Oil States Announces Fourth Quarter 2019 Results of Operations


HOUSTON, Feb. 19, 2020 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE: OIS) reported a net loss for the fourth quarter of 2019 of $175.6 million, or $2.95 per share. The reported fourth quarter 2019 results included a non-cash goodwill impairment charge of $165.0 million ($165.0 million after-tax, or $2.78 per share) and severance and downsizing charges totaling $0.5 million ($0.4 million after-tax, or $0.01 per share). During the fourth quarter of 2019, the Company generated revenues of $238.4 million and Consolidated EBITDA (Note A) of $19.7 million.

Fourth quarter 2019 highlights included:

  • Generated $21.5 million in cash flow from operations

  • Repaid $13.1 million in borrowings under the revolving credit facility

  • Repurchased $6.8 million in principal amount of the convertible senior notes at a 13% discount to par value

  • Total debt to capitalization of 16.9%

  • Recorded a non-cash goodwill impairment charge of $165.0 million

These results compare to a reported net loss for the fourth quarter of 2018 of $14.3 million, or $0.24 per share, on revenues of $274.1 million and Consolidated EBITDA of $24.1 million. The reported fourth quarter 2018 results included legal fees incurred for patent defense of $2.4 million ($1.9 million after-tax, or $0.03 per share), transaction-related expenses of $0.7 million ($0.6 million after-tax, or $0.01 per share) and severance and downsizing charges of $0.8 million ($0.7 million after-tax, or $0.01 per share).

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, "Our fourth quarter results were consistent with our revised guidance issued in January and were reflective of the significant decline in U.S. land-based completion activity during the fourth quarter. Our Completion Services business was particularly affected in our Northeast and Mid-Continent regions of operations, where the corresponding average sequential rig counts were down 24% and 19%, respectively. Revenues in our Offshore/Manufactured Products segment benefited from increased project-driven product revenues converting from backlog; however, demand for our short-cycle products was down sequentially as activity declined and customers de-stocked existing inventories. Backlog in our Offshore/Manufactured Products segment totaled $280 million at December 31, 2019, and our book-to-bill ratios for the fourth quarter and full-year 2019 were 0.9x and 1.3x, respectively. Our Downhole Technologies segment was also negatively impacted by lower U.S. land completion activities. Despite the challenging market conditions we faced during the quarter, our business model and capital structure afforded us the ability to generate strong free cash flow, which was used to further reduce our debt outstanding. We remain focused on providing value-added products and services to meet customer demands while adjusting our capital investment plans and cost structure to align with the current market environment."

For the year ended December 31, 2019, the Company reported a net loss of $231.8 million, or $3.90 per share, revenues of $1.0 billion and Consolidated EBITDA of $98.9 million. The full year 2019 results included a non-cash goodwill impairment charge of $165.0 million ($165.0 million after-tax, or $2.78 per share), a non-cash fixed asset impairment charge of $33.7 million ($26.6 million after-tax, or $0.45 per share), and severance and downsizing charges of $3.5 million ($2.8 million after-tax, or $0.05 per share).

BUSINESS SEGMENT RESULTS

(See Segment Data Tables)

Offshore/Manufactured Products
The Offshore/Manufactured Products segment generated revenues and Segment EBITDA (Note B) of $108.2 million and $16.4 million, respectively, in the fourth quarter of 2019 compared to revenues of $104.8 million and Segment EBITDA of $16.9 million in the third quarter of 2019. Revenues increased 3% sequentially due primarily to an increase in project-driven product sales, partially offset by a reduction in sales of our shorter-cycle products (elastomer and valve products) as customers reduced their existing inventory levels. Segment EBITDA margin (defined as Segment EBITDA divided by segment revenues) was 15% in the fourth quarter of 2019 compared to a Segment EBITDA margin of 16% realized in the third quarter of 2019. The fourth quarter 2019 Segment EBITDA was negatively impacted by a $1.7 million bad debt provision on a prior-year receivable from a customer claiming bankruptcy protection. Excluding the $1.7 million provision for bad debt, the Segment EBITDA margin would have been 17%.

