Oil States Announces Second Quarter 2014 Earnings of $0.88 per Share Before Spin-Off Related Charges

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| Source: Oil States International, Inc.

HOUSTON, July 31, 2014 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported net income from continuing operations for the quarter ended June 30, 2014 of $47.6 million, or $0.88 per diluted share after-tax, before spin-off related charges totaling $110 million, or $1.33 per diluted share after-tax, associated with the spin-off of the Company's accommodations business, now named Civeo Corporation, on May 30, 2014.

A summary of the spin-off related charges follows:

  • $100.4 million, or $1.22 per diluted share after-tax, from a loss incurred on debt extinguishment associated with the repurchase of the Company's senior notes completed in connection with the spin-off (due to the fair market value exceeding the carrying value of the senior notes) and the write-off of unamortized debt issue costs associated with the senior notes and the previous credit facility which was terminated.
  • $9.6 million, or $0.11 per diluted share after-tax, from transaction and related costs incurred in connection with the spin-off of Civeo.

Historical results for Civeo and the tubular services segments have been reported as discontinued operations for all periods reported herein through the respective transaction closing dates (Civeo through May 30, 2014 and tubular services through September 6, 2013). For the second quarter of 2014, discontinued operations for Civeo included the allocation of transition costs, a portion of the interest expense associated with the senior notes and the write-off of deferred financing costs (associated with the Canadian portion of the terminated credit facility).

The Company generated revenues of $459.6 million and Adjusted EBITDA of $109.1 million (after elimination of $9.6 million of spin-off related charges summarized above) during the second quarter of 2014. These results compared to revenues of $390.8 million and Adjusted EBITDA of $88.8 million (after elimination of $4.5 million of acquisition and transaction costs) reported in the second quarter of 2013.

For the first half of 2014, the Company reported revenues of $864.8 million and Adjusted EBITDA of $202.0 million (after elimination of $11.0 million of spin-off related charges). The results for the first half of 2014 included $111.4 million, or $1.32 per diluted share after-tax, of spin-off related charges. For the first half of 2013, the Company reported revenues of $769.6 million and Adjusted EBITDA of $166.3 million (after elimination of $4.5 million of acquisition and transaction costs).

Excluding the spin-off related charges in the six months ended June 30, 2014, and the acquisition and transaction costs in the six months ended June 30, 2013, EBITDA would have increased 21% year-over-year as a result of strong demand for the Company's completion services business offerings, higher utilization of its land drilling rigs and increased sales of production facility and subsea products in the offshore products segment. 

Cindy B. Taylor, Oil States' President and Chief Executive Officer stated, "We completed a major strategic initiative on May 30, 2014, culminating with the spin-off of Civeo into a separate, publicly traded company. Moving forward, we are excited about our opportunities to focus on technology-based solutions as a pure-play energy services company."

"Oil States reported strong second quarter results for both offshore products and well site services. Revenues, EBITDA and backlog in our offshore products segment reached new record levels. In addition, demand for our completion services business offerings remains strong as the number of unconventional wells and ensuing complexity continues to grow in North America. We are positioned very well in both segments to capture our share of expected growth in the markets we serve."

Income Taxes

The Company recognized an effective tax rate of 36.1% (benefit) in the second quarter of 2014 compared to 39.6% (provision) in the second quarter of 2013. The decrease in the effective tax rate from the prior year was largely the result of lower domestic earnings due to the loss incurred from the extinguishment of debt associated with the debt refinancings completed in conjunction with the spin-off of Civeo. Due to the fact that a significant portion of the Company's foreign income was derived from Civeo, the spin-off will have the effect of increasing the Company's effective tax rate in future periods from the rates reported in 2013 and 2012.

Financial Condition

The Company invested $43.3 million in capital expenditures related to continuing operations during the second quarter of 2014. Spending primarily related to the addition of incremental completion services equipment deployed to service the active U.S. shale plays along with ongoing facility expansions in the offshore products segment. 

On May 28, 2014, the Company entered into a $600 million, 5-year revolving credit facility with a syndicate of banks. As of June 30, 2014, there was $181.9 million outstanding under the revolving credit facility. Total availability as of June 30, 2014 was $385.8 million (net of standby letters of credit totaling $32.3 million).

BUSINESS SEGMENT RESULTS

(Unless otherwise noted, the following discussion compares the quarterly results from continuing operations for the second quarter of 2014 to the results from continuing operations for the second quarter of 2013. The historical results of operations of the accommodations and tubular services segments through the transaction closing dates have been reported as discontinued operations for all periods reported herein.)

