash equivalents at end of period	$	413,102		$	424,053		$	343,472		$	414,808

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Losses			Total			Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Losses			Total
				(In thousands, except shares)															(In thousands, except shares)
Balance at July 1, 2019	$	376		$	43,053		$	1,199,502		$	(145,803	)	$	1,097,128
Balance at January 1, 2020																$	371		$	52,870		$	1,181,023		$	(143,563	)	$	1,090,701
Foreign currency translation adjustment		-			-			-			(9,621	)		(9,621	)		-			-			-			(24,979	)		(24,979	)
Net loss		-			-			(1,310	)		-			(1,310	)		-			-			(19,698	)		-			(19,698	)
Comprehensive loss														(10,931	)		-			-			-			-			(44,677	)
Repurchase of common stock (75,737 shares)		(1	)		-			(3,367	)		-			(3,368	)
Options exercised and awards vested ( 47,712 shares), net of shares withheld for employee taxes		1			2,181									2,182
Repurchase of common stock (808,389 shares)																	(8	)		-			(25,000	)		-			(25,008	)
Stock option expense		-			7,663			-			-			7,663			-			3,176			-			-			3,176
Other		-			(1	)		(1	)		-			(2	)		-			(1	)		10			-			9
Balance at September 30, 2019	$	376		$	52,896		$	1,194,824		$	(155,424	)	$	1,092,672
Balance at March 31, 2020																$	363		$	56,045		$	1,136,335		$	(168,542	)	$	1,024,201

Balance at January 1, 2019	$	376		$	34,953		$	1,205,946		$	(145,113	)	$	1,096,162		$	376		$	34,953		$	1,205,946		$	(145,113	)	$	1,096,162
Foreign currency translation adjustment		-			-			-			(10,311	)		(10,311	)		-			-			-			1,627			1,627
Net loss		-			-			(5,679	)		-			(5,679	)		-			-			(6,051	)		-			(6,051	)
Comprehensive loss														(15,990	)		-			-			-			-			(4,424	)
Repurchase of common stock (125,888 shares)		(1	)		-			(5,364	)		-			(5,365	)
Options exercised and awards vested ( 47,712 shares), net of shares withheld for employee taxes		1			2,181									2,182
Repurchase of common stock (28,078 shares)																	-			-			(1,116	)		-			(1,116	)
Stock option expense		-			15,746			-			-			15,746			-			4,862			-			-			4,862
Other		-			16			(79	)		-			(63	)		-			-			(79	)		-			(79	)
Balance at September 30, 2019	$	376		$	52,896		$	1,194,824		$	(155,424	)	$	1,092,672

	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Losses			Total
				(In thousands, except shares)
Balance at July 1, 2018	$	394		$	28,149		$	1,381,739		$	(134,835	)	$	1,275,447
Foreign currency translation adjustment		-			-			-			(5,566	)		(5,566	)
Net loss		-			-			(10,358	)		-			(10,358	)
Comprehensive loss														(15,924	)
Repurchase of common stock (1,395,521 shares)		-			-			(71,107	)		-			(71,107	)
Options exercised		-			488			-			-			488
Stock option expense		-			2,366			-			-			2,366
Other		-			(1	)		(13	)		-			(14	)
Balance at September 30, 2018	$	394		$	31,002		$	1,300,261		$	(140,401	)	$	1,191,256

Balance at January 1, 2018		372			20,083			1,400,296			(126,290	)		1,294,461
Foreign currency translation adjustment		-			-						(14,111	)		(14,111	)
Net loss		-			-			(20,783	)		-			(20,783	)
Comprehensive loss														(34,894	)
ASC 606		-			-			1,786			-			1,786
Repurchase of common stock (1,614,623 shares)		(2	)		-			(80,935	)		-			(80,937	)
Options exercised		24			1,106			-			-			1,130
Stock option expense		-			9,950			-			-			9,950
Other		-			(137	)		(103	)		-			(240	)
Balance at September 30, 2018	$	394		$	31,002		$	1,300,261		$	(140,401	)	$	1,191,256
Balance at March 31, 2019																$	376		$	39,815		$	1,198,700		$	(143,486	)	$	1,095,405

The accompanying notes are an integral part of these condensed consolidated financial statements.

Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered drilling and production equipment that is well suited primarily for use in deepwater, harsh environment and severe service applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors, diverters and safety valves. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies and drilling contractors throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of the Company’s products.

The Company’s operations are organized into 3 geographic ~~segments—~~segments — Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services, and the Company has major manufacturing facilities in all 3 of its regional headquarter locations as well as in Macae, Brazil. The Company’s major subsidiaries are Dril-Quip (Europe) Limited, located in Aberdeen with branches in Azerbaijan, Denmark, Norway ~~Azerbaijan~~ and Holland; Dril-Quip Asia-Pacific PTE Ltd., located in Singapore; and Dril-Quip do ~~Brazil~~Brasil LTDA, located in Macae, Brazil. Other operating subsidiaries include TIW Corporation (TIW) and Honing, Inc., both located in Houston, Texas; DQ Holdings Pty. Ltd., located in Perth, Australia; Dril-Quip Cross (Ghana) Ltd., located in Takoradi, Ghana; PT DQ Oilfield Services Indonesia, located in Jakarta, Indonesia; Dril-Quip (Nigeria) Ltd., located in Port Harcourt, Nigeria; Dril-Quip Egypt for Petroleum Services S.A.E., located in Alexandria, Egypt; Dril-Quip TIW Saudi Arabia Limited, located in Dammam, Kingdom of Saudi Arabia; Dril-Quip Oilfield Services (Tianjin) Co. Ltd., located in Tianjin, China, with branches in ~~Shezhen~~Shenzhen and Beijing, China; ~~and~~ Dril-Quip Qatar LLC, located in Doha, Qatar; ~~Drip-Quip~~Dril-Quip TIW Mexico ~~S.A.~~S. de ~~C.V.~~R.L.C.V., located in Villahermosa, Mexico; TIW de Venezuela S.A., located in Anaco, Venezuela and with a registered branch located in Ecuador; TIW (UK) Limited, located in Aberdeen, Scotland; TIW Hungary LLC, located in Szolnok, Hungary; and TIW International LLC, with a registered branch located in Singapore.

The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, ~~2018~~2019 has been derived from the audited consolidated financial statements at that date. In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair statement of the financial position as of ~~September 30, 2019~~March 31, 2020 and the results of operations and comprehensive income ~~for the three and nine months ended September 30, 2019 and 2018~~(loss) and cash flows for the ~~nine-month periods~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Management believes the unaudited interim related disclosures in these condensed consolidated financial statements are adequate. The results of operations, comprehensive income (loss) and cash flows for the ~~nine-month period~~three months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 (the “Annual Report”).

The recent outbreak of COVID-19 and its development into a pandemic has resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, curtailed business operations, prohibited public gatherings and restricted the overall level of individual movement and in-person interaction across the globe. This has significantly reduced global economic activity and caused global demand for oil and gas to decrease at an unprecedented rate. This demand reduction was further exacerbated by disputes over oil production by Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations. The subsequent actions taken by such countries as a result thereof, including Saudi Arabia discounting its crude oil export prices, have led to significant declines in crude oil prices, resulting in a challenging industry environment. The extent of the impact of the pandemic and the decline in oil prices on our operational and financial performance will depend on future developments which are uncertain and cannot be predicted. An extended period of economic disruption could have a material adverse impact on our business, results of operations, access to sources of liquidity and financial condition.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition, impairment of our goodwill and asset recoverability tests and inventories.

The Company generates revenues through the sale of products, the sale of services and the leasing of installation tools. The Company normally negotiates contracts for products, including those accounted for under the over time method, rental tools and services separately. Modifications to the scope and price of sales contracts may occur in the form of variations and change orders. For all product sales, it is the customer’s decision as to the timing of the product installation as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory assistance services. The customer may instead choose to use a third party or its own personnel.

Product and service revenues are recognized as the Company satisfies the performance obligation by transferring control of the promised good or service to the customer. Revenues are measured based on consideration specified in a contract with a customer and exclude sales incentives and amounts collected on behalf of third parties. In addition, some customers may impose contractually negotiated penalties for late delivery that are excluded from the transaction price.

Management has elected to utilize certain practical expedients allowed under Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606). Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price. Shipping and handling activities that are performed after a customer obtains control of the good are accounted for as activities to fulfill the promise to transfer the good and thus are excluded from the transaction price.

The Company uses the over time method on long-term project contracts that have the following characteristics:

For each project, the Company prepares a detailed analysis of estimated costs, profit margin, completion date and risk factors which include availability of material, production efficiencies and other factors that may impact the project. On a quarterly basis, management reviews the progress of each project, which may result in revisions of previous estimates, including revenue recognition. The Company calculates the percentage complete and applies the percentage to determine the revenues earned and the appropriate portion of total estimated costs to be recognized. Losses, if any, are recorded in full in the period they become known. Historically, the Company’s estimates of total costs and costs to complete have approximated actual costs incurred to complete the project.

Under the over time method, billings may not correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in customer prepayments as a liability on the Condensed Consolidated Balance Sheets. Likewise, revenue recognized may exceed customer billings in which case the amounts are reported in ~~trade~~unbilled receivables. Unbilled revenues are expected to be billed and collected within one year. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, unbilled receivables included ~~$76.1~~$87.4 million and ~~$57.0~~$83.2 million of unbilled receivables related to products accounted for using the over time method of accounting, respectively. For the three months ended ~~September 30, 2019,~~March 31, 2020, there were 2942 projects representing approximately ~~21.9%~~31.4% of the Company's total revenues and approximately ~~28.9%~~44.7% of its product revenues that were accounted for using over time accounting, compared to 821 projects for the three months ended ~~September 30, 2018,~~March 31, 2019, which represented approximately ~~15.7%~~18.0% of the Company's total revenues and approximately 23.1% of its product revenues. For the nine months ended September 30, 2019, there were 31 projects representing approximately 20.5% of the Company’s total revenues and approximately 28.0% of its product revenues that were accounted for using over time accounting, compared to 14 projects for the nine months ended September 30, 2018, which represented approximately 14.0% of the Company’s total revenues and approximately 20.3%26.0% of its product revenues.

Revenues from the sale of standard inventory products, not accounted for under the over time method, are recorded at the point in time that the customer obtains control of the promised asset and the Company satisfies its performance obligation. This point in time recognition aligns with the time of shipment, which is when the Company typically has a present right to payment, title transfers to the customer, the customer or its carrier has physical possession and the customer has significant risks and rewards of ownership. The Company may provide product storage to some customers. Revenues for these products are recognized at the point in time that control of the product transfers to the customer, the reason for storage is requested by the customer, the product is separately identified, the product is ready for physical transfer to the customer and the Company does not have the ability to use or direct the use of the product. This point in time typically occurs when the products are moved to storage. We receive payment after control of the products has transferred to the customer.

The Company generally does not install products for its customers, but it does provide technical advisory assistance.

The Company normally negotiates contracts for products, including those accounted for under the over time method, and services separately. For all product sales, it is the customer’s decision as to the timing of the product installation as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory assistance services. The customer may use a third party or their own personnel. The contracts for these services are typically considered day-to-day.

Rework and reconditioning service revenues are recorded using the over time method based on the remaining steps that need to be completed as the refurbishment process is performed. The measurement of progress considers, among other things, the time necessary for completion of each step in the reconditioning plan, the materials to be purchased, labor and ordering procedures. We receive payment after the services have been performed by billing customers periodically (typically monthly).

The Company earns lease revenues from the rental of running ~~tools.~~tools and rental of its forging facility. Rental revenues are recognized within leasing revenues on a day rate basis over the lease term, which is generally between one to three months. Rental revenue from the forging facility is recognized on a straight-line basis over the expected life of the lease. Lease revenues from rental of running tools for the three months ended March 31, 2020 were $9.1 million and lease revenues from rental of facilities were $0.5 million for the same period.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables and payables. The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature.

