Oil States Announces Third Quarter 2019 Results of Operations


HOUSTON, Oct. 24, 2019 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE: OIS) reported a net loss for the third quarter of 2019 of $31.9 million, or $0.54 per diluted share, on revenues of $263.7 million and Consolidated EBITDA (Note A) of $31.3 million. The reported third quarter 2019 results included a non-cash fixed asset impairment charge for the Drilling Services business of $33.7 million ($26.6 million after-tax, or $0.45 per diluted share) and severance and downsizing charges totaling $0.7 million ($0.5 million after-tax, or $0.01 per diluted share).

These results compare to reported net loss for the third quarter of 2018 of $4.0 million, or $0.07 per diluted share, on revenues of $274.6 million and Consolidated EBITDA of $27.6 million. The reported third quarter 2018 results included legal fees incurred for patent defense of $3.5 million ($2.8 million after-tax, or $0.05 per diluted share) and a reserve for prior years' Fair Labor Standards Act ("FLSA") claim settlements of $2.6 million ($2.1 million after-tax, or $0.03 per diluted share).

Third quarter 2019 highlights included:

  • Cash flow from operations totaling $49.9 million

  • Revolving credit facility net repayments totaling $34.2 million

  • Offshore/Manufactured Products backlog increase of 3.7%, with a 1.2x book-to-bill ratio for the quarter

  • Drilling Services non-cash fixed asset impairment charge of $33.7 million

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, "Our third quarter revenues were largely in-line with our previous guidance, but Consolidated EBITDA outperformed the mid-point of our estimates supported by sequential improvements in Gulf of Mexico and international Completion Services activity, along with increased sales of our project-driven products and other products and services in our Offshore/Manufactured Products segment. Our consolidated revenue was flat sequentially, but EBITDA grew 18% over the period, yielding very strong incrementals. We received one notable project award above $10 million during the quarter, our fourth such significant award won so far this year, leading to a 3.7% increase in backlog and a 1.2x book-to-bill ratio for the quarter, bringing us to a 1.5x book-to-bill ratio year-to-date. As of September 30, 2019 our backlog totaled $293.3 million, our highest level reported since March 31, 2016. In addition, we generated strong quarterly free cash flow, which was used to reduce debt."

BUSINESS SEGMENT RESULTS

(See Segment Data tables)

Offshore/Manufactured Products

Offshore/Manufactured Products generated revenues and Segment EBITDA (Note B) of $104.8 million and $16.9 million, respectively, in the third quarter of 2019 compared to revenues of $102.0 million and Segment EBITDA of $15.8 million reported in the second quarter of 2019. Revenues increased 2.8% while Segment EBITDA increased 6.5% sequentially, due to higher project-driven sales and other products and services revenues, coupled with improved facility cost absorption. Segment EBITDA margin in the third quarter of 2019 was 16.1%, up from 15.5% reported in the second quarter of 2019.

Notable backlog additions during the third quarter of 2019 included a military product award. Backlog increased 3.7% sequentially and 67.9% year-over-year, respectively, totaling $293.3 million at September 30, 2019 compared to $282.9 million at June 30, 2019, and $174.6 million at September 30, 2018. Third quarter 2019 bookings totaled $123.2 million, yielding a book-to-bill ratio of 1.2x.

Well Site Services

Well Site Services generated revenues of $116.0 million, Segment EBITDA of $20.2 million and a Segment EBITDA margin of 17.4% in the third quarter of 2019. This compares to revenues of $116.0 million, Segment EBITDA of $18.3 million and a Segment EBITDA margin of 15.8% reported in the second quarter of 2019. Results in the third quarter of 2019 benefited from improved Completion Services customer activity in international markets and the Gulf of Mexico, along with the benefits of continued cost reduction measures.

During the third quarter of 2019, the Company made the strategic decision to reduce the scope of its Drilling Services business (with plans to adjust from 34 rigs to 9 rigs) due to ongoing weakness in customer demand for vertical drilling units in the U.S. land market. As a result of this decision, the Drilling Services business recorded a non-cash impairment charge of $33.7 million to decrease the carrying value of the associated fixed assets.