Well Site Services

Well site services generated revenues of $208.9 million and EBITDA of $67.0 million, respectively, in the second quarter of 2014 compared to revenues and EBITDA of $186.4 million and $57.1 million, respectively, in the second quarter of 2013. Revenues and EBITDA increased 12% and 17% year-over-year, respectively, primarily due to an 8% year-over-year increase in the number of completion services jobs performed along with increased utilization in the land drilling business, which averaged 91% for the second quarter of 2014 compared with 77% for the second quarter of 2013.

Offshore Products

Offshore products generated record revenues and EBITDA of $250.7 million and $56.2 million, respectively, in the second quarter of 2014 compared to revenues and EBITDA of $204.4 million and $41.6 million, respectively, in the second quarter of 2013. Revenues and EBITDA increased 23% and 35% year-over-year, respectively, primarily due to higher revenue from production facility and subsea product sales along with increased demand for services worldwide.  This segment's results also benefited from the Quality Connector Systems acquisition that closed in December 2013. EBITDA margins increased to 22% in the second quarter of 2014 compared to 20% in the second quarter of 2013.  Backlog increased to a record $599 million at June 30, 2014 compared to $578 million reported at March 31, 2014.  Notable backlog additions during the second quarter included subsea connector products destined for Brazil, tension leg platform equipment for both the Gulf of Mexico and Southeast Asia, cranes for Southeast Asia, and proprietary connectors for the Caspian Sea.

Conference Call Information

The call is scheduled for Friday, August 1, 2014 at 11:00 am EDT, is being webcast and can be accessed from the Company's website at http://www.oilstatesintl.com. Participants may also join the conference call by dialing (888) 895-5479 in the United States or by dialing +1 847 619 6250 internationally and using the passcode of 37748151. A replay of the conference call will be available one hour after the completion of the call by dialing (888) 843-7419 in the United States or by dialing +1 630 652 3042 internationally and entering the passcode of 37748151.

About Oil States

Oil States International, Inc. is an energy services company with a leading market position as a manufacturer of products for deepwater production facilities and certain drilling equipment, as well as a provider of completion services and land drilling services to the oil and gas industry. Oil States is publicly traded on the New York Stock Exchange under the symbol "OIS".

For more information on the Company, please visit Oil States International's website at http://www.oilstatesintl.com.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included therein are based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the energy service industry and other factors discussed in the "Business" and "Risk Factors" sections of the Form 10-K for the year ended December 31, 2013 filed by Oil States with the Securities and Exchange Commission on February 25, 2014. 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
 
  THREE MONTHS ENDED SIX MONTHS ENDED
  JUNE 30, JUNE 30,
  2014 2013 2014 2013
         
Revenues   $ 459,607 $390,789  $  864,844  $  769,649
         
Costs and expenses:        
 Cost of sales and services    307,908  265,829  580,280  533,769
 Selling, general and administrative expenses    43,039  36,931  84,447  72,069
 Depreciation and amortization expense    31,107  26,605  61,894  51,829
 Other operating expense    10,008  4,086  11,412  2,349
   392,062  333,451  738,033  660,016
Operating income    67,545  57,338  126,811  109,633
         
Interest expense    (5,853)  (10,092)  (13,898)  (20,147)
Interest income    146  163  261  301
Loss on extinguishment of debt (100,410)  --   (100,410)  -- 
Equity in earnings (losses) of unconsolidated affiliates    122  (95)  218  (831)
Other income    688  486  2,119  1,148
 Income (loss) from continuing operations before income taxes    (37,762)  47,800  15,101  90,104
Income tax (expense) benefit    13,646  (18,924)  (4,496)  (32,611)
Net income (loss)from continuing operations    (24,116)  28,876  10,605  57,493
Net income from discontinued operations, net of tax  16,242  47,660  53,037  121,250
Net income (loss)    (7,874)  76,536  63,642  178,743
 Less: Net income attributable to noncontrolling interest  6  11  18  29
Net income (loss) attributable to Oil States International, Inc.   $ (7,880) $ 76,525 $  63,624 $ 178,714
         
Net income (loss) attributable to Oil States International, Inc.:        
 Continuing operations $ (24,122) $ 28,865 $  10,587 $  57,464
 Discontinued operations    16,242  47,660  53,037  121,250
Net income (loss) attributable to Oil States International, Inc. $ (7,880) $ 76,525 $  63,624 $ 178,714
         
Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:        
 Continuing operations   $ (0.45) $ 0.52 $ 0.20 $ 1.04
 Discontinued operations    0.30  0.87  0.98  2.21
 Net income (loss) $ (0.15) $  1.39 $ 1.18 $ 3.25
         
Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:        
 Continuing operations   $ (0.45) $ 0.52 $ 0.20 $ 1.04
 Discontinued operations    0.30  0.86  0.98  2.18
 Net income (loss) $ (0.15) $ 1.38 $ 1.18 $ 3.22
         
Weighted average number of common shares outstanding:        
 Basic    53,090  55,061  53,189  54,935
 Diluted    53,090  55,582  53,486  55,477
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
     
  JUNE 30, DECEMBER 31,
ASSETS 2014 2013
  (UNAUDITED)  
   
Current assets:    
 Cash and cash equivalents  $ 64,895  $ 599,306
 Accounts receivable, net  460,664  620,333
 Inventories, net  247,905  266,552
 Prepaid expenses and other current assets  57,660  39,716
 Total current assets  831,124  1,525,907
     
Property, plant, and equipment, net  602,640  1,902,789
Goodwill, net  253,837  513,650
Other intangible assets, net  53,743  133,531
Other noncurrent assets   24,199  55,384
 Total assets  $ 1,765,543  $ 4,131,261
     
 LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Current liabilities:    
 Accounts payable  $ 104,221  $ 149,079
 Accrued liabilities  72,790  132,046
 Income taxes  8,229  32,679
 Current portion of long-term debt and capitalized leases  527  529
 Deferred revenue  34,516  50,366
 Other current liabilities  15,398  9,137
 Total current liabilities  235,681  373,836
     
 Long-term debt and capitalized leases (1)  188,361  972,692
 Deferred income taxes  26,108  122,821
 Other noncurrent liabilities  16,079  36,618
 Total liabilities   466,229  1,505,967
     
Stockholders' equity:    
 Oil States International, Inc. stockholders' equity:  
Common stock, $.01 par value, 200,000,000 shares authorized, 60,759,085 shares and 59,777,766 shares issued, respectively, and 54,302,476 shares and 54,767,284
shares outstanding, respectively
 608  592
Additional paid-in capital  666,799  637,438
Retained earnings  1,021,105  2,320,453
Accumulated other comprehensive income (loss)  1,290  (85,675)
Common stock held in treasury at cost, 6,456,609 and 5,010,482 shares, respectively  (390,672)  (249,391)
 Total Oil States International, Inc. stockholders' equity  1,299,130  2,623,417
Noncontrolling interest  184  1,877
 Total stockholders' equity  1,299,314   2,625,294
 Total liabilities and stockholders' equity  $ 1,765,543  $ 4,131,261

 (1) As of June 30, 2014, the Company had approximately $385.8 million available under its revolving credit facility.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUING AND DISCONTINUED OPERATIONS
(In Thousands)
 
  SIX MONTHS ENDED JUNE 30,
    2014    2013 
     
Cash flows from operating activities:    
Net income  $ 64,209  $ 179,453
Adjustments to reconcile net income to net cash provided by operating activities:    
 Depreciation and amortization  129,445  135,537
 Deferred income tax provision  8,929  (538)
 Excess tax benefits from share-based payment arrangements  (4,585)  (5,329)
 Provision for loss on receivables  2,330  1,555
 Non-cash compensation charge  15,470  13,133
Amortization of deferred financing costs  2,703  4,041
 Loss on extinguishment of debt  103,865  --
 Other, net  876  (687)
 Changes in operating assets and liabilities, net of effect from acquired businesses and net assets of Civeo that were distributed to stockholders:    
 Accounts receivable  (15,502)  73,965
 Inventories  (5,313)  (2,059)
 Accounts payable and accrued liabilities  (20,103)  (29,774)
 Taxes payable  (85,893)  2,618
 Other operating assets and liabilities, net   12,310   (12,933)
Net cash flows provided by operating activities  208,741  358,982
     
Cash flows from investing activities:    
 Capital expenditures, including capitalized interest  (203,417)  (240,423)
 Proceeds from disposition of property, plant and equipment  3,640  2,633
 Other, net   (839)   (227)
 Net cash flows used in investing activities  (200,616)  (238,017)
     
Cash flows from financing activities:    
Revolving credit borrowings and (repayments), net  181,928  (47,901)
Term borrowings of Civeo  775,000  --
Repayment of 6 1/2% senior notes  (630,307)  --
Repayment of 5 1/8% senior notes  (419,794)  --
Term loan repayments  --  (92,762)
Cash balances of Civeo in Spin-Off  (298,536)  --
Issuance of common stock from share-based payment arrangements  7,962  10,388
Purchase of treasury stock  (143,714)  (1,485)
Excess tax benefits from share-based payment arrangements  4,585  5,329
Payment of financing costs  (12,525)  (203)
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock   (4,964)  (3,722)
Other, net   (261)   (207)
 Net cash flows used in financing activities  (540,626)  (130,563)
     