The book-to-bill ratio for the fourth quarter of 2019 was 0.9x and backlog at December 31, 2019 totaled $280 million. This compared to a backlog of $293 million at September 30, 2019 and $179 million reported at December 31, 2018.

Well Site Services
The Well Site Services segment generated revenues of $91.7 million and Segment EBITDA of $9.3 million in the fourth quarter of 2019 compared to revenues and Segment EBITDA of $116.0 million and $20.2 million, respectively, in the third quarter of 2019. The sequential revenue decline was concentrated in the Northeast and Mid-Continent regions of operation due to lower U.S. land completion activity in the fourth quarter and was also impacted by the reduction in scope of the Drilling Services business, which decreased from 34 rigs to 9 rigs. Segment EBITDA margins averaged 10% in the fourth quarter of 2019 compared to 17% in the third quarter of 2019.

Downhole Technologies
The Downhole Technologies segment generated revenues of $38.4 million and Segment EBITDA of $3.4 million in the fourth quarter of 2019 compared to revenues and Segment EBITDA of $42.9 million and $6.0 million, respectively, in the third quarter of 2019. Segment EBITDA margin was 9% in the fourth quarter of 2019 compared to 14% in the third quarter of 2019. Fourth quarter results were sequentially lower due to the decline in U.S. land completion activity and under-absorbed manufacturing facility costs. During the fourth quarter, the segment recorded a non-cash goodwill impairment charge of $165.0 million.

Interest Expense, Net
The Company reported net interest expense of $3.9 million in the fourth quarter of 2019. Included in net interest expense was $2.0 million of non-cash amortization of debt discount and deferred financing costs. For 2019, net interest expense totaled $17.6 million, of which $7.9 million was non-cash amortization of debt discount and deferred financing costs.

Income Taxes
The Company recognized an effective tax rate benefit of 1.2% in the fourth quarter of 2019 bringing the overall annual effective tax rate to a benefit of 3.7% for 2019.

Financial Condition
As of December 31, 2019, $51.9 million was outstanding under the Company’s revolving credit facility, while cash on hand totaled $8.5 million. The Company repaid $13.1 million and $84.2 million of borrowings outstanding under its revolving credit facility during the fourth quarter and full year 2019, respectively. As of December 31, 2019, the total amount available to be drawn under the revolving credit facility was $131.1 million. The Company repurchased $6.8 million and $7.8 million in principal amount of its outstanding convertible senior notes at a 13% discount to the par value of the notes during the fourth quarter and full year 2019, respectively. The Company's total debt represented 16.9% of combined total debt and stockholders' equity at December 31, 2019.

Conference Call Information
The call is scheduled for Thursday, February 20, 2020 at 9:00 am CT, is being webcast and can be accessed from the Company’s website at www.ir.oilstatesintl.com. Participants may also join the conference call by dialing (888) 771-4371 in the United States or by dialing +1 847 585 4405 internationally and using the passcode of 49403915. A replay of the conference call will be available one and a half hours 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 49403915.

About Oil States
Oil States International, Inc. is a global products and services company predominantly serving the drilling, completion, subsea, production and infrastructure sectors of the oil and gas industry. The Company’s manufactured products include highly engineered capital equipment as well as products consumed in the drilling, well construction and production of oil and natural gas. Oil States is headquartered in Houston, Texas with manufacturing and service facilities strategically located across the globe. 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 www.oilstatesintl.com.

Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A 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 herein are based on 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 others, the level of supply of and demand for oil and natural gas, fluctuations in the prices therefor and the cyclical nature of the oil and natural gas industry and the other risks associated with the general nature of the energy service industry discussed in the “Business” and “Risk Factors” sections of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, Periodic Reports on Form 8‑K and Quarterly Reports on Form 10‑Q. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)

 Three Months Ended Year Ended December 31,
 December 31,
2019
 September 30,
2019
 December 31,
2018
 2019 2018
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Revenues:         
Products$119,999  $122,067  $116,543  $483,359  $501,822 
Services118,362  141,630  157,575  533,995  586,311 
 238,361  263,697  274,118  1,017,354  1,088,133 
          