Downhole Technologies

Downhole Technologies generated revenues of $42.9 million and Segment EBITDA of $6.0 million in the third quarter of 2019 compared to revenues and Segment EBITDA of $46.7 million and $3.8 million, respectively, in the second quarter of 2019. While EBITDA improved considerably, sequential revenue declines were realized as the segment experienced lower customer activity levels later in the third quarter. Segment EBITDA margin was 13.9% in the third quarter of 2019 compared to 8.1% in the second quarter of 2019. The second quarter 2019 Segment EBITDA margin was negatively impacted by $1.4 million of inventory write-offs associated with product design changes.

Income Taxes

The Company recognized an effective tax rate benefit of 16.3% in the third quarter of 2019 which compared to an effective tax rate benefit of 2.6% in the second quarter of 2019. The effective tax rate benefit for both periods was below the U.S. statutory rate primarily due to certain non-deductible expenses.

Financial Condition

As of September 30, 2019, $65.0 million was outstanding under the Company’s revolving credit facility, while cash on hand totaled $14.7 million. The Company repaid $34.2 million of borrowings outstanding under its revolving credit facility during the third quarter of 2019. As of September 30, 2019, the total amount available to be drawn under the revolving credit facility was $139.1 million. The Company's total debt represented 16.1% of combined total debt and stockholders' equity at September 30, 2019.

Conference Call Information

The call is scheduled for Friday, October 25, 2019 at 10:00 am Central Time, 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 49128922. 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 49128922.

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 gas. The Company is also a leading researcher, developer and manufacturer of engineered solutions to connect the wellbore with the formation in oil and gas well completions. 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

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

 Three Months Ended Nine Months Ended
 September 30,
 2019
 June 30,
 2019
 September 30,
 2018
 September 30,
 2019
 September 30,
 2018
Revenues:         
Products$122,067  $124,965  $120,271  $363,360  $385,279 
Services141,630  139,720  154,323  415,633  428,736 
 263,697  264,685  274,594  778,993  814,015 
          
Costs and expenses:         
Product costs90,796  95,289  87,822  275,353  276,122 
Service costs110,294  112,823  127,836  333,727  342,829 
Cost of revenues (exclusive of depreciation and amortization expense presented below)201,090  208,112  215,658  609,080  618,951 
Selling, general and administrative expense31,935  31,484  32,285  93,527  102,399 
Depreciation and amortization expense31,366  31,883  30,586  94,800  90,698 
Impairment of fixed assets33,697      33,697   
Other operating (income) expense, net519  (399) (213) 34  (2,097)
 298,607  271,080  278,316  831,138  809,951 
Operating income (loss)(34,910) (6,395) (3,722) (52,145) 4,064 
          
Interest expense, net(4,352) (4,617) (4,843) (13,721) (14,087)
Other income, net1,190  1,009  709  2,866  1,927 
Loss before income taxes(38,072) (10,003) (7,856) (63,000) (8,096)
Income tax benefit6,204  263  3,837  6,744  3,327 
Net loss$(31,868) $(9,740) $(4,019) $(56,256) $(4,769)
          
Net loss per share:         
Basic$(0.54) $(0.16) $(0.07) $(0.95) $(0.08)
Diluted$(0.54) $(0.16) $(0.07) $(0.95) $(0.08)
          
Weighted average number of common shares outstanding:        
Basic59,423  59,406  59,026  59,362  58,606 
Diluted59,423  59,406  59,026  59,362  58,606 


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

 September 30, 2019 December 31, 2018
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$14,655  $19,316 
Accounts receivable, net256,387  283,607 
Inventories, net215,558  209,393 
Prepaid expenses and other current assets18,802  21,715 
Total current assets505,402  534,031 
    
Property, plant, and equipment, net470,983  540,427 
Operating lease assets, net45,497   
Goodwill, net646,744  647,018 
Other intangible assets, net236,159  255,301 
Other noncurrent assets29,179  27,044 
Total assets$1,933,964  $2,003,821 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Current portion of long-term debt$25,591  $25,561 
Accounts payable78,511  77,511 
Accrued liabilities59,988  60,730 
Current operating lease liabilities8,557   
Income taxes payable5,385  3,072 
Deferred revenue25,888  14,160 
Total current liabilities203,920  181,034 
    