For goodwill and intangible assets with indefinite lives, an assessment for impairment is performed annually or when there is an indication an impairment may have occurred. We complete our annual impairment test for goodwill and other indefinite-lived

intangibles using an assessment date of October 1. Goodwill is reviewed for impairment by comparing the carrying value of each of our reporting unit’s net assets, including allocated goodwill, to the estimated fair value of the reporting unit. We determine the fair value of our reporting units using a discounted cash flow approach. We selected this valuation approach because we believe it, combined with our best judgment regarding underlying assumptions and estimates, provides the best estimate of fair value for each of our reporting units. Determining the fair value of a reporting unit requires the use of estimates and assumptions. Such estimates and assumptions include revenue growth rates, future operating margins, the weighted average cost of capital ("discount rates"), a terminal growth value, and future market conditions, among others. We believe that the estimates and assumptions used in our impairment assessments are reasonable. If the reporting unit’s carrying value is greater than its calculated fair value, we recognize a goodwill impairment charge for the amount by which the carrying value of goodwill exceeds its fair value. In March 2020, the overall offshore market conditions declined primarily due to the COVID-19 pandemic and the developments in the global oil markets. This decline was evidenced by lower commodity prices, decline in expected offshore rig counts, decrease in our customers’ capital budgets and potential delays of contracts. As such, an interim goodwill impairment analysis was performed in connection with the preparation and review of financial statements for the three months ended March 31, 2020. Based on this analysis, we recorded an impairment loss of $7.7 million for our Eastern Hemisphere reporting unit for the three months ended March 31, 2020.

Long-lived assets, including property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate our property and equipment and definite-lived intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Should the review indicate that the carrying value is not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgements regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result. There was 0 impairment of property and equipment and definite-lived intangible assets during the three months ended March 31, 2020 or 2019.

In March 2020, the overall offshore market conditions declined primarily due to the COVID-19 pandemic and the developments in the global oil markets. As such, we amended our 2018 global strategic plan to realign our manufacturing facilities globally. We recorded non-cash inventory and long-lived asset write-downs of approximately $17.3 million and $6.9 million, respectively, as a result of expected changes in our business structure and where specific products are manufactured. Additionally, we incurred severance and other charges of $8.4 million and $0.1 million respectively, during the three months ended March 31, 2020. These charges are reflected as "Restructuring and other charges" in our consolidated statement of operations.

In the third quarter of 2018, we initiated a global strategic plan to better align our operations with ~~current~~ market ~~conditions and finalized this plan during the second quarter~~conditions. We incurred restructuring charges consisting primarily of ~~2019. As a result~~consulting fees of ~~this plan,~~approximately $2.4 million during the three ~~and nine~~ months ended September 30, 2019, we incurred restructuring and other charges of approximately $0.5 million and $4.0 million, respectively. All of these charges primarily relate to employee termination benefits and consulting fees.March 31, 2019.

On February 26, 2019, the Board of Directors authorized a share repurchase plan under which the Company can repurchase up to $100 million of its common stock. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled. For the three months ended ~~September 30, 2019,~~March 31, 2020, the Company purchased ~~75,737~~808,389 shares under the share repurchase plan at an average price of approximately ~~$44.45~~30.91 per share totaling approximately ~~$3.4~~$25.0 million and has retired such shares.

For the ~~nine months~~three-month period ended ~~September 30,~~March 31, 2019, the Company purchased ~~125,888~~28,078 shares under the share repurchase plan at an average price of approximately ~~$42.60~~$39.74 per share totaling approximately ~~$5.4~~$1.1 million and has retired such shares. ~~The Company continues to evaluate current market conditions on an on-going basis as it relates to executing its share buyback program.~~

Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed considering the dilutive effect of stock awards using the treasury stock method.

In each relevant period, the net income used in the basic and dilutive earnings per share calculations is the same. The following table reconciles the weighted average basic number of common shares outstanding and the weighted average diluted number of common shares outstanding for the purpose of calculating basic and diluted earnings per share:

	Three months ended				Nine months ended				Three months ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
	(In thousands)								(In thousands)
Weighted average common shares outstanding - basic		35,559		37,119		35,827		37,349		35,695		35,559
Dilutive effect of common stock awards		-		-		-		-		-		-
Weighted average common shares outstanding – diluted		35,559		37,119		35,827		37,349		35,695		35,559

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company has excluded the following common stock options and awards because their impact on the income/(loss) per share is anti-dilutive (in thousands on a weighted average basis):

	Three months ended				Nine months ended				Three months ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
	(In thousands)								(In thousands)
Director stock awards		39		11		37		9		40		4
Stock options		170		181		200		196		132		-
Performance share units		298		126		298		90		277		92
Restricted stock awards		332		172		343		125		336		44

~~Reclassifications~~. As a result of our global business transformation, certain prior period amounts have been reclassified to conform to the current period presentation as it related to product engineering and quality assurance cost. We reclassified approximately $4.8 million and $15.0 million of engineering cost from our engineering and product development cost and approximately $0.7 million and $2.3 million of quality assurance cost from selling, general and administrative to product cost of sales during the three and nine months ended September 30, 2018, respectively. These reclassifications did not have an impact on our Condensed Consolidated Statements of Income (Loss), Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Comprehensive Income (Loss), Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows. Engineering costs were approximately $3.9 million and $12.2 million for the three and nine months ended September 30, 2019. Quality assurance costs were approximately $0.7 million and $2.3 million for the three and nine months ended September 30, 2019, respectively.

During the three months ended September 30, 2019, the Company identified errors related to a product contract in which the performance obligation was satisfied in the three months ended June 30, 2019 and product costs of sales were incorrectly eliminated at June 30, 2019. The Company recorded in the three months ended September 30, 2019 out-of-period adjustments, which increased product revenue by $3.4 million and decreased net income (loss) by $1.5 million. Management determined the errors were not material to the previously issued condensed consolidated interim financial statements as of and for the three and six months ended June 30, 2019. In addition, the correction of the errors in the three months ended September 30, 2019 is not material on either a quantitative basis or a qualitative basis.

In ~~February 2016,~~March 2020, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU 2016-02 “Leases~~Accounting Standards Update (ASU) 2020-04 “Reference Rate Reform (Topic ~~842)~~848).”. The new standard requires lessees to recognize lease assets (right of use) and lease obligations (lease liability) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in excess of 12 months. The standard Topic 848 is effective for fiscal years and interim periods beginning ~~after~~as of March 12, 2020 through December ~~15, 2018, including interim periods within those fiscal years. Please see Note 9, “Leases”,~~31, 2022. This update provides optional guidance for a ~~discussion~~limited period of time to ease the ~~impact related to the adoption of this standard.~~

~~In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Financial Instruments – Credit Losses (Topic 326)”. The new standard clarifies certain aspects of~~potential burden in accounting for ~~credit losses,~~reference rate reform on financial reporting. It is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging ~~activities,~~relationships, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The standard is effective for fiscal periods beginning after December 15, 2019, including interim periods within those fiscal years.other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We are currently in the process of assessing the impact of this ~~guidance.~~guidance on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740).” Topic 740 is effective for fiscal years and interim periods beginning after December 15, 2020. This update simplifies the accounting for income taxes by removing certain exceptions such as the exception to the incremental approach for intraperiod tax allocation, the exception to the requirement to recognize a deferred tax liability for equity method investments, the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary and the exception to the general methodology for calculating income taxes in an interim period. We are currently in the process of assessing the impact of this guidance on our financial position, results of operations or cash flows.

Revenues from contracts with customers (excludes leasing) consisted of the following:

	Three months ended								Three months ended
	September 30, 2019								March 31, 2020
	Western Hemisphere		Eastern Hemisphere		Asia- Pacific		Total		Western Hemisphere		Eastern Hemisphere		Asia- Pacific		Total
	(In thousands)								(In thousands)
Product Revenues	$	42,561	$	23,656	$	15,634	$	81,851	$	41,472	$	18,179	$	7,907	$	67,558
Service Revenues		11,057		4,654		2,173		17,884		10,956		4,338		3,520		18,814
Total	$	53,618	$	28,310	$	17,807	$	99,735	$	52,428	$	22,517	$	11,427	$	86,372

									Three months ended
									March 31, 2019
									Western Hemisphere		Eastern Hemisphere		Asia- Pacific		Total
									(In thousands)
Product Revenues									$	36,376	$	18,618	$	10,440	$	65,434
Service Revenues										9,845		5,005		3,626		18,476
Total									$	46,221	$	23,623	$	14,066	$	83,910

Contract Liabilities at December 31, 2018	$	9,648
Contract Liabilities at December 31, 2019				$	6,901
Additions		305,985			2,988
Revenue Recognized		(307,660	)		(3,458	)
Contract Liabilities at September 30, 2019	$	7,973
Contract Liabilities at March 31, 2020				$	6,431

~~Contract assets receivables, which are included in trade receivables, net, were $121.1 million and $83.2 million at September 30, 2019 and December 31, 2018, respectively.~~ Contract assets include unbilled accounts receivable associated with contracts accounted for under the over time accounting method which ~~are included in trade receivables, net, in our accompanying condensed consolidated balance sheets and which~~ were approximately ~~$76.1~~$87.4 million and ~~$57.0~~$83.2 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Unbilled contract assets are transferred to the trade receivables, net, when the ~~rights become unconditional.~~billing milestones are met. The contract liabilities primarily relate to advance payments from ~~customers and are included in customer prepayments in our accompanying condensed consolidated balance sheets.~~customers.

Obligations for returns and refunds were considered immaterial as of ~~September 30, 2019.~~March 31, 2020.

The aggregate amount of the transaction price allocated to remaining performance obligations from our ~~reconditioning services and~~ over time product lines was ~~$110.7~~$116.5 million as of ~~September 30, 2019.~~March 31, 2020. The Company expects to recognize revenue on approximately ~~48.4% and 100.0%~~73.9% of the remaining performance obligations over the next 12 months and ~~24 months, respectively.~~the remaining 26.1% thereafter.

The Company applies the practical expedient available under the revenue standard and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the Company recognized approximately ~~$7.7~~$3.2 million ~~and $15.7 million, respectively,~~ of stock-based compensation expense, which includes approximately $1.8 million related to accelerated vesting of restricted stock awards and approximately $2.4 million related to continued vesting of performance share units pursuant to a separation agreement with our former Chief Operating Officer entered into during the first quarter of 2019. We recognized an additional $4.3 million stock-based compensation expense for the three months ended September 30, 2019 related to the 2016 performance share unit awards, which exceeded performance metrics criteria for a 200% payout. The stock-basedexpense. Stock-based compensation is included in "Selling, general and administrative" in our accompanying condensed consolidated statements of income (loss) and "Additional paid-in capital" in our accompanying condensed consolidated balance ~~sheets, compared~~sheets. Stock-based compensation expense was $4.9 million which included approximately $1.8 million related to ~~$2.4 million and $10.0 million~~accelerated vesting of restricted stock awards of our former Chief Operating Officer recognized for the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019. NaN stock-based compensation expense was capitalized during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 or ~~2018.~~2019.

	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
	(In thousands)						(In thousands)
Raw materials and supplies	$	44,159		$	55,878		$	41,137		$	46,282
Work in progress		54,815			51,251			51,897			54,171
Finished goods		183,448			192,632			186,897			175,629
		282,422			299,761			279,931			276,082
Less: allowance for excess and slow moving inventory		(80,767	)		(108,567	)
Less: allowance for slow moving and excess inventory								(82,896	)		(71,020	)
Total inventory	$	201,655		$	191,194		$	197,035		$	205,062

As a result of unfavorable market conditions primarily due to the COVID-19 pandemic and developments in the global oil markets, which triggered historically low crude oil prices and decreases in our customers’ capital budgets, we announced a cost reduction plan primarily focused on workforce reductions and the reorganization of certain facilities in the first quarter of 2020. We incurred restructuring and other charges associated with the cost reduction plan of $32.7 million during the three months ended March 31, 2020. We expect to incur cost through out the year under this plan. Of these charges, inventory write-downs, severance charges, long-lived assets write-downs and other charges were $17.3 million, $8.4 million, $6.9 million and $0.1 million respectively, during the three months ended March 31, 2020. These charges are reflected as "Restructuring and other charges" in our consolidated statement of operations. During the three months ended March 31, 2019, we incurred restructuring and other charges of approximately $2.4 million related to consulting fees, and an approximate $1.1 million payout to our former Chief Operating Officer, pursuant to a separation agreement entered into with him during the first quarter of 2019.