Costs and expenses:         
Product costs93,841  90,796  90,331  369,194  366,453 
Service costs99,668  110,294  125,231  433,395  468,060 
Cost of revenues (exclusive of depreciation and amortization expense presented below)193,509  201,090  215,562  802,589  834,513 
Selling, general and administrative expenses29,405  31,935  35,671  122,932  138,070 
Depreciation and amortization expense28,519  31,366  32,832  123,319  123,530 
Impairment of goodwill165,000      165,000   
Impairment of fixed assets  33,697    33,697   
Other operating (income) expense, net(2,037) 519  (7) (2,003) (2,104)
 414,396  298,607  284,058  1,245,534  1,094,009 
Operating loss(176,035) (34,910) (9,940) (228,180) (5,876)
          
Interest expense, net(3,915) (4,352) (4,908) (17,636) (18,995)
Other income, net2,223  1,190  1,212  5,089  3,139 
Loss before income taxes(177,727) (38,072) (13,636) (240,727) (21,732)
Income tax (provision) benefit2,175  6,204  (700) 8,919  2,627 
Net loss$(175,552) $(31,868) $(14,336) $(231,808) $(19,105)
          
Net loss per share from:         
Basic$(2.95) $(0.54) $(0.24) $(3.90) $(0.33)
Diluted$(2.95) $(0.54) $(0.24) $(3.90) $(0.33)
          
Weighted average number of common shares outstanding:        
Basic59,431  59,423  59,032  59,379  58,712 
Diluted59,431  59,423  59,032  59,379  58,712 
               


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

 December 31, 2019 December 31, 2018
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$8,493  $19,316 
Accounts receivable, net233,487  283,607 
Inventories, net221,342  209,393 
Prepaid expenses and other current assets20,107  21,715 
Total current assets483,429  534,031 
    
Property, plant and equipment, net459,724  540,427 
Operating lease assets, net43,616   
Goodwill, net482,306  647,018 
Other intangible assets, net230,091  255,301 
Other noncurrent assets28,701  27,044 
Total assets$1,727,867  $2,003,821 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$25,617  $25,561 
Accounts payable78,368  77,511 
Accrued liabilities48,840  60,730 
Current operating lease liabilities8,311   
Income taxes payable4,174  3,072 
Deferred revenue17,761  14,160 
Total current liabilities183,071  181,034 
    
Long-term debt222,552  306,177 
Long-term operating lease liabilities35,777   
Deferred income taxes38,079  53,831 
Other noncurrent liabilities24,421  23,011 
Total liabilities503,900  564,053 
    
Stockholders' equity:   
Common stock726  718 
Additional paid-in capital1,114,521  1,097,758 
Retained earnings797,710  1,029,518 
Accumulated other comprehensive loss(67,746) (71,397)
Treasury stock, at cost(621,244) (616,829)
Total stockholders' equity1,223,967  1,439,768 
Total liabilities and stockholders' equity$1,727,867  $2,003,821 
        


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

 Year Ended December 31,
 2019 2018
 (Unaudited)  
Cash flows from operating activities:   
Net loss$(231,808) $(19,105)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization expense123,319  123,530 
Impairment of goodwill165,000   
Impairment of fixed assets33,697   
Stock-based compensation expense16,768  22,649 
Amortization of debt discount and deferred financing costs7,884  7,408 
Deferred income tax benefit(15,469) (3,489)
Gain on disposals of assets(4,291) (6,288)
Other, net3,079  1,411 
Changes in operating assets and liabilities, net of effect from acquired businesses:   
Accounts receivable50,257  (16,792)
Inventories(10,774) (7,283)
Accounts payable and accrued liabilities(6,173) 5,796 
Income taxes payable662  802 
Other operating assets and liabilities, net5,281  (5,469)
Net cash flows provided by operating activities137,432  103,170 
    
Cash flows from investing activities:   
Capital expenditures(56,116) (88,024)
Proceeds from disposition of property, plant and equipment6,046  3,659 
Acquisitions of businesses, net of cash acquired  (379,676)
Proceeds from flood insurance claims  3,850 
Other, net(1,912) (1,184)
Net cash flows used in investing activities(51,982) (461,375)
    