Long-term debt239,596  306,177 
Long-term operating lease liabilities37,230   
Deferred income taxes41,604  53,831 
Other noncurrent liabilities25,270  23,011 
Total liabilities547,620  564,053 
    
Stockholders' equity:   
Common stock726  718 
Additional paid-in capital1,110,572  1,097,758 
Retained earnings973,262  1,029,518 
Accumulated other comprehensive loss(76,932) (71,397)
Treasury stock(621,284) (616,829)
Total stockholders' equity1,386,344  1,439,768 
Total liabilities and stockholders' equity$1,933,964  $2,003,821 


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

 Nine Months Ended September 30,
 2019 2018
Cash flows from operating activities:   
Net loss$(56,256) $(4,769)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization expense94,800  90,698 
Impairment of fixed assets33,697   
Stock-based compensation expense12,822  16,554 
Amortization of debt discount and deferred financing costs5,903  5,504 
Deferred income tax provision (benefit)(11,935) 1,061 
Gain on disposals of assets(2,310) (5,046)
Other, net1,216  991 
Changes in operating assets and liabilities, net of effect from acquired businesses:   
Accounts receivable24,993  (25,454)
Inventories(6,867) (7,867)
Accounts payable and accrued liabilities3,143  18,311 
Income taxes payable1,948  524 
Other operating assets and liabilities, net14,740  (10,406)
Net cash flows provided by operating activities115,894  80,101 
    
Cash flows from investing activities:   
Capital expenditures(45,832) (71,286)
Acquisitions of businesses, net of cash acquired  (379,676)
Proceeds from disposition of property, plant and equipment3,619  1,812 
Proceeds from flood insurance claims  3,589 
Other, net(1,534) (1,218)
Net cash flows used in investing activities(43,747) (446,779)
    
Cash flows from financing activities:   
Issuance of 1.50% convertible senior notes  200,000 
Purchase of 1.50% convertible senior notes(858)  
Revolving credit facility borrowings175,306  769,147 
Revolving credit facility repayments(246,450) (608,565)
Other debt and finance lease repayments, net(434) (405)
Payment of financing costs(18) (7,368)
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 provided by (used in) financing activities(76,909) 348,631 
    
Effect of exchange rate changes on cash and cash equivalents101  849 
Net change in cash and cash equivalents(4,661) (17,198)
Cash and cash equivalents, beginning of period19,316  53,459 
Cash and cash equivalents, end of period$14,655  $36,261 
    
Cash paid for:   
Interest$8,378  $7,730 
Income taxes, net of refunds(2,522) 2,369 


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

SEGMENT DATA
(In Thousands)
(unaudited)

 Three Months Ended Nine Months Ended
 September 30,
 2019
 June 30,
 2019
 September 30,
 2018
 September 30,
 2019
 September 30,
 2018
Revenues:         
Well Site Services:         
Completion Services$103,966  $103,320  $111,669  $307,928  $302,877 
Drilling Services12,034  12,646  16,920  32,430  51,235 
Total Well Site Services116,000  115,966  128,589  340,358  354,112 
Downhole Technologies42,882  46,740  56,571  143,912  161,626 
Offshore/Manufactured Products(1):         
Project-driven products39,474  38,517  22,277  105,236  98,301 
Short-cycle products34,698  35,011  34,170  101,722  111,936 
Other products and services30,643  28,451  32,987  87,765  88,040 
Total Offshore/Manufactured Products104,815  101,979  89,434  294,723  298,277 
Total revenues$263,697  $264,685  $274,594  $778,993  $814,015 
          
Operating income (loss):         
Well Site Services:         
Completion Services(2,3,4,5,6)$1,719  $(507) $(3,271) $(2,282) $(6,538)
Drilling Services(2,5)(36,495) (2,601) (2,206) (43,655) (7,474)
Total Well Site Services(34,776) (3,108) (5,477) (45,937) (14,012)
Downhole Technologies(4,6)659  (1,462) 6,485  3,251  26,139 
Offshore/Manufactured Products(2,3,5,6)11,139  9,809  7,069  26,207  32,185 
Corporate(6)(11,932) (11,634) (11,799) (35,666) (40,248)
Total operating income (loss)$(34,910) $(6,395) $(3,722) $(52,145) $4,064 

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

(2) 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.