The following table summarizes the components of charges included in "Restructuring and other charges" in our consolidated statement of operations for the three months ended March 31, 2020 (in thousands):

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges for the three months ended March 31, 2020 (in thousands):

In connection with our preparation and review of financial statements for the three months ended March 31, 2020, we recorded an impairment loss of $7.7 million for the first quarter of 2020 as a result of our updated assessment of current market conditions and restructuring efforts. These charges are reflected as "Impairments" in our consolidated statement of operations. NaN goodwill impairment losses were recorded for the three months ended March 31, 2019.

		September 30, 2019											March 31, 2020
	Estimated Useful Lives	Gross Book Value		Accumulated Amortization			Foreign Currency Translation			Net Book Value		Estimated Useful Lives	Gross Book Value		Accumulated Amortization			Foreign Currency Translation			Net Book Value
		(In thousands)											(In thousands)
Trademarks	15 years	$	8,159	$	-		$	1		$	8,160	15 years	$	8,206	$	(638	)	$	(49	)	$	7,519
Patents	15 - 30 years		5,945		(2,267	)		(2	)		3,676	15 - 30 years		5,951		(2,371	)		111			3,691
Customer relationships	5 - 15 years		25,787		(4,606	)		(96	)		21,085	5 - 15 years		25,939		(5,833	)		(281	)		19,825
Non-compete agreements	3 years		171		(156	)		-			15	3 years		171		(171	)		-			-
Organizational costs	indefinite		172		-			(7	)		165	indefinite		179		-			(10	)		169
		$	40,234	$	(7,029	)	$	(104	)	$	33,101		$	40,446	$	(9,013	)	$	(229	)	$	31,204

		December 31, 2018											December 31, 2019
	Estimated Useful Lives	Gross Book Value		Accumulated Amortization			Foreign Currency Translation			Net Book Value		Estimated Useful Lives	Gross Book Value		Accumulated Amortization			Foreign Currency Translation		Net Book Value
		(In thousands)											(In thousands)
Trademarks	15 years	$	8,236		-		$	(72	)	$	8,164	15 years	$	8,159		(512	)	$	47	$	7,694
Patents	15 - 30 years		6,026		(1,925	)		(11	)		4,090	15 - 30 years		5,945		(2,529	)		-		3,416
Customer relationships	5 - 15 years		25,703		(2,953	)		(260	)		22,490	5 - 15 years		25,787		(4,954	)		122		20,955
Non-compete agreements	3 years		171		(113	)		-			58	3 years		171		(170	)		-		1
Organizational costs	indefinite		172		-			-			172	indefinite		172		-			7		179
		$	40,308	$	(4,991	)	$	(343	)	$	34,974		$	40,234	$	(8,165	)	$	176	$	32,245

Effective January 1, 2019, we adopted ASU 2016-02, “Leases” (Topic 842), and elected the package of practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. The impact of the adoption of ASC 842, as of January 1, 2019, was approximately $5.5 million to our assets, approximately $1.6 million to our current liability and approximately $3.9 million to our long-term liability.

Under the transition method selected by the Company, leases expiring at, or entered into after, January 1, 2019 were required to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with the Company's historical accounting under ASC 840. The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities as of January 1, 2019, with no related impact on the Company’s Consolidated Statement~~of Stockholders’ Equity or Consolidated Statement of Income (Loss). Short-term leases have not been recorded on the balance sheet.~~

We lease facilities related to sales and service, manufacturing, reconditioning, certain office spaces, apartments and warehouse, all of which we classify as operating leases. In addition, we also lease certain office equipment and vehicles, which we classify as financing leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; short-term lease expense for the three and nine months ended September 30, 2019 was approximately $0.5 million and $1.6 million, respectively.

Most leases include one or more options to renew, with renewal terms that can extend the lease term on a monthly, annual or longer basis. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements~~is limited by the expected lease term, unless there is a transfer of title or purchase option that is reasonably certain of being exercised.~~

~~Certain lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.~~

~~As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is based on our rate for the ABL Credit Facility (as defined herein).~~

~~Our lease cost for the three and nine months ended September 30, 2019 is as follows:~~

~~The five year and beyond maturity of our lease obligations is presented below:~~

~~The lease term and discount rate for our operating and finance leases is as follows:~~

~~We had no material non-cash financing leases entered into during the three months ended September 30, 2019.~~

The Company leases certain offices, shop and warehouse facilities, automobiles and equipment. Future annual minimum lease commitments at December 31, 2018 are as follows: 2019 - $2.0 million; 2020 - $1.5 million; 2021 - $0.8 million; 2022 - $0.5 million; 2023 - $0.4 million; and thereafter - $4.2 million.

On February 23, 2018, the Company, as borrower, and the Company’s subsidiaries TIW and Honing, Inc., as guarantors, entered into a five -year senior secured revolving credit facility (the “ABL Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and other financial institutions as lenders with total commitments of $100.0 million, including up to $10.0 million available for letters of credit. The maximum amount that the Company may borrow under the ABL Credit Facility is subject to the borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments.

All obligations under the ABL Credit Facility are fully and unconditionally guaranteed jointly and severally by the Company, TIW, Honing, Inc., and future significant domestic subsidiaries, subject to customary exceptions. Borrowings under the ABL Credit Facility are secured by liens on substantially all of the Company’s personal property, and bear interest at the Company’s option at either (i) the CB Floating Rate (as defined therein), calculated as the rate of interest publicly announced by JPMorgan Chase Bank, N.A., as its “prime rate,” subject to each increase or decrease in such prime rate effective as of the date such change occurs, with such CB Floating Rate not being less than Adjusted One Month LIBOR (as defined therein) or (ii) the Adjusted LIBOR (as defined therein), plus, in each case, an applicable margin. The applicable margin ranges from 1.00% to 1.50% per annum for CBFR loans and 2.00% to 2.50% per annum for Eurodollar loans and, in each case, is based on the Company’s leverage ratio. The unused portion of the ABL Credit Facility is subject to a commitment fee that varies from 0.250% to 0.375% per annum, according to average unused commitments under the ABL Credit Facility. Interest on Eurodollar loans is payable at the end of the selected interest period, but no less frequently than quarterly. Interest on CB Floating Rate loans is payable monthly in arrears.

The ABL Credit Facility contains various covenants and restrictive provisions that limit the Company’s ability to, among other things, (1) enter into asset sales; (2) incur additional indebtedness; (3) make investments or loans and create liens; (4) pay certain

dividends or make other distributions; and (5) engage in transactions with affiliates. The ABL Credit Facility also requires the Company to maintain a fixed charge coverage ratio of ~~1.0~~1.1 to 1.0, based on the ratio of EBITDA (as defined therein) to Fixed Charges (as defined therein) during certain periods, including when availability under the ABL Credit Facility is under certain levels. If the Company fails to perform its obligations under the agreement that results in an event of default, the commitments under the ABL Credit Facility could be terminated and any outstanding borrowings under the ABL Credit Facility may be declared immediately due and payable. The ABL Credit Facility also contains cross default provisions that apply to the Company’s other indebtedness. The Company is in compliance with the related covenants as of ~~September 30, 2019.~~March 31, 2020.

	Three months ended March 31,
	Western Hemisphere				Eastern Hemisphere					Asia-Pacific				DQ Corporate						Total
	2020		2019		2020			2019		2020		2019		2020			2019			2020			2019
	(In thousands)
Revenues
Products
Point in Time	$	22,964	$	23,767	$	8,962		$	14,118	$	5,447	$	10,440	$	-		$	-		$	37,373		$	48,325
Over Time		18,508		12,609		9,217			4,500		2,460		-		-			-			30,185			17,109
Total Products		41,472		36,376		18,179			18,618		7,907		10,440		-			-			67,558			65,434
Services
Technical Advisory		7,396		7,022		3,496			4,082		3,289		3,195		-			-			14,181			14,299
Reconditioning		3,560		2,823		842			923		231		431		-			-			4,633			4,177
Total Services (excluding rental tools)		10,956		9,845		4,338			5,005		3,520		3,626		-			-			18,814			18,476
Leasing		4,761		6,321		2,748			2,647		2,117		1,439		-			-			9,626			10,407
Total Services (including rental tools)		15,717		16,166		7,086			7,652		5,637		5,065		-			-			28,440			28,883
Intercompany		3,314		4,091		331			144		2,256		740					-			5,901			4,975
Eliminations		-		-		-			-		-		-		(5,901	)		(4,975	)		(5,901	)		(4,975	)
Total Revenues	$	60,503	$	56,633	$	25,596		$	26,414	$	15,800	$	16,245	$	(5,901	)	$	(4,975	)	$	95,998		$	94,317
Depreciation and amortization	$	5,622	$	5,419	$	974		$	1,053	$	1,340	$	1,198	$	937		$	686		$	8,873		$	8,356
Income (loss) before income taxes	$	8,153	$	1,579	$	(28,321	)	$	6,581	$	1,569	$	5,196	$	(22,708	)	$	(17,074	)	$	(41,307	)	$	(3,718	)

During the three months ended March 31, 2020, we recorded impairments, restructuring and other charges of $40.4 million. Of these charges, $32.1 million were recorded in the Eastern Hemisphere, $1.9 million in the Western Hemisphere and $6.2 million in DQ Corporate and $0.2 million in Asia-Pacific.

During the three months ended March 31, 2020, we wrote-down some of our inventory and long-lived assets balances in the amount of $24.2 million, of which $22.3 million was recorded in the Eastern Hemisphere and $1.9 million in the Western Hemisphere. We also recorded a $7.7 million impairment of our Goodwill balance all of which was in the Eastern Hemisphere.

Three months ended September 30,

Western Hemisphere

Eastern Hemisphere

Asia-Pacific

DQ Corporate

Total

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands)

Revenues

Products

Standard Products

$
30,135

$
34,101

$
18,514

$
12,918

$
10,890

$
1,587

$
-

$
-

$
59,539

$
48,606

Percentage of Completion

12,425

9,724

5,143

4,916

4,744

-

-

-

22,312

14,640

Total Products

42,560

43,825

23,657

17,834

15,634

1,587

-

-

81,851

63,246

Services

Technical Advisory

8,165

7,305

3,301

3,612

2,050

2,889

-

-

13,516

13,806

Reconditioning

2,892

2,864

1,353

752

123

119

-

-

4,368

3,735

Total Services
(excluding rental tools)

11,057

10,169

4,654

4,364

2,173

3,008

-

-

17,884

17,541

Leasing

4,658

5,899

2,719

3,115

1,115

3,456

-

-

8,492

12,470

Total Services
(including rental tools)

15,715

16,068

7,373

7,479

3,288

6,464

-

-

26,376

30,011

Intercompany

2,572

2,564

72

1,302

2,458

573

-

5,102

4,439

Eliminations

-

-

-

-

-

-

(5,102
)

(4,439
)

(5,102
)

(4,439
)
Total Revenues

$
60,847

$
62,457

$
31,102

$
26,615

$
21,380

$
8,624

$
(5,102
)

$
(4,439
)

$
108,227

$
93,257

Depreciation and amortization

$
5,327

$
5,607

$
970

$
1,057

$
1,240

$
1,390

$
767

$
670

$
8,304

$
8,724

Income (loss) before income taxes

$
3,882

$
13,902

$
11,627

$
8,133

$
6,051

$
(301
)

$
(19,458
)

$
(34,120
)

$
2,102

$
(12,386
)

Nine months ended September 30,

Western Hemisphere

Eastern Hemisphere

Asia-Pacific

DQ Corporate

Total

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands)

Revenues

Products

Standard Products

$
81,120

$
110,074

$
50,458

$
35,556

$
31,846

$
13,031

$
-

$
-

$
163,424

$
158,661

Percentage of Completion

36,700

20,185

16,357

16,682

8,037

3,482

-

-

61,094

40,349

Total Products

117,820

130,259

66,815

52,238

39,883

16,513

-

-

224,518

199,010

Services

Technical Advisory

22,118

20,835

11,428

12,785

7,331

7,021

-

-

40,877

40,641

Reconditioning

7,945

8,338

3,100

2,700

1,014

1,324

-

-

12,059

12,362

Total Services
(excluding rental tools)

30,063

29,173

14,528

15,485

8,345

8,345

-

-

52,936

53,003

Leasing

15,942

18,162

8,804

10,837

4,153

6,279

-

-

28,899

35,278

Total Services
(including rental tools)

46,005

47,335

23,332

26,322

12,498

14,624

-

-

81,835

88,281

Intercompany

9,185

9,685

418

1,835

4,237

1,300

-

-

13,840

12,820

Eliminations

-

-

-

-

-

-

(13,840
)

(12,820
)

(13,840
)

(12,820
)
Total

$
173,010

$
187,279

$
90,565

$
80,395

$
56,618

$
32,437

$
(13,840
)

$
(12,820
)

$
306,353

$
287,291

Depreciation and amortization

$
16,183

$
17,091

$
3,198

$
3,402

$
3,637

$
3,521

$
2,137

$
1,952

$
25,155

$
25,966

Income (loss) before income taxes

$
12,291

$
12,999

$
25,529

$
13,792

$
17,951

$
(45
)

$
(52,586
)

$
(45,238
)

$
3,185

$
(18,492
)

The Company’s operations are organized into 3 geographic segments - Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services and the Company has major manufacturing facilities in all 3 of its regional headquarter locations as well as in Macae, Brazil.