    
Cash flows from financing activities:   
Revolving credit facility borrowings246,828  835,467 
Revolving credit facility repayments(331,041) (699,322)
Issuance of 1.50% convertible senior notes  200,000 
Purchases of 1.50% convertible senior notes(6,724)  
Other debt and finance lease repayments, net(500) (537)
Payment of financing costs(16) (7,372)
Purchase of treasury stock(757)  
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock(3,698) (4,178)
Net cash flows (used in) provided by financing activities(95,908) 324,058 
    
Effect of exchange rate changes on cash and cash equivalents(365) 4 
Net change in cash and cash equivalents(10,823) (34,143)
Cash and cash equivalents, beginning of year19,316  53,459 
Cash and cash equivalents, end of year$8,493  $19,316 
    
Cash paid for:   
Interest$9,626  $9,864 
Income taxes, net of refunds(1,303) 2,993 
      


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

SEGMENT DATA
(In Thousands)
(unaudited)

 Three Months Ended Year Ended December 31,
 December 31,
2019 (2)
 September 30,
2019 (3)
 December 31,
2018 (4)
 2019 (5) 2018 (6)
Revenues:         
Well Site Services:         
Completion Services$82,820  $103,966  $108,142  $390,748  $411,019 
Drilling Services8,916  12,034  18,000  41,346  69,235 
Total Well Site Services91,736  116,000  126,142  432,094  480,254 
Downhole Technologies38,402  42,882  52,187  182,314  213,813 
Offshore/Manufactured Products (1):         
Project-driven products53,969  39,474  22,593  159,205  120,894 
Short-cycle products21,500  34,698  32,431  123,222  144,367 
Other products and services32,754  30,643  40,765  120,519  128,805 
Total Offshore/Manufactured Products108,223  104,815  95,789  402,946  394,066 
Total revenues$238,361  $263,697  $274,118  $1,017,354  $1,088,133 
          
Operating income (loss):         
Well Site Services:         
Completion Services$(9,339) $1,719  $(1,109) $(11,621) $(7,647)
Drilling Services236  (36,495) (1,889) (43,419) (9,363)
Total Well Site Services(9,103) (34,776) (2,998) (55,040) (17,010)
Downhole Technologies(167,259) 659  566  (164,008) 26,705 
Offshore/Manufactured Products9,815  11,139  6,729  36,022  38,914 
Corporate(9,488) (11,932) (14,237) (45,154) (54,485)
Total operating loss$(176,035) $(34,910) $(9,940) $(228,180) $(5,876)

(1) Disaggregated revenue information is provided to supplement the Segment Data.

(2) Operating income (loss) for the three months ended December 31, 2019 included severance and downsizing charges of $0.5 million related to the Completion Services business and a non-cash goodwill impairment charge of $165.0 million related to the Downhole Technologies segment.

(3) Operating income (loss) for the three months ended September 30, 2019 included severance and downsizing charges of $0.3 million related to the Completion Services business and $0.4 million related to the Offshore/Manufactured Products segment, and a non-cash fixed asset impairment charge of $33.7 million related to the Drilling Services business.

(4) Operating income (loss) for the three months ended December 31, 2018 included severance and downsizing charges of $0.2 million related to the Completion Services business and $0.7 million related to the Offshore/Manufactured Products segment, $2.4 million of patent defense costs related to the Downhole Technologies segment, and transaction-related expenses of $0.6 million and $0.1 million related to Corporate and the Downhole Technologies segment, respectively.

(5) Operating income (loss) for the year ended December 31, 2019 included severance and downsizing charges of $1.8 million related to the Completions Services business and $1.7 million related to the Offshore/Manufactured Products segment, a non-cash fixed asset impairment charge of $33.7 million related to the Drilling Services business, and a non-cash goodwill impairment charge of $165.0 million related to the Downhole Technologies segment.

(6) Operating income (loss) for the year ended December 31, 2018 included severance and downsizing charges of $1.5 million related to the Offshore/Manufactured Products segment and $0.1 million related to the Completion Services business, $8.4 million of patent defense costs related to the Downhole Technologies segment, transaction-related expenses of $3.0 million and $0.3 million related to Corporate and the Downhole Technologies segment, respectively, as well as $3.0 million in reserves for prior years' Fair Labor Standards Act claims settlements related to the Completion Services business.