(3) Operating income (loss) for the three months ended June 30, 2019 included severance charges of $0.3 million related to the Completion Services business and $1.0 million related to the Offshore/Manufactured Products segment.

(4) Operating income (loss) for the three months ended September 30, 2018 included $3.5 million of legal fees incurred for patent defense in the Downhole Technologies segment and $2.6 million in reserves for prior years' FLSA claims settlements related to the Completion Services business.

(5) Operating income (loss) for the nine months ended September 30, 2019 included severance and downsizing charges of $1.3 million related to the Completions Services business and $1.7 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.

(6) Operating income (loss) for the nine months ended September 30, 2018 included transaction-related expenses of $2.4 million and $0.2 million related to Corporate and the Downhole Technologies segment, respectively, as well as $5.9 million of legal fees incurred for patent defense in the Downhole Technologies segment, severance charges of $0.8 million related to the Offshore/Manufactured Products segment, and $3.3 million in reserves for prior years' FLSA 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 Nine Months Ended
 September 30,
 2019
 June 30,
 2019
 September 30,
 2018
 September 30,
 2019
 September 30,
 2018
Well Site Services:         
Completion Services:         
Operating income (loss)$1,719  $(507) $(3,271) $(2,282) $(6,538)
Depreciation and amortization expense17,024  17,248  16,884  51,558  49,082 
Other income1,082  809  620  2,472  1,415 
EBITDA$19,825  $17,550  $14,233  $51,748  $43,959 
          
Drilling Services:         
Operating loss$(36,495) $(2,601) $(2,206) $(43,655) $(7,474)
Depreciation and amortization expense3,164  3,224  3,479  9,729  10,898 
Impairment of fixed assets33,697      33,697   
Other income (expense)50  126  (1) 197  379 
EBITDA$416  $749  $1,272  $(32) $3,803 
          
Total Well Site Services:         
Operating loss$(34,776) $(3,108) $(5,477) $(45,937) $(14,012)
Depreciation and amortization expense20,188  20,472  20,363  61,287  59,980 
Impairment of fixed assets33,697      33,697   
Other income1,132  935  619  2,669  1,794 
Segment EBITDA$20,241  $18,299  $15,505  $51,716  $47,762 
          
Downhole Technologies:         
Operating income (loss)$659  $(1,462) $6,485  $3,251  $26,139 
Depreciation and amortization expense5,309  5,256  4,582  15,631  12,998 
Other income (expense)(2) 14  1  12  (12)
Segment EBITDA$5,966  $3,808  $11,068  $18,894  $39,125 
          
Offshore/Manufactured Products:         
Operating income$11,139  $9,809  $7,069  $26,207  $32,185 
Depreciation and amortization expense5,680  5,973  5,426  17,240  17,026 
Other income60  60  89  185  145 
Segment EBITDA$16,879  $15,842  $12,584  $43,632  $49,356 
          
Corporate:         
Operating loss$(11,932) $(11,634) $(11,799) $(35,666) $(40,248)
Depreciation and amortization expense189  182  215  642  694 
Other expense         
EBITDA$(11,743) $(11,452) $(11,584) $(35,024) $(39,554)


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

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

 Three Months Ended Nine Months Ended
 September 30,
 2019
 June 30,
 2019
 September 30,
 2018
 September 30,
 2019
 September 30,
 2018
          
Net loss$(31,868) $(9,740) $(4,019) $(56,256) $(4,769)
Income tax benefit(6,204) (263) (3,837) (6,744) (3,327)
Depreciation and amortization expense31,366  31,883  30,586  94,800  90,698 
Impairment of fixed assets33,697      33,697   
Interest expense, net4,352  4,617  4,843  13,721  14,087 
Consolidated EBITDA (A)$31,343  $26,497  $27,573  $79,218  $96,689 

(A) The term Consolidated EBITDA consists of net loss plus net interest expense, taxes, depreciation and amortization expense, and certain other items. Consolidated 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 loss or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, Consolidated EBITDA may not be comparable to other similarly titled measures of other companies. 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.

(B) The terms EBITDA and Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, and certain other items. 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. Additionally, EBITDA and Segment EBITDA may not be comparable to other similarly titled measures of other companies. 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.