Eliminations of operating profits are related to intercompany inventory transfers that are deferred until shipment is made to third party customers.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and includes favorable changes to tax law and incentives for businesses impacted by COVID-19. The CARES Act includes provisions relating to net operating loss carryback periods which have discretely impacted and increased the effective tax rate by 79.8% in the current period.

The effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was ~~162.3% and 278.3%~~52.3%, ~~respectively,~~ compared to ~~16.4% and (12.4)~~(62.7)% for the same ~~periods~~period in ~~2018.~~2019. The change in the effective tax rate between the periods was primarily a result of ~~increased~~discretely recognized tax benefits of net operating losses, impairment losses, changes in valuation allowances in the United States and in various foreign countries and a mix of earnings in jurisdictions with differing tax rates.

From 2002 to 2007, the Company’s Brazilian subsidiary imported goods through, and paid taxes on such imports to, the State of Espirito Santo in Brazil. Upon the final sale of these goods, the Company’s Brazilian subsidiary collected taxes from customers and remitted them to the State of Rio de Janeiro net of the taxes paid on importation of those goods to the State of Espirito Santo in accordance with the Company’s understanding of Brazilian tax laws.

In December 2010 and January 2011, the Company’s Brazilian subsidiary was served with 2 assessments totaling approximately $13.0 million from the State of Rio de Janeiro to cancel the credits associated with the tax payments to the State of Espirito Santo on the importation of goods from July 2005 to October 2007. The Company objected to these assessments on the grounds that they would represent double taxation on the importation of the same goods and that the Company is entitled to the credits under applicable Brazilian law. The Company’s Brazilian subsidiary filed appeals with a State of Rio de Janeiro judicial court to annul both of these tax assessments and deposited with the court approximately $8.8 million in December 2014 and December 2016 as the full amount of the assessments with penalties and interest. The Company believes that these credits are valid and that success in the judicial court process is probable. Based upon this analysis, the Company has not accrued any liability in conjunction with this matter.

The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and dependency on the condition of the oil and gas industry. Additionally, certain of the Company’s products are used in potentially hazardous drilling, completion, and production applications that can cause personal injury, property damage and environmental claims. Although exposure to such risk has not resulted in any significant problems in the past, there can be no assurance that ongoing and future developments will not adversely impact the Company.

The Company is also involved in a number of legal actions arising in the ordinary course of business. Although no assurance can be given with respect to the ultimate outcome of such legal action, in the opinion of management, the ultimate liability with respect thereto will not have a material adverse effect on the Company’s results of operations, financial position or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that have affected aspects of the Company’s financial position, results of operations, comprehensive income (loss) and cash flows during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto presented elsewhere herein as well as the discussion under Part II – Item 1A, “Risk Factors,” included herein and “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The pandemic has also caused disruption to our suppliers and their sub-contractors. Our suppliers and their sub-contractors’ operations were disrupted by worker absenteeism, quarantine, travel and health-related restrictions as a result of COVID-19. In addition to this, increased costs associated with ensuring the safety and health of their personnel were incurred. Consequently, our supply chain was disrupted, our product shipments were delayed, and our productivity suffered.

In response to the COVID-19 pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers globally. We enacted rigorous safety measures in all of our sites, including implementing social distancing protocols, requiring remote work arrangements where possible, staggering shifts, suspending travel, extensively and frequently disinfecting our workspaces and providing masks to those employees who must be physically present at work. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained. We may take further safety precautions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.

All our facilities currently remain operational with staggered shifts which has reduced productivity. We expect the constraints and limits imposed on our operations to slow or diminish our research and development activities and qualification activities with our customers. We do not believe that remote work arrangements have adversely affected our ability to maintain financial reporting systems, internal control over financial reporting and disclosure controls and procedures.

COVID-19 and the developments in the global oil markets have negatively impacted the Company’s results during the first quarter as there were supply chain disruptions, staggered shifts, delivery extensions requested by customers and governmental quarantine requirements. The extent to which our future results are affected by these externalities will depend on various factors and circumstances beyond our control, such as the duration and scope of the pandemic, additional actions by businesses and governments in response to the pandemic, the speed and effectiveness of containing the virus and developments in the global oil markets. In addition to this, COVID-19 and the volatile regional and global economic conditions could also aggravate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including leading to further material impairment charges.

The market for drilling and production equipment and services and the Company’s business are substantially dependent on the condition of the oil and gas industry and, in particular, the willingness of oil and gas companies to make capital expenditures on exploration, drilling and production operations. Oil and gas prices and the level of drilling and production activity have historically been characterized by significant volatility.

According to the Energy Information Administration (EIA) of the U.S. Department of Energy, Brent Crude oil prices per barrel are listed below for the periods covered by this report:

	Three months ended				Nine months ended				Three months ended
	September 30,				September 30,				March 31,
Brent Crude Oil Price per Barrel	2019		2018		2019		2018		2020		2019
Low	$	55.03	$	68.38	$	53.23	$	61.94	$	14.85	$	53.23
High		68.42		82.72		74.94		82.72		70.25		68.35
Average		61.95		75.07		64.65		72.17		50.27		63.10
Closing		60.99		82.72		60.99		82.72		14.85		67.93

According to the ~~October 2019~~April 2020 release of the Short-Term Energy Outlook published by the EIA, Brent Crude oil prices are projected to average approximately ~~$63~~$33 per barrel in ~~2019~~2020 and ~~$60~~$46 per barrel in ~~2020,~~2021, compared with an average of ~~$71~~$64 per barrel in ~~2018.~~2019. In its ~~September 2019~~April 2020 Oil Market Report, the International Energy Agency projected the ~~2019~~2020 global oil demand will ~~grow to 100.3~~decrease 9.3 million barrels per day compared to 2019. This decrease in demand coupled with an overabundance of supply due to the production disputes between the OPEC and non-OPEC nations has resulted in the Brent Crude Oil price per barrel to decrease to $20.40 as of May 4, 2020.

Lower crude oil and natural gas prices have resulted in a ~~1.1 million barrels per day increase over 2018.~~trend of customers seeking to renegotiate contract terms with the Company, including reductions in the prices of its products and services, extensions of delivery terms and, in some instances, contract revisions. In some cases, a customer may already hold an inventory of the Company’s equipment, which may delay the placement of new orders. In addition, some of the Company’s customers could experience liquidity or solvency issues or could otherwise be unable or unwilling to perform under a contract, which could ultimately lead a customer to enter bankruptcy or otherwise encourage a customer to seek to repudiate, cancel or renegotiate a contract. An extended period of reduced crude oil and natural gas prices may accelerate these trends. If the Company experiences significant contract terminations, suspensions or scope adjustments to its contracts, then its financial condition, results of operations and cash flows may be adversely impacted.

Detailed below is the average contracted offshore rig count (rigs currently drilling as well as rigs committed, but not yet drilling) for the Company’s geographic regions for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018.~~. The rig count data includes floating rigs (semi-submersibles and drillships) and jack-up rigs. The Company has included only these types of rigs as they are the primary assets used to deploy the Company’s products.

	Nine months ended September 30,								Three months ended March 31,
	2019				2018				2020				2019
	Floating Rigs		Jack-up Rigs		Floating Rigs		Jack-up Rigs		Floating Rigs		Jack-up Rigs		Floating Rigs		Jack-up Rigs
Western Hemisphere		51		44		58		38		57		48		51		38
Eastern Hemisphere		64		73		58		63		56		76		62		71
Asia-Pacific		39		248		33		226		42		268		40		242
Total		154		365		149		327		155		392		153		351

According to IHS-Petrodata RigBase, as of March 31, 2020, there were 536 contracted rigs for the Company’s geographic regions (152 floating rigs and 384 jack-up rigs), which represents a 6.3% increase from the rig count of 504 rigs (153 floating rigs and 351 jack-up rigs) as of March 31, 2019. However, since March 31, 2020 the industry has seen an increase in contract cancellations, and we expect this trend to continue due to the current market conditions as evidenced by the contracted rig count as of May 5, 2020 which has decreased to 526 (147 floating rigs and 379 jack-up rigs).

According to IHS-Petrodata RigBase, as of September 30, 2019, there were 538 contracted rigs for the Company’s geographic regions (158 floating rigs and 380 jack-up rigs), which represents an 11.2% increase from the rig count of 484 rigs (147 floating rigs and 337 jack-up rigs) as of September 30, 2018.

The Company believes that the number of rigs (semi-submersibles, drillships and jack-up rigs) under construction impacts its backlog and resulting revenues because in certain cases, its customers order some of the Company’s products during the construction of such rigs. As a result, an increase in rig construction activity tends to favorably impact the Company’s backlog while a decrease in rig construction activity tends to negatively impact the Company’s backlog. According to IHS-Petrodata RigBase, as of ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ there were 8474 and ~~126~~103 rigs, respectively, under construction, which represents an approximate ~~33.3%~~ 28.2%decreasein rigs under construction. The expected delivery dates for the rigs under construction at ~~September 30, 2019~~March 31, 2020 are as follows:

	Floating		Jack-Up				Floating		Jack-Up
	Rigs		Rigs		Total		Rigs		Rigs		Total
2019		4		17		21
2020		13		32		45		11		26		37
2021		8		6		14		13		17		30
2022		2		2		4		2		5		7
After 2022 or unspecified delivery date		-		-		-
2023								-		-		-
After 2023 or unspecified delivery date								-		-		-
Total		27		57		84		26		48		74

However, given the ~~slow recovery of~~developments in the current global oil ~~and gas prices~~markets and oversupply of offshore drilling rigs, the Company believes it is possible that delivery of some rigs under construction could be postponed or cancelled, limiting the opportunity for supply of the Company’s products.

The demand for the Company’s products and services is also affected by laws and regulations relating to the oil and gas industry in general, including those specifically directed to offshore operations. The adoption of new laws and regulations, or changes to existing laws or regulations that curtail exploration and development drilling for oil and gas for economic or other policy reasons, could adversely affect the Company’s operations by limiting demand for its products.

In March 2018, the President of the United States issued a proclamation imposing a 25 percent global tariff on imports of certain steel products, effective March 23, 2018. The President subsequently proposed an additional 25 percent tariff on approximately $50 billion worth of imports from China, and the government of China responded with a proposal of an additional 25 percent tariff on U.S. goods with a value of $50 billion. The initial U.S. tariffs were implemented on July 6, 2018, covering $34 billion worth of Chinese goods, with another $16 billion of goods facing tariffs beginning on August 23, 2018.

In September 2018, the President directed the U.S. Trade Representative (USTR) to place additional tariffs on approximately $200 billion worth of additional imports from China. These tariffs, which took effect on September 24, 2018, were initially set at a level of 10 percent until the end of the year, at which point the tariffs were to rise to 25 percent. However, on December 19, 2018, USTR postponed the date on which the rate of the additional duties would increase to 25 percent until March 2, 2019. On May 9, 2019, USTR announced that the United States increased the level of tariffs from 10 percent to 25 percent on approximately $200 billion worth of Chinese imports. The President also ordered USTR to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion. On August 13, 2019 and August 23, 2019, USTR announced the imposition of an additional tariff of 15 percent on approximately $300 billion worth of Chinese imports, effective September 1, 2019 (or December 15, 2019 for certain articles). The President also instructed USTR to begin the process of increasing the 25 percent tariff on approximately $250 billion worth of Chinese imports to 30 percent.Following the conclusion of a phase one trade deal with China, USTR suspended the implementation of the 15 percent additional duty on approximately $160 billion worth of Chinese imports and reduced the applicable duty from 15 percent to 7.5 percent for $120 billion worth of Chinese imports. Negotiations for a phase two trade deal with China had begun prior to the outbreak of the global COVID-19 pandemic and if continued could lead to additional changes to the tariff rates described above.