Effect of exchange rate changes on cash   (1,910)   (17,717)
Net change in cash and cash equivalents  (534,411)  (27,315)
Cash and cash equivalents, beginning of period   599,306   253,172
     
Cash and cash equivalents, end of period  $ 64,895  $ 225,857
 
Oil States International, Inc.
Segment Data
(in thousands)
(unaudited)
         
  Three Months Ended June 30, Six Months Ended June 30,
  2014 2013 2014 2013
         
 Revenues         
 Completion services  $155,655 $142,171 $302,116 $279,537
 Drilling services   53,263  44,212  99,827  84,416
         
 Well site services   208,918  186,383  401,943  363,953
 Offshore products   250,689  204,406  462,901  405,696
 Total revenues  $459,607 $390,789 $864,844 $769,649
         
 EBITDA (A)         
 Completion services (1)  $51,288 $43,691 $101,411 $87,713
 Drilling services   15,667  13,377  28,633  23,367
         
 Well site services   66,955  57,068  130,044  111,080
 Offshore products   56,180  41,642  99,317  77,404
 Corporate and eliminations (2)   (23,679)  (14,387)  (38,337)  (26,734)
 Total EBITDA  $99,456 $84,323 $191,024 $161,750
         
 Operating income / (loss)         
 Completion services (1)  $32,472 $27,491 $63,517 $56,150
 Drilling services   8,739  7,133  14,534  11,213
         
 Well site services   41,211  34,624  78,051  67,363
 Offshore products   50,261  37,329  87,609  69,465
 Corporate and eliminations (2)   (23,927)  (14,615)  (38,849)  (27,195)
 Total operating income  $67,545 $57,338 $126,811 $109,633

(1) The EBITDA and operating income for completion services segment for the three and six months ended June 30, 2013 were negatively impacted by $3.0 million from an increase in an acquisition related contingent liability.

(2) The EBITDA and operating expense related to the Company's corporate function for the three and six months ended June 30, 2014 included transaction costs of $9.6 million and $11.0 million, respectively. These costs primarily related to activities associated with the spin-off of Civeo.

EBITDA and operating expense related to the Company's corporate function for the three and six months ended June 30, 2013 included transaction costs of $1.5 million. These costs primarily related to activities associated with the spin-off of Civeo.

Oil States International, Inc.
Reconciliation of GAAP to Non-GAAP Financial Information
(in thousands)
(unaudited)
         
  Three Months Ended June 30, Six Months Ended June 30,
  2014 2013 2014 2013
         
 Net income (loss) from continuing operations  ($24,122) $28,865 $10,587 $57,464
 Income tax provision (benefit)   (13,646)  18,924  4,496  32,611
 Depreciation and amortization   31,107  26,605  61,894  51,829
 Interest income   (146)  (163)  (261)  (301)
 Interest expense   5,853  10,092  13,898  20,147
 Loss on extinguishment of debt   100,410  --  100,410  --
 EBITDA (A)  $99,456 $84,323 $191,024 $161,750
         
 Adjustments to EBITDA:  9,644 4,456 11,020 4,545
 Adjusted EBITDA  $109,100 $88,779 $202,044 $166,295

(A) The term EBITDA and Adjusted EBITDA consists of net income from continuing operations plus interest, taxes, depreciation and amortization. EBITDA and Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA and Adjusted EBITDA as a supplemental disclosure because its management believes that EBITDA and Adjusted EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The Company uses EBITDA and Adjusted EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan. The table above sets forth a reconciliation of EBITDA and Adjusted EBITDA to net income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

Oil States International, Inc.
Additional Quarterly Segment and Operating Data
(unaudited)
     
  Three Months Ended June 30,
  2014 2013
     
 Supplemental operating data:     
     
 Offshore products backlog ($ in millions)  $599.4 $561.3
     
 Completion services job tickets   13,359  12,423
 Average revenue per ticket ($ in thousands)  $11.7 $11.4
     
 Land drilling operating statistics:     
 Average rigs available  34 34
 Utilization  90.5% 77.4%
 Implied day rate ($ in thousands per day)  $19.0 $18.5
 Implied daily cash margin ($ in thousands per day)  $5.8 $6.0
Company Contact:
Lloyd A. Hajdik
Oil States International, Inc.
Senior Vice President, Chief Financial Officer
and Treasurer
713-652-0582

Patricia Gil
Oil States International, Inc.
Investor Relations
713-470-4860