OIS - Oil States Announces Third Quarter 2019 Results of Operations

October, 24 2019 06:00 PM Oil States International Inc.

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

Services
141,630


139,720


154,323


415,633


428,736


263,697


264,685


274,594


778,993


814,015











Costs and expenses:









Product costs
90,796


95,289


87,822


275,353


276,122

Service costs
110,294


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 expense
31,935


31,484


32,285


93,527


102,399

Depreciation and amortization expense
31,366


31,883


30,586


94,800


90,698

Impairment of fixed assets
33,697


—


—


33,697


—

Other operating (income) expense, net
519


(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, net
1,190


1,009


709


2,866


1,927

Loss before income taxes
(38,072
)

(10,003
)

(7,856
)

(63,000
)

(8,096
)
Income tax benefit
6,204


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:








Basic
59,423


59,406


59,026


59,362


58,606

Diluted
59,423


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, net
256,387


283,607

Inventories, net
215,558


209,393

Prepaid expenses and other current assets
18,802


21,715

Total current assets
505,402


534,031





Property, plant, and equipment, net
470,983


540,427

Operating lease assets, net
45,497


—

Goodwill, net
646,744


647,018

Other intangible assets, net
236,159


255,301

Other noncurrent assets
29,179


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 payable
78,511


77,511

Accrued liabilities
59,988


60,730

Current operating lease liabilities
8,557


—

Income taxes payable
5,385


3,072

Deferred revenue
25,888


14,160

Total current liabilities
203,920


181,034





Long-term debt
239,596


306,177

Long-term operating lease liabilities
37,230


—

Deferred income taxes
41,604


53,831

Other noncurrent liabilities
25,270


23,011

Total liabilities
547,620


564,053





Stockholders' equity:



Common stock
726


718

Additional paid-in capital
1,110,572


1,097,758

Retained earnings
973,262


1,029,518

Accumulated other comprehensive loss
(76,932
)

(71,397
)
Treasury stock
(621,284
)

(616,829
)
Total stockholders' equity
1,386,344


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 expense
94,800


90,698

Impairment of fixed assets
33,697


—

Stock-based compensation expense
12,822


16,554

Amortization of debt discount and deferred financing costs
5,903


5,504

Deferred income tax provision (benefit)
(11,935
)

1,061

Gain on disposals of assets
(2,310
)

(5,046
)
Other, net
1,216


991

Changes in operating assets and liabilities, net of effect from acquired businesses:



Accounts receivable
24,993


(25,454
)
Inventories
(6,867
)

(7,867
)
Accounts payable and accrued liabilities
3,143


18,311

Income taxes payable
1,948


524

Other operating assets and liabilities, net
14,740


(10,406
)
Net cash flows provided by operating activities
115,894


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 equipment
3,619


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 borrowings
175,306


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 equivalents
101


849

Net change in cash and cash equivalents
(4,661
)

(17,198
)
Cash and cash equivalents, beginning of period
19,316


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 Services
12,034


12,646


16,920


32,430


51,235

Total Well Site Services
116,000


115,966


128,589


340,358


354,112

Downhole Technologies
42,882


46,740


56,571


143,912


161,626

Offshore/Manufactured Products⁽¹⁾:









Project-driven products
39,474


38,517


22,277


105,236


98,301

Short-cycle products
34,698


35,011


34,170


101,722


111,936

Other products and services
30,643


28,451


32,987


87,765


88,040

Total Offshore/Manufactured Products
104,815


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 expense
17,024


17,248


16,884


51,558


49,082

Other income
1,082


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 expense
3,164


3,224


3,479


9,729


10,898

Impairment of fixed assets
33,697


—


—


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 expense
20,188


20,472


20,363


61,287


59,980

Impairment of fixed assets
33,697


—


—


33,697


—

Other income
1,132


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 expense
5,309


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 expense
5,680


5,973


5,426


17,240


17,026

Other income
60


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 expense
189


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 expense
31,366


31,883


30,586


94,800


90,698

Impairment of fixed assets
33,697


—


—


33,697


—

Interest expense, net
4,352


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.

Company Name:	Oil States International Inc.
Stock Symbol:	OIS
Market:	NYSE
Website:	oilstatesintl.com

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