In November 2018, the United States, Mexico and Canada signed the United States-Mexico-Canada Agreement (USMCA), the successor agreement to the North American Free Trade Agreement (NAFTA)~~, which~~. The three countries have all ratified the new agreement, but the USMCA still requires ~~ratification by~~each country to meet certain additional obligations before the ~~respective governments~~agreement can enter into force.

The imposition of ~~all three signatories before going into effect. The President has indicated that he may withdraw the United States from NAFTA to encourage the U.S. Congress to vote on ratification of the USMCA.~~

~~If the President imposes additional tariffs on China or withdraws from or replaces NAFTA, or if~~ any additional tariffs or initiation of trade restrictions ~~are initiated~~ by or against the United States ~~such action~~or the failure by Canada to ratify the USMCA could cause our cost of raw materials to increase or affect the markets for our products. However, given the uncertainty regarding the scope and duration of these trade actions by the United States and other countries, their ultimate impact on our business and operations remains uncertain.

Oil and gas prices and the level of drilling and production activity have been characterized by significant volatility in recent years. Worldwide military, political, economic and other events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future. Lower crude oil and natural gas prices have resulted in a trend of customers seeking to renegotiate contract terms with the Company, including reductions in the prices of its products and services, extensions of delivery terms and, in some instances, contract cancellations or revisions. In some cases, a customer may already hold an inventory of the Company’s equipment, which may delay the placement of new orders. In addition, some of the Company’s customers could experience liquidity or solvency issues or could otherwise be unable or unwilling to perform under a contract, which could ultimately lead a customer to enter bankruptcy or otherwise encourage a customer to seek to repudiate, cancel or renegotiate a contract. An extended period of reduced crude oil and natural gas prices may accelerate these trends. If the Company experiences significant contract terminations, suspensions or scope adjustments to its contracts, then its financial condition, results of operations and cash flows may be adversely impacted.

The Company expects continued pressure in both crude oil and natural gas prices, as well as in the level of drilling and production related activities. Even during periods of high prices for oil and natural gas, companies exploring for oil and gas may cancel or curtail programs, seek to renegotiate contract terms, including the price of products and services, or reduce their levels of capital expenditures for exploration and production for a variety of reasons. Although lower drilling and production activity had a negative impact on the Company’s results during the first nine months of 2019, some customers have continued replenishing their inventory as broader demand has begun to increase and as they consume their existing inventories. A prolonged delay in the recovery of commodity prices could also lead to further material impairment charges to tangible or intangible assets or otherwise result in a material adverse effect on the Company's results of operations.

The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and investments in foreign countries. These risks include nationalization, expropriation, war, acts of terrorism and civil disturbance, restrictive action by local governments, limitation on repatriation of earnings, change in foreign taxation, including changes in laws or differing interpretations of existing laws, and change in currency exchange rates, any of which could have an adverse effect on either the Company’s ability to manufacture its products in its facilities abroad or the demand in certain regions for the Company’s products or both. To date, the Company has not experienced any significant problems in foreign countries arising from local government actions or political instability, but there is no assurance that such problems will not arise in the future. Interruption of the Company’s international operations could have a material adverse effect on its overall operations.

The Company believes that its backlog should help mitigate the impact of negative market conditions; however, slow recovery in ~~the~~ commodity prices or an extended downturn in the global economy or future restrictions on, or declines in, oil and gas exploration and production could have a negative impact on the Company and its backlog. The Company’s product backlog at ~~September 30, 2019~~March 31, 2020 was approximately ~~$250.7~~$261.1 million, compared to approximately ~~$322.2~~$272.5 million at ~~June 30,~~December 31, 2019, and $303.7 million at March 31, ~~2019 and $270.0 million at December 31, 2018.~~2019.

The following table represents the change in backlog for the three months ended ~~September 30, 2019, June 30, 2019,~~ March 31, 2020, December 31, 2019, and ~~December~~March 31, ~~2018:~~2019:

	Three months ended												Three months ended
	September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019		March 31, 2019
	(In thousands)												(In thousands)
Beginning Backlog	$	322,196		$	303,703		$	269,968		$	248,976		$	272,537		$	250,673	$	269,968
Bookings:
Product (1) (2)		78,772			88,714			104,350			91,256
Product (1)														60,137			95,589		104,350
Service		17,884			16,575			18,476			19,410			18,814			19,082		18,476
Leasing		8,492			10,000			10,407			11,882			9,626			10,610		10,407
Cancellation/Revision adjustments		(67,832	)		7,058			(5,324	)		(4,127	)		(2,266	)		5,022		(5,324	)
Translation adjustments		(612	)		(46	)		143			(94	)		(1,718	)		15		143
Total Bookings		36,704			122,301			128,052			118,327			84,593			130,318		128,052
Revenues:
Product		81,851			77,233			65,434			66,043			67,558			78,762		65,434
Service		17,884			16,575			18,476			19,410			18,814			19,082		18,476
Leasing		8,492			10,000			10,407			11,882			9,626			10,610		10,407
Total Revenue		108,227			103,808			94,317			97,335			95,998			108,454		94,317
Ending Backlog	$	250,673		$	322,196		$	303,703		$	269,968		$	261,132		$	272,537	$	303,703

During the first quarter of 2018, Dril-Quip Asia-Pacific Pte Ltd. was awarded a contract to supply top-tensioned riser (TTR) systems and related services for the development of the Ca Rong Do Project (CRD Project) located offshore Vietnam operated by Repsol with the participation of Mubadala, PVEP and PetroVietnam for approximately $82 million. The CRD Project was terminated in the third quarter of 2019 and is not included within the backlog balance as of ~~September 30,~~March 31, 2020 and December 31, 2019.

As of ~~September 30, 2018,~~March 31, 2019, the total number of the Company's employees was ~~1,849~~1,850 of which ~~820~~823 were located in the United States. The total number of the Company’s employees as of December 31, ~~2018~~2019 was ~~1,926,~~1,814, of which ~~946~~906 were located in the United States. ~~As a result of natural attrition and reductions in workforce, the~~The total number of employees as of ~~September 30, 2019~~March 31, 2020 was ~~1,744,~~1,831, of which ~~882~~914 were located in the United States.

As of January 31, 2020 (“exit day”), the U.K. has formally left the E.U. Under the terms of the withdrawal agreement, a post-Brexit transition period started on exit day and will end on December 31, 2020 unless extended (the end of the “transition period”). During the transition period all E.U. law, across all policy areas, is still applicable to, and in, the U.K., with the exception of provisions of those treaties and acts that were not binding upon, and in, the U.K. before the withdrawal agreement entered into force. In particular, the U.K. remains in the E.U. Customs Union and in the Single Market with all four freedoms (of movement of goods, capital, persons and services) and all EU policies applying. The ~~June 23, 2016 referendum by British voters~~transition period, however, can be extended "for up to ~~exit the European Union (Brexit), and the uncertainty that has followed, has adversely impacted global markets, including currencies, and resulted~~one or two years" in a ~~decline~~one-off decision made pursuant to the withdrawal agreement by the joint U.K. and E.U. committee before July 1, 2020. However, it is not clear at this time whether or not there will be an extension. Significant change is expected at the end of the transition period, even if a comprehensive future U.K. and E.U. relationship is concluded within the transition period. Further, even if a comprehensive future U.K. and E.U. relationship is concluded, negotiations regarding the future U.K. and E.U. relationship may continue in the future and may be expected to result in continued volatility in the value of the British pound sterling, as compared to the U.S. dollar and other currencies. Volatility in exchange rates could be expected to continue in the short term as the United Kingdom (U.K.) seeks U.K. Parliamentary approval for its terms of exit from the European Union and due to the uncertainty surrounding the date on which the U.K. will exit the European Union. Exchange rate volatility could also be expected due to the risk that the U.K. might exit the European Union without a withdrawal agreement in force.sterling. A weaker British pound sterling compared to the U.S. dollar during a reporting period would cause local currency results of the Company's U.K. operations to be translated into fewer U.S. dollars. In addition, the Company continues to monitor potential changes to trade and customs requirements as a result of Brexit. Continued adverse consequences such as deterioration in economic conditions and volatility in currency exchange rates could have a negative impact on the Company's financial position and results of operations.

In early March 2020, full face-to-face negotiations between the E.U. and the U.K. were suspended after just one round as officials focused on the COVID-19 pandemic sweeping Europe. However, on April 20, 2020, E.U. and U.K. officials resumed Brexit trade talks by videoconference. As of the second quarter of 2020, the post-Brexit process between the E.U. and the U.K. is continuing despite COVID-19 and as noted above, unless an extension is agreed, the transition period will end on December 31, 2020. See “Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our results of operations, financial position or cash flows" under "Item 1A. Risk Factors" in Part I of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

In July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the ABL Credit Facility has a term that extends beyond 2021, and borrowings under the ABL Credit Facility (as defined herein) bear interest at the Company’s option at either (i) the CB Floating Rate (as defined therein), calculated as the rate of interest publicly announced by JPMorgan Chase Bank, N.A., as its “prime rate,” subject to each increase or decrease in such prime rate effective as of the date such change occurs, with such CB Floating Rate not being less than Adjusted One

Month LIBOR (as defined therein) or (ii) the Adjusted LIBOR (as defined therein), plus, in each case, an applicable margin. We have not yet pursued any technical amendment or other contractual alternative to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.

In the third quarter of 2018, we initiated a global strategic plan to better align our operations with market conditions, with a target annualized cost savings of $40 to $50 million. We achieved the lower end of the annualized cost savings target in the third quarter of 2019, during which we captured an additional $14 million in annualized cost savings, resulting in total annualized cost savings of approximately $43 million since inception. The majority of the cost savings achieved during the third quarter was related to the leasing of our forge facilities and equipment to AFGlobal Corporation. We expect these cost savings to continue for the remainder of 2019.

Revenues. Dril-Quip’s revenues are generated from three sources: products, services and leasing. Product revenues are derived from the sale of drilling and production equipment. Service revenues are earned when the Company provides technical advisory assistance and rework and reconditioning services. Leasing revenues are derived from rental tools used during installation and retrieval of the Company’s ~~products.~~ products and from lease of our forging facility. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company derived ~~75.6%~~70.4% and ~~67.8%~~69.4%, respectively, of its revenues from the sale of its products, ~~16.5%~~19.6% and ~~18.8%~~19.6%, respectively, of its revenue from services, and ~~7.9%~~10.0% and 13.4%, respectively, of its revenues from leasing. For the nine months ended September 30, 2019 and 2018, the Company derived 73.3% and 69.3%, respectively, of its revenues from the sale of its products, 17.3% and 18.4%, respectively, of its revenue from services, and 9.4% and 12.3%11.0%, respectively, of its revenues from leasing. Service and leasing revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory assistance services and rental of running tools during installation. The Company has substantial international operations, with approximately ~~64.3%~~63.1% and ~~57.0%~~62.1% of its revenues derived from foreign sales for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The majority of the Company’s domestic revenue relates to operations in the U.S. Gulf of Mexico. Domestic revenue approximated ~~35.7%~~36.9% and ~~43.0%~~37.9% of the Company’s total revenues for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018,~~, respectively.

Product contracts are generally negotiated and sold separately from service contracts. In addition, service contracts are not typically included in the product contracts or related sales orders and are not offered to the customer as a condition of the sale of the Company’s products. The demand for products and services is generally based on worldwide economic conditions in the oil and gas industry and is not based on a specific relationship between the two types of contracts. Substantially all of the Company’s sales are made on a purchase order basis. Purchase orders are subject to change and/or termination at the option of the customer. In case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred due to the change or termination.

Generally, the Company attempts to raise its prices as its costs increase. However, the actual pricing of the Company’s products and services is impacted by a number of factors, including global oil prices, competitive pricing pressure, the level of utilized capacity in the oil service sector, preservation of market share, the introduction of new products and overall market conditions.