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
SEGMENT EBITDA (B)
(In Thousands)
(unaudited)

 Three Months Ended Year Ended December 31,
 December 31,
2019
 September 30,
2019
 December 31,
2018
 2019 2018
Well Site Services:         
Completion Services:         
Operating income (loss)$(9,339) $1,719  $(1,109) $(11,621) $(7,647)
Depreciation and amortization expense16,882  17,024  17,333  68,440  66,415 
Other income1,258  1,082  1,209  3,730  2,624 
EBITDA$8,801  $19,825  $17,433  $60,549  $61,392 
          
Drilling Services:         
Operating income (loss)$236  $(36,495) $(1,889) $(43,419) $(9,363)
Depreciation and amortization expense244  3,164  3,456  9,973  14,354 
Impairment of fixed assets  33,697    33,697   
Other income  50  1  197  380 
EBITDA$480  $416  $1,568  $448  $5,371 
          
Total Well Site Services:         
Operating loss$(9,103) $(34,776) $(2,998) $(55,040) $(17,010)
Depreciation and amortization expense17,126  20,188  20,789  78,413  80,769 
Impairment of fixed assets  33,697    33,697   
Other income1,258  1,132  1,210  3,927  3,004 
Segment EBITDA$9,281  $20,241  $19,001  $60,997  $66,763 
          
Downhole Technologies:         
Operating income (loss)$(167,259) $659  $566  $(164,008) $26,705 
Depreciation and amortization expense5,616  5,309  5,651  21,247  18,649 
Impairment of goodwill165,000      165,000   
Other income (expense)  (2) (7) 12  (19)
Segment EBITDA$3,357  $5,966  $6,210  $22,251  $45,335 
          
Offshore/Manufactured Products:         
Operating income$9,815  $11,139  $6,729  $36,022  $38,914 
Depreciation and amortization expense5,602  5,680  6,181  22,842  23,207 
Other income965  60  9  1,150  154 
Segment EBITDA$16,382  $16,879  $12,919  $60,014  $62,275 
          
Corporate:         
Operating loss$(9,488) $(11,932) $(14,237) $(45,154) $(54,485)
Depreciation and amortization expense175  189  211  817  905 
EBITDA$(9,313) $(11,743) $(14,026) $(44,337) $(53,580)
                    


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In Thousands)
(unaudited)

 Three Months Ended Year Ended December 31,
 December 31,
2019
 September 30,
2019
 December 31,
2018
 2019 2018
Net loss$(175,552) $(31,868) $(14,336) $(231,808) $(19,105)
Income tax provision (benefit)(2,175) (6,204) 700  (8,919) (2,627)
Depreciation and amortization expense28,519  31,366  32,832  123,319  123,530 
Impairment of goodwill165,000      165,000   
Impairment of fixed assets  33,697    33,697   
Interest expense, net3,915  4,352  4,908  17,636  18,995 
Consolidated EBITDA (A)$19,707  $31,343  $24,104  $98,925  $120,793 
  1. The term Consolidated EBITDA consists of net loss plus net interest expense, taxes, depreciation and amortization expense, and adjustments for certain other items such as non-cash asset impairment charges. Consolidated EBITDA does not give effect to cash used for debt service requirements, reinvestment or other discretionary uses and is not a measure of financial performance under generally accepted accounting principles. Accordingly, it should not be considered in isolation from or as a substitute for net loss or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. The Company has included Consolidated EBITDA as a supplemental disclosure because its management believes that Consolidated EBITDA provides useful information regarding its 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 Consolidated EBITDA to compare and to monitor the performance of the Company and 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 Consolidated EBITDA to net loss, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.
     
  2. The terms EBITDA and Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, other income (loss), and adjustments for certain other items such as non-cash asset impairment charges. EBITDA and Segment EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for operating income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. The Company has included EBITDA and Segment EBITDA as a supplemental disclosure because its management believes that EBITDA and Segment EBITDA provide useful information regarding its 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 Segment 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 tables above set forth reconciliations of EBITDA and Segment EBITDA to operating income (loss), which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.


Company Contact:
Lloyd A. Hajdik
Oil States International, Inc.
Executive Vice President, Chief Financial Officer and Treasurer
713-652-0582

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

SOURCE: Oil States International, Inc.