The Company accounts for more complex, customer specific projects that have relatively longer manufacturing time frames on an over time basis. For the three months ended ~~September 30, 2019,~~March 31, 2020, there were 2942 projects representing approximately ~~21.9%~~31.4% of the Company’s total revenues and approximately ~~28.9%~~44.7% of its product revenues that were accounted for using over time accounting, compared to ~~eight~~21 projects for the three months ended ~~September 30, 2018,~~March 31, 2019, which represented approximately ~~15.7%~~18.0% of the Company’s total revenues and approximately 23.1% of its product revenues. For the nine months ended September 30, 2019, there were 31 projects representing approximately 20.5% of the Company’s total revenues and approximately 28.0% of its product revenues that were accounted for using over time accounting, compared to 14 projects for the nine months ended September 30, 2018, which represented approximately 14.0% of the Company’s total revenues and approximately 20.3%26.0% of its product revenues. These percentages may fluctuate in the future. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete, which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales to be recognized. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage complete are reflected in the period when such estimates are revised. Losses, if any, are recorded in full in the period they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability.

Cost of Sales. The principal elements of cost of sales are labor, raw materials, manufacturing overhead, and application engineering expenses related to customized products. Cost of sales as a percentage of revenues is influenced by the product mix sold in any particular period, costs from projects accounted for under the over time method, over/under manufacturing overhead absorption, pricing and market conditions. The Company’s costs related to its foreign operations do not significantly differ from its domestic costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include the costs associated with sales and marketing, general corporate overhead, business development expenses, compensation expense, stock-based compensation expense, legal expenses, foreign currency transaction gains and losses and other related administrative functions.

Engineering and Product Development Expenses. Engineering and product development expenses consist of new product development and testing.

Restructuring and Other Charges. Restructuring and other charges consist of inventory write-downs, severance charges, long-lived assets write-downs and other charges of $17.3 million, $8.4 million, $6.9 million and $0.1 million respectively, which occurred in connection with our preparation and review of financial statements for the three months ended March 31, 2020.

Gain on sale of assets. Gain on sale of assets consists of sales of certain property, plant and equipment. Gain on sale of assets during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 was ~~$0.3~~$0.5 million and ~~$1.5 million,~~nil, respectively. This gain consisted primarily of the sale of our ~~Youngsville, Louisiana manufacturing and services~~TIW Oklahoma facility.

Income Tax Provision (Benefit). The Company’s effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, impact of valuation allowances, and other differences related to the recognition of income and expense between U.S. GAAP and applicable tax rules.

The following table sets forth, for the periods indicated, certain consolidated statement of income data expressed as a percentage of revenues:

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2019			2018			2019			2018			2020			2019
Revenues:
Products		75.6	%		67.8	%		73.3	%		69.3	%		70.4	%		69.4	%
Services		16.5			18.8			17.3			18.4			19.6			19.6
Leasing		7.9			13.4			9.4			12.3			10.0			11.0
Total revenues		100.0			100.0			100.0			100.0			100.0			100.0
Cost of sales:
Products		54.2			57.2			53.5			58.7			55.9			54.6
Services		7.8			10.0			9.1			9.5			10.1			9.8
Leasing		8.3			9.1			9.0			8.4			8.4			9.1
Total cost of sales		70.3			76.3			71.6			76.6			74.4			73.5
Selling, general and administrative		25.8			29.1			24.6			26.7			22.3			26.0
Engineering and product development		3.5			5.8			4.1			5.3			5.8			3.8
Impairments														8.0			-
Restructuring and other charges		0.5			4.0			1.3			1.5			34.1			2.5
Gain on sale of assets		(0.3	)		(0.0	)		(0.5	)		(1.8	)		(0.5	)		(0.0	)
Operating income (loss)		0.2			(15.2	)		(1.1	)		(8.3	)
Operating loss														(44.1	)		(5.8	)
Interest income		1.8			2.0			2.1			2.1			1.3			2.1
Interest expense		(0.0	)		(0.2	)		(0.0	)		(0.2	)		(0.2	)		(0.1	)
Income (loss) before income taxes		2.0			(13.4	)		1.0			(6.4	)
Loss before income taxes														(43.0	)		(3.8	)
Income tax provision (benefit)		3.2			(2.2	)		2.9			0.8			(22.5	)		2.5
Net loss		(1.2	)%		(11.2	)%		(1.9	)%		(7.2	)%		(20.5	)%		(6.3	)%

The following table sets forth, for the periods indicated, a breakdown of our products and service revenues:

Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~September 30, 2018~~March 31, 2019

Revenues. Revenues increased by ~~$14.9~~$1.7 million, or approximately ~~16.1%~~1.8%, to ~~$108.2~~$96.0 million for the three months ended ~~September 30, 2019~~March 31, 2020 from ~~$93.3~~$94.3 million for the three months ended ~~September 30, 2018, primarily due to an increase in demand for exploration and production equipment.~~March 31, 2019. Product revenues increased by approximately ~~$18.6~~$2.1 million for the three months ended ~~September 30, 2019~~March 31, 2020 as compared to the same period in ~~2018~~2019 as a result of increased revenues of ~~$18.4 million in subsea equipment and $1.4~~$1.3 million in offshore rig equipment, and $0.8 million in surface equipment. Product revenues in the Western Hemisphere increased by $5.1 million, partially offset by decreased revenues ~~of $0.7 million in surface equipment and $0.5 million in downhole tools. Product revenues~~ in Asia-Pacific of $2.5 million and in the Eastern Hemisphere ~~increased~~of $0.5 million. Although revenues for the three months ended March 31, 2020 were marginally higher as compared to the three months ended March 31, 2019, our revenues were negatively impacted by ~~$14.0 million~~reduced productivity, customers requesting extension of their deliveries and ~~$5.8 million, respectively, partially offset by a decrease~~supply chain disruptions attributable to both COVID-19 and the developments in the ~~Western Hemisphere~~global oil markets. Although all regions were impacted to differing degrees broadly in line with the spread of ~~$1.2 million. Increasing market activity, as well as~~ the ~~Company’s focused sales optimization efforts, resulted in higher revenue~~pandemic and the developments in the ~~Asia Pacific and Eastern Hemisphere. The Company also noted some customers have continued replenishing inventory~~global oil markets, the impact was most felt in Asia-Pacific. This stemmed from their governments requiring two weeks of quarantine of any person returning from China after the Lunar New Year holidays. Further, as ~~broader demand recovers, resulting~~ a result of supply chain interruptions to our wellhead business in ~~the consumption of existing inventories. Lower activity in the Western Hemisphere can be attributed~~Europe we shifted our focus to ~~timing of downhole tool orders and shipments.~~ pipe fabrication which invariably has lower gross margins. In any given time period, the revenues recognized between the various product lines and geographic areas will vary depending upon the timing of shipments to customers, completion status of the projects accounted for under the over time accounting method, market conditions and customer demand.

Service revenues increased by approximately $0.3 million resulting mainly from increased service revenues in the Western ~~and Eastern Hemispheres~~Hemisphere of ~~$0.9~~$1.1 million, ~~and $0.3 million, respectively,~~ partially offset by decreased service revenues of ~~$0.9~~$0.7 million in ~~Asia-Pacific.~~the Eastern Hemisphere. The ~~majority~~increase of ~~the increase in~~ service revenues in the Western Hemisphere is ~~related~~due largely to increased demand for downhole tool technical advisory assistance within Latin America. Lower service revenues in the Eastern Hemisphere and ~~reconditioning of customer-owned property.~~ Asia-Pacific are attributable primarily to COVID-19 disruptions and the developments in the global oil markets. Service revenues were also negatively impacted due to travel restrictions around the globe.

Leasing revenues decreased by approximately ~~$4.0~~$0.8 million resulting mainly from decreased leasing revenues in ~~Asia-Pacific and~~ the Western ~~and Eastern Hemispheres~~Hemisphere of ~~$2.4~~$1.6 million, ~~$1.2~~partially offset by increased leasing revenues of $0.7 million ~~and $0.4 million, respectively.~~in Asia-Pacific. The majority of the decrease in leasing revenues is related to decreased subsea rental tool utilization ~~driven by lower product sales~~ in the ~~prior periods.~~Western Hemisphere due to timing of customer exploration activity and COVID-19 related travel restrictions and the developments in the global oil markets.

Cost of Sales. Cost of sales increased by ~~$4.9~~$2.0 million, or approximately ~~6.9%~~2.9%, to ~~$76.0~~$71.4 million for the three months ended ~~September 30, 2019~~March 31, 2020 from ~~$71.1~~$69.4 million for the same period in ~~2018 as result~~2019. In the Eastern Hemisphere and Asia-Pacific this was primarily driven by lower productivity resulting from staggered shifts, additional freight costs, quarantine of ~~an increase~~our employees in ~~sales activity. As a percentage~~the Asia-Pacific region upon their return from China after the Lunar New Year and more extensive cleaning and sanitization of ~~revenues, cost of sales was 6.0% lower at 70.2% for~~workstations. These factors more than offset the ~~three months ended September 30, 2019 as compared to~~gains achieved from the ~~same period~~business transformation executed over 2019. Although we were impacted by COVID-19 in ~~2018 as~~ the ~~Company continues to progress its transformation efforts. Eastern~~Western Hemisphere, our cost of sales as a percentage of revenue decreased ~~resulting from increased activity and improved product mix. Western Hemisphere cost of sales as a percentage of revenue decreased~~primarily due to ~~improved product mix within the subsea equipment product line. Cost~~savings from leasing of ~~sales associated with operating~~ our forge facility was $1.3 million for the three months ended September 30, 2019 as compared to $2.4 million for the same period in 2018. During the three months ended September 30, 2019, the Company recognized in cost of sales a $2.0 million release of contingent consideration related to the sale of top-tensioned riser systems.facility.

Selling, General and Administrative Expenses. For the three months ended ~~September 30, 2019,~~March 31, 2020, selling, general and administrative expenses ~~increased~~decreased by approximately ~~$0.9~~$3.1 million, or ~~3.2%~~12.7%, to ~~$28.0~~$21.4 million from ~~$27.1~~$24.5 million for the same period in ~~2018.~~2019. Foreign exchange gain for the three months ended ~~September 30, 2019~~March 31, 2020 was ~~$1.1~~ $3.2million as compared to a ~~minimal amount~~gain of $0.7 million for the same period in ~~2018.~~2019. Excluding the impact of foreign exchange gain, selling, general and administrative expense was ~~$29.1~~$24.6 million and ~~$27.8~~ $25.2million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The ~~increase~~decrease of ~~$1.3~~ $0.6million is primarily due to ~~an increase~~a decrease in stock-based compensation expense, bonuses and annual merit increases, partially offset by aan increase in professional fees.

Impairments. In March 2020, the overall offshore market conditions declined primarily due to the COVID-19 pandemic and the developments in the global oil markets. This decline was evidenced by lower commodity prices, decline in expected offshore rig counts, decrease in ~~professional fees.~~our customers’ capital budgets and potential delays or cancellations of contracts. As a result, an interim goodwill impairment analysis was performed in connection with the preparation and review of financial statements for the three months ended March 31, 2020. Based on this analysis, we recorded an impairment loss of $7.7 million for our Eastern Hemisphere reporting unit for the three months ended March 31, 2020. No Goodwill impairment losses were recorded for the three months ended March 31, 2019.

Restructuring and Other Charges. As a result of unfavorable market conditions primarily due to the COVID-19 pandemic and developments in the global oil markets, which triggered historically low crude oil prices and decreases in our customers’ capital budgets, we announced a cost reduction plan primarily focused on workforce reductions and the reorganization of certain facilities in the first quarter of 2020. We recorded inventory write-downs, severance charges, long-lived assets write-downs and other charges of $32.7 million during the three months ended March 31, 2020.

In the third quarter of 2018, we initiated a global strategic plan to better align our operations with market ~~conditions and finalized this plan during the second quarter of 2019.~~conditions. As a result of this plan, we incurred restructuring charges consisting primarily of consulting fees of approximately ~~$0.5 million and $3.7~~$2.4 million during the three months ended ~~September 30, 2019 and 2018, respectively.~~March, 2019.

Engineering and Product Development Expenses. For the three months ended ~~September 30, 2019,~~March 31, 2020, engineering and product development expenses ~~decreased~~increased by approximately ~~$1.7~~$1.9 million, or ~~30.5%~~52.8%, to ~~$3.8~~$5.5 million from ~~$5.4~~$3.6 million for the same period in ~~2018.~~2019 due to increased activity required to support strategic growth initiatives tied to committed customer orders and our continued research and development efforts within the Subsea Productions Systems product line which resulted in Offshore Technology Conference award for VXTe product.

Gain on Sale of Assets. During the three months ended ~~September 30, 2019,~~March 31, 2020, gain on sale of assets was ~~$0.3~~$0.5 million, which consisted primarily of the sale of our ~~services~~TIW Oklahoma facility.

Income Tax Provision (Benefit). Income tax benefit for the three months ended March 31, 2020 was $21.6 million on loss before taxes of $41.3 million, resulting in an effective tax rate of 52.3%. Income tax expense for the three months ended ~~September 30,~~March 31, 2019 was ~~$3.4 million on income before taxes of $2.1 million, resulting in an effective tax rate of 162.3%. Income tax benefit for the three months ended September 30, 2018 was $2.0~~$2.3 million on a loss before taxes of ~~$12.4~~$3.7 million, resulting in an effective income tax rate of approximately ~~16.4%~~(62.7)%. The change in the effective tax rate between the periods was primarily a result of ~~increased~~discretely recognized tax benefits of net operating losses, impairment losses, changes in valuation allowances in the United States and in various foreign countries and a mix of earnings in jurisdictions with differing tax rates.

Net Loss. Net loss was approximately ~~$1.3~~$19.7 million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to a net loss of ~~$10.4~~$6.1 million for the same period in ~~2018 for the reasons set forth above.~~

~~Nine Months Ended September 30,~~ 2019~~Compared toNine Months Ended September 30, 2018~~

~~Revenues.~~ Revenues increased by $19.1 million, or approximately 6.6%, to $306.4 million for the nine months ended September 30, 2019 from $287.3 million for the nine months ended September 30, 2018, primarily due to an increase in demand for exploration and production equipment. Product revenues increased by approximately $25.5 million for the nine months ended September 30, 2019 as compared to the same period in 2018 as a result of increased revenues of $26.4 million in subsea equipment and $3.6 million in offshore rig equipment, partially offset by decreased revenues of $2.3 million in downhole tools and $2.2 million in surface equipment. Product revenues in Asia-Pacific and the Eastern Hemisphere increased by $23.4 million and $14.6 million, respectively, partially offset by a decrease in the Western Hemisphere of $12.5 million. Increasing market activity, as well as the Company’s focused sales optimization efforts, resulted in higher revenue in Asia Pacific and the Eastern Hemisphere. The Company also noted some customers have continued replenishing inventory as broader demand recovers, resulting in the consumption of existing inventories. Lower activity in the Western Hemisphere can be attributed to decreased demand for subsea wellheads in Brazil. In any given time period, the revenues recognized between the various product lines and geographic areas will vary depending upon the timing of shipments to customers, completion status of the projects accounted for under the over time accounting method, market conditions and customer demand. Service revenues decreased marginally by less than $0.1 million resulting from decreased service revenues in the Eastern Hemisphere of $1.0 million, partially offset by an increase of $0.9 million in the Western Hemisphere. The majority of the decrease in service revenues is related to decreased technical advisory assistance. Leasing revenues decreased by approximately $6.4 million resulting from decreased leasing revenues in the Western and Eastern Hemispheres and Asia-Pacific of $2.2 million, $2.1 million and $2.1 million, respectively. The majority of the decrease in leasing revenues is related to decreased rental tool utilization driven by lower product sales in the prior periods.

~~Cost of Sales.~~ ~~Cost of sales decreased~~by $0.8 million, or approximately 0.4%, to $219.3 million for the nine months ended September 30, 2019 from $220.1 million for the same period in 2018. As a percentage of revenues, cost of sales was 5.0% lower at 71.6% for the nine months ended September 30, 2019 as compared to the same period in 2018 primarily due to the Company’s on-going efforts to optimize manufacturing costs as part of its overall transformation efforts. Eastern Hemisphere cost of sales as a percentage of revenue increased marginally due to higher fabricated joints product mix. Asia-Pacific cost of sales as a percentage of revenue has shown strong improvement due to a higher mix of subsea trees. Western Hemisphere cost of sales as a percentage of revenue was 1% lower due largely to product mix. Cost of sales associated with operating our forge facility was $6.2 million for the nine months ended September 30, 2019 as compared to $6.8 million for the same period in 2018. During the nine months ended September 30, 2019, the Company recognized in cost of sales a $2.0 million release of contingent consideration related to the sale of top-tensioned riser systems.

~~Selling, General and Administrative Expenses.~~ For the nine months ended September 30, 2019, selling, general and administrative expenses decreased by approximately $1.4 million, or 1.8%, to $75.3 million from $76.7 million for the same period in 2018. Foreign exchange gain for the nine months ended September 30, 2019 was $2.1 million as compared to a gain of $0.8 million for the same period in 2018. Excluding the impact of foreign exchange gain, selling, general and administrative expense was $77.4 million and $77.5 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease of $0.1 million is primarily due to continued progress in the Company’s transformation efforts, partially offset by an increase in stock-based compensation expense, annual merit increases, bonuses and partial restoration of prior salary rollbacks.

~~Restructuring and Other Charges.~~ In the third quarter of 2018, we initiated a global strategic plan to better align our operations with market conditions and finalized this plan during the second quarter of 2019. As a result of this plan, during the nine months ended September 30, 2019, we incurred restructuring and other charges of approximately $4.0 million related to consulting fees, and an approximate $1.1 million payout to our former Chief Operating Officer, pursuant to a separation agreement entered into with him during the first quarter of 2019.

~~Engineering and Product Development Expenses.~~ For the nine months ended September 30, 2019, engineering and product development expenses decreased by approximately $2.6 million, or 17.1%, to $12.5 million from $15.1 million for the same period in 2018.

~~Gain on Sale of Assets.~~ ~~During the nine months ended September 30, 2019, gain on sale of assets was $1.5 million, which consisted primarily of the sale of our Youngsville, Louisiana manufacturing and services facility.~~

~~Income Tax Provision~~. Income tax expense for the nine months ended September 30, 2019 was $8.9 million on income before taxes of $3.2 million, resulting in an effective tax rate of 278.3%. Income tax expense for the nine months ended September 30, 2018 was $2.3 million on a loss before taxes of $18.5 million, resulting in an effective income tax rate of (12.4)%. The change in the effective tax rate between the periods was primarily a result of increased valuation allowances in the United States and in various foreign countries and a mix of earnings in jurisdictions with differing tax rates.

~~Net Loss.~~ ~~Net loss was approximately $5.7 million for the nine months ended September 30, 2019, compared to a net loss of $20.8 million for the same period in 2018~~ for the reasons set forth above.

We have performed a detailed analysis of the non-GAAP measures that are relevant to our business and its operations and determined that the appropriate unit of measure to analyze our performance is Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, as well as other significant non-cash items and other adjustments for certain charges and credits). The Company believes that the exclusion of these charges and credits from these financial measures enables it to evaluate more effectively

the Company's operations period over period and to identify operating trends that could otherwise be masked by excluded items. It is our determination that Adjusted EBITDA is a more relevant measure of how the Company reviews its ability to meet commitments and pursue capital projects.

We calculate Adjusted EBITDA as one of the indicators to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure. This measurement is used in concert with net income and cash flows from operations, which measures actual cash generated in the period. In addition, we believe that Adjusted EBITDA is a supplemental measurement tool used by analysts and investors to help evaluate overall operating performance, ability to pursue and service possible debt opportunities and analyze possible future capital expenditures. Adjusted EBITDA does not represent funds available for our discretionary use and is not intended to represent or to be used as a substitute for net income, as measured under U.S. generally accepted accounting principles. The items excluded from Adjusted EBITDA, but included in the calculation of reported net income, are significant components of the consolidated statements of income and must be considered in performing a comprehensive assessment of overall financial performance. Our calculation of Adjusted EBITDA may not be consistent with calculations of Adjusted EBITDA used by other companies.

The following table reconciles our reported net income to Adjusted EBITDA for each of the respective periods:

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
	(In thousands)												(In thousands)
Net loss	$	(1,310	)	$	(10,358	)	$	(5,679	)	$	(20,783	)	$	(19,698	)	$	(6,051	)
Add:
Interest (income) expense		(1,880	)		(1,698	)		(6,445	)		(5,420	)
Interest income, net														(1,015	)		(1,885	)
Income tax provision (benefit)		3,412			(2,028	)		8,864			2,291			(21,609	)		2,333
Depreciation and amortization expense		8,304			8,724			25,155			25,966			8,873			8,356
Impairments														7,719			-
Restructuring and other charges		546			3,745			3,961			4,345			32,713			2,396
Gain on sale of assets		(280	)		(14	)		(1,483	)		(5,113	)		(467	)		(13	)
Foreign currency loss (gain)		(1,143	)		41			(2,079	)		(810	)
Foreign currency gain														(3,242	)		(704	)
Stock compensation expense		7,663			2,366			15,746			9,950			3,176			4,862
Adjusted EBITDA	$	15,312		$	778		$	38,040		$	10,426		$	6,450		$	9,294

Adjusted EBITDA does not measure financial performance under GAAP and, accordingly, should not be considered as an alternative to net income as an indicator of operating performance.

	Nine months ended September 30,						Three months ended March 31,
	2019			2018			2020			2019
	(In thousands)						(In thousands)
Operating activities	$	6,624		$	32,607		$	(21,237	)	$	838
Investing activities		(6,219	)		(15,439	)		(3,500	)		(3,186	)
Financing activities		(3,277	)		(80,646	)		(25,085	)		(1,116	)
		(2,872	)		(63,478	)		(49,822	)		(3,464	)
Effect of exchange rate changes on cash activities		(2,126	)		(5,649	)		(5,652	)		172
Decrease in cash and cash equivalents	$	(4,998	)	$	(69,127	)	$	(55,474	)	$	(3,292	)

Statements of cash flows for entities with international operations that are local currency functional exclude the effects of the changes in foreign currency exchange rates that occur during any given period, as these are non-cash changes. As a result, changes reflected in certain accounts on the Condensed Consolidated Statements of Cash Flows may not reflect the changes in corresponding accounts on the Condensed Consolidated Balance Sheets.

The primary liquidity needs of the Company are (i) to fund capital expenditures to improve and expand facilities and manufacture additional running tools and (ii) to fund working capital. The Company’s principal source of funds is cash flows from operations. As of ~~September 30, 2019,~~March 31, 2020, the Company had approximately of $343.5 million of cash and cash equivalents on hand and an availability of ~~$41.0~~$44.5 million under the ABL Credit Facility.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our business model, our current cash reserves and the recent restructuring and facility realignment will strengthen our balance sheet and leave us well-positioned to manage our business through this crisis as it continues to unfold. We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on the global economy and the oil and gas industry. Based on our analysis, we believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

Net cash used in operating activities for the three months ended March 31, 2020 was $21.2 million as compared to $0.8 million of net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2019 was $6.6 million as compared to $32.6 million for the nine months ended September 30, 2018.~~March 31, 2019. The net change is primarily due to decreased cash flow resulting from changes in operating ~~activities~~assets and liabilities of ~~$48.2~~$35.2 million, a decrease due to ~~release of a contingent consideration of $2.0 million and a decrease in depreciation and amortization of $0.8 million. This was partially offset by a change~~increase in net loss of ~~$15.1~~$13.6 million, offset by $26.8 million of non-cash movements which included an increase in ~~stock-based compensation expense~~impairment, restructuring and other charges of ~~$5.8~~

$39.2 million, ~~a decrease in gain on sale~~ of which $24.2 million is related to write-down of inventory and long-lived assets and $7.7 million is related to impairment of ~~$3.7 million and a decrease in deferred income taxes of $0.4 million.~~Goodwill.

The change in operating assets and liabilities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 resulted in a ~~$24.7~~$42.7 million decrease in cash. The increase in trade receivables resulted in decreased cash flow of ~~$35.5 million. The increase~~$19.5million primarily due to lower global collections as customers started to focus on cash conservation due to the unprecedented downturn in the global oil markets coupled with remote working arrangements in response to the COVID-19 pandemic that caused some initial disruptions to collection efforts. Change in inventory resulted in decreased cash flow of ~~$15.6 million.~~$15.5 million primarily due to delay in shipments as a result of COVID-19 related productivity disruptions and to a lesser degree the stocking program activity related to our downhole tools business. The increase in trade accounts payable and accrued liabilities resulted in increased operating cash flow of $13.7 million. The decrease in prepaids and other assets increased operating cash flow by $12.7 million.

~~The change in operating assets and liabilities for the nine months ended September 30, 2018 resulted in a $23.2~~$11.7 million increase in cash. The decrease in inventory resulted in increased cash flow of $32.6 million. The decrease in trade receivables resulted in increased cash flow of $0.3 million, resulting from increased collections and settlements during the nine months ended September 30, 2018. The increase in prepaids and other assets resulted in decreased ~~operating~~ cash flow and was primarily due to the CARES Act tax benefit. The decrease in accrued liabilities was primarily due to the release of seasonal compensation accruals and tax payments, partially offset by ~~$9.7~~an increase in trade accounts payable, which resulted in a net decrease in cash flow of $7.2 million. This was partially offset by $11.2 million decrease in unbilled receivables primarily due to increased invoicing of work performed on projects that are accounted on an over time basis.

The change in investing cash flows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 resulted in a ~~$6.2~~$3.5 million decrease to cash. Capital expenditures by the Company were ~~$8.6~~$4.2 million and ~~$26.7~~$3.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The capital expenditures for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were ~~$4.8~~$0.7 million for machinery and equipment, $1.9 million for rental tools, ~~$1.2 million for buildings~~ and ~~$0.7~~$1.6 million for other capital expenditures. The capital expenditures for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 were ~~$12.9~~$0.8 million for buildings, ~~$9.2~~$1.2 million for rental tools, ~~$2.3~~$1.1 million for machinery and equipment and ~~$2.3~~$0.4 million for other capital expenditures.

On February 26, 2019, the Board of Directors authorized a share repurchase plan under which the Company can repurchase up to $100 million of its common stock. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or superseded at any time at the Company’s discretion.

During the three-month period ended ~~September 30, 2019,~~March 31, 2020, the Company purchased ~~75,737~~808,389 shares under the share repurchase plan at an average price of approximately ~~$44.45~~ $30.91per share totaling approximately $3.4 million and has retired such shares. During the nine-month period ended September 30, 2019, the Company purchased 125,888 shares under the share repurchase plan at an average price of approximately $42.60 per share totaling approximately $5.4 $25.0million and has retired such shares.

On February 23, 2018, the Company, as borrower, and the Company’s subsidiaries TIW Corporation and Honing, Inc., as guarantors, entered into a five-year senior secured revolving credit facility (the “ABL Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and other financial institutions as lenders with total commitments of $100.0 million, including up to $10.0 million available for letters of credit. The maximum amount that the Company may borrow under the ABL Credit Facility is subject to the borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments.

As of ~~September 30, 2019,~~March 31, 2020, the availability under the ABL Credit Facility was ~~$41.0~~$44.5 million, after taking into account the outstanding letters of credit of approximately ~~$0.4~~$0.9 million issued under the facility. For additional information on the ABL Credit Facility, see "Asset Backed Loan (ABL) Credit Facility", Note 9 to the Notes to Condensed Consolidated Financial Statements.

The Company currently has no derivative instruments and no off-balance sheet hedging or financing arrangements, contracts or operations.

From time to time, the Company enters into discussions or negotiations to acquire other businesses or enter into joint ventures. The timing, size or success of any such efforts and the associated potential capital commitments are unpredictable and dependent on market conditions and opportunities existing at the time. The Company may seek to fund all or part of any such efforts with proceeds from debt or equity issuances. Debt or equity financing may not, however, be available at that time due to a variety of circumstances, including, among others, the Company’s credit ratings, industry conditions, general economic conditions and market conditions.

Refer to our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for a discussion of our critical accounting policies. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, there were no material changes in our judgments and assumptions associated with the development of our critical accounting policies.

The Company is currently exposed to certain market risks related to interest rate changes on its short-term investments and fluctuations in foreign exchange rates. The Company does not engage in any material hedging transactions, forward contracts or currency trading which could mitigate the market risks inherent in such transactions. There have been no material changes in market risks for the Company since December 31, ~~2018.~~2019.

The Company has operations in various countries around the world and conducts business in a number of different currencies. Our significant foreign subsidiaries may also have monetary assets and liabilities not denominated in their functional currency. These monetary assets and liabilities are exposed to changes in currency exchange rates which may result in non-cash gains and losses primarily due to fluctuations between the U.S. dollar and each subsidiary's functional currency.

The Company experienced a foreign currency pre-tax gain of approximately ~~$1.1~~$3.2 million and ~~$2.1~~$0.7 million, respectively, during the three months ended March 31, 2020 and nine-month periods ended September 30, 2019. During the three and nine-month periods ended September 30, 2018, the Company experienced a minimal foreign currency pre-tax loss and a pre-tax gain of approximately $0.8 million,2019, respectively. ~~These losses and gains were primarily due to the exchange rate fluctuations between the U.S. dollar and various currencies within the foreign regions where we do business.~~

The Company does not engage in any material hedging transactions, forward contracts or currency trading which could mitigate the effects and risks inherent in such transactions. Additionally, there is no assurance that the Company will be able to protect itself against currency fluctuations in the future.

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2019~~March 31, 2020 to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the ~~quarter~~three months ended ~~September 30, 2019~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

For a description of the Company’s legal proceedings, see ~~“Commitments and Contingencies,~~“Contingencies,” Note 12 to the Notes to Condensed Consolidated Financial Statements.

~~There have been no material changes from the~~This section augments and updates certain risk factors disclosed under “Item 1A. Risk Factors” in ~~the Company’s~~Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The following risk factors supplement the corresponding risks described in the Annual Report and should be read together with the other risk factors disclosed in the Annual Report.

The outbreak of COVID-19 and developments in the global oil markets have had, and may continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and liquidity and those of our customers, suppliers and other counterparties.

The recent outbreak of COVID-19 and the responses of governmental authorities, companies and individuals across the world to stem the spread of the virus have significantly reduced global economic activity, as there has been a dramatic decrease in the number of businesses open for operation and substantially less people across the world have been traveling to work or leaving their home to purchase goods and services. As a result, there has been an unprecedented decline in the demand for, and thus also the market prices of, crude oil. Additionally, the lack of sufficient storage capacity for the large increase in crude oil inventories and recent actions taken by OPEC and non-OPEC nations related to crude oil supply have exacerbated the negative impact on the market prices for crude oil.

Any prolonged period of economic slowdown or recession resulting from the negative effects of COVID-19 on economic and business prospects across the world may negatively impact crude oil prices and the demand for our products, and could have significant adverse consequences to our financial condition and the financial condition of our customers, suppliers and other counterparties.

The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, results of operation and liquidity will depend largely on future developments, including the duration and spread of the outbreak, and the related impact on overall economic activity, all of which are uncertain and cannot be predicted with certainty at this time.

To the extent the COVID-19 pandemic or the developments in the global oil markets adversely affects our business, financial condition, results of operation and liquidity, these events may also have the effect of heightening many of the other risks described in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2019, as those risk factors are amended or supplemented by subsequent Quarterly Reports on Form 10-Q and other reports and documents we file with the SEC.

We depend on third-party suppliers for timely deliveries of raw materials, and our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.

Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond our control, such as the COVID-19 pandemic. Restrictions or disruptions of transportation related to the pandemic, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays, both on obtaining raw materials and shipping finished goods to customers. Any interruption or increased costs in the supply of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers.

The following table summarizes the repurchase and cancellation of our common stock during the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020.

~~(1)~~ On February 26, 2019, the Company announced that its Board of Directors authorized a stock repurchase plan under which the Company is authorized to repurchase up to $100.0 million of its common stock. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled.

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements contained in all parts of this document that are not historical facts are forward-looking statements that involve risks and uncertainties that are beyond the control of Dril-Quip, Inc. (the “Company” or “Dril-Quip”). You can identify the Company’s forward-looking statements by the words “anticipate,” “estimate,” “expect,” “may,” “project,” “believe” and similar expressions, or by the Company’s discussion of strategies or trends. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct. These forward-looking statements include the following types of information and ~~statements as they relate to the Company:~~statements:

These statements are based on assumptions and analysis in light of the Company’s experience and perception of historical trends, current conditions, expected future developments and other factors the Company believes were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, the Company continues to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 1A. Risk Factors” in Part II of this report, “Item 1A. Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and the following:

Many of such factors are beyond the Company’s ability to control or predict. Any of the factors, or a combination of these factors, could materially affect the Company’s future results of operations and the ultimate accuracy of the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and the Company undertakes no obligation to publicly update or revise any forward-looking statement.

Investors should note that Dril-Quip announces financial information in SEC filings, press releases and public conference calls. Dril-Quip may use the Investors section of its website (www.dril-quip.com) to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on Dril-Quip’s website is not part of this Form 10-Q.

~~+ Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-Q.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, ~~$.01~~$0.01 par value per share	DRQ	New York Stock Exchange




		Page
PART I
Item 1.	Condensed Consolidated Financial Statements	3
	Balance Sheets	3
	Statements of Income (Loss)	4
	Statements of Comprehensive Income (Loss)	5
	Statements of Cash Flows	6
	Statements of Stockholders' Equity	7
	Notes to Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2018
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3028
Item 4.	Controls and Procedures	3028
PART II
Item 1.	Legal Proceedings	3129
Item 1A.	Risk Factors	3129
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3130
	Index to Exhibits	3433
	Signatures	3534

Contract Assets at December 31, 2018	$	83,188
Additions		62,987
Transfers to Accounts Receivable		(25,078	)
Contract Assets at September 30, 2019	$	121,097

Contract Assets at December 31, 2019	$	136,332
Additions		31,460
Transfers to Trade Receivables, Net		(43,727	)
Contract Assets at March 31, 2020	$	124,065

	Three months ended March 31, 2020
Inventory write-down	$	17,272
Severance		8,399
Long-lived asset write-down		6,912
Other		130
	$	32,713


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	March 31, 2020
Balance at January 1, 2020	$	-
Additions for costs expensed		8,000
Reductions for payments		-
Ending balance at March 31, 2020	$	8,000


		September 30, 2019
	Classification	(In thousands)
Assets
Operating	Operating lease right of use assets	$	5,328
Finance	Other assets		419
Total lease assets		$	5,747

Liabilities
Current
Operating	Operating lease liabilities	$	1,295
Finance	Other accrued liabilities		254

Noncurrent
Operating	Operating lease liabilities, long-term		4,011
Finance	Other long-term liabilities		183
Total lease liabilities		$	5,743

	~~September 30, 2019~~
~~Weighted average remaining lease term (years)~~
~~Operating leases~~		~~12.4~~
~~Finance leases~~		~~2.0~~

~~Weighted average discount rate~~
~~Operating leases~~		~~4.8~~	%
~~Finance leases~~		~~4.3~~	%


	September 30, 2019
	(In thousands)
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	472
Operating cash flows from finance leases		6
Financing cash flows from finance leases		93

	Three months ended
	September 30, 2019
	Total Number of Shares Purchased		Average Price paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Dollar Value (in millions) of Shares that May Yet be Purchased Under the Plans or Programs
July 1 - 31, 2019		-	$	-		-	$	98.0
August 1 - 31, 2019		26,842		44.66		26,842		96.8
September 1 - 30, 2019		48,895		44.34		48,895		94.6
		75,737	$	44.45		75,737	$	94.6




Exhibit No.		Description
*3.1	—	Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017).

*3.2	—	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 20, 2014).

*4.1	—	Form of Certificate representing Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, File No. 001-13439).

~~+10.1~~	—	~~Form of Director Restricted Stock Award Agreement under 2017 Omnibus Incentive Plan of Dril-Quip,~~ ~~Inc.~~

31.1	—	Rule 13a-14(a)/15d-14(a) Certification of Blake T. DeBerry.

31.2	—	Rule 13a-14(a)/15d-14(a) Certification of Jeffrey J. Bird.

32.1	—	Section 1350 Certification of Blake T. DeBerry.

32.2	—	Section 1350 Certification of Jeffrey J. Bird.

101.INS	—	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	—	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	—	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	—	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	—	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document

104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

	DRIL-QUIP, INC.

Date: ~~October 24, 2019~~May 06, 2020	BY:	/s/ Jeffrey J. Bird
		Jeffrey J. Bird,
		Senior Vice President – Production Operations and Chief Financial Officer
		(Principal Financial Officer and
		Duly Authorized Signatory)