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Oct 29, 2018

Oil States Announces Third Quarter 2018 Results

HOUSTON, Oct. 29, 2018 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE: OIS) reported a net loss for the third quarter of 2018 of $4.0 million, or $0.07 per diluted share, which included charges related to:

  • Legal fees incurred for patent defense of $3.5 million ($2.8 million after-tax, or $0.05 per diluted share)
  • 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)

These results compare to a reported net loss for the third quarter of 2017 of $15.0 million, or $0.30 per diluted share, which included charges of $0.4 million ($0.3 million after-tax, or $0.01 per diluted share) of severance and downsizing charges and $1.0 million of additional tax expense ($0.02 per diluted share) due to the decision to carry back 2016 net operating losses against taxable income reported in 2014.

During the third quarter of 2018, the Company generated revenues of $274.6 million and Consolidated EBITDA (Note A) of $27.6 million. These results compare to revenues of $164.0 million and Adjusted Consolidated EBITDA (Note A) of $9.2 million reported in the third quarter of 2017 (excluding $0.4 million of severance and downsizing charges).

For the first nine months of 2018, the Company reported revenues of $814.0 million and Adjusted Consolidated EBITDA of $100.1 million (excluding $2.6 million of transaction-related charges and $0.8 million of severance and downsizing charges).

The net loss for the first nine months of 2018 totaled $4.8 million which included charges related to:

  • Transaction-related charges of $2.6 million ($2.1 million after-tax, or $0.03 per diluted share)
  • Severance charges of $0.8 million ($0.6 million after-tax, or $0.01 per diluted share)
  • Legal fees incurred for patent defense of $5.9 million ($4.7 million after-tax, or $0.08 per diluted share)
  • Reserves for prior years' FLSA claim settlements of $3.3 million ($2.6 million after-tax, or $0.04 per diluted share)

For the first nine months of 2017, the Company reported revenues of $486.9 million and Adjusted Consolidated EBITDA of $25.0 million (excluding $2.0 million of severance and downsizing charges). The net loss for the first nine months of 2017 totaled $47.0 million and included $2.0 million ($1.5 million after-tax, or $0.03 per diluted share) of severance and downsizing charges.

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, commented, "Our third quarter results were negatively impacted by a number of items, including legal fees incurred for patent defense in the Downhole Technologies segment and prior years’ FLSA claim settlements in our Well Site Services segment. In addition, our results were impacted by sequentially lower revenues and under-absorption of manufacturing facility costs primarily in our Offshore/Manufactured Products segment due to revenue slippage and the delay of certain project awards, while our Well Site Services segment incurred higher than expected repair and maintenance, and equipment rental expenses. Despite these items, on a year-over-year basis, our third quarter revenues were up 67% and our quarterly EBITDA was up 213%. These year-over-year improvements were due to contributions from our two strategic acquisitions that we completed in the first quarter of this year, coupled with improved land completions activity in the key shale play regions in the U.S."

BUSINESS SEGMENT RESULTS
(See Segment Data tables for year-over-year comparisons)

Well Site Services
Well Site Services generated revenues of $128.6 million, Segment EBITDA (Note B) of $15.5 million and a Segment EBITDA margin of 12% in the third quarter of 2018. This compared to revenues of $77.2 million, Segment EBITDA  of $7.1 million and a Segment EBITDA margin of 9% in the third quarter of 2017. The 67% revenue increase was due to a 71% year-over-year increase in the number of Completion Services jobs performed, coupled with a 7% year-over-year increase in revenue per Completion Services job. Improved results were driven by significantly increased completion-related activity levels in the United States, and a full quarters' revenue contribution generated by Falcon Flowback Services, LLC (“Falcon”), which was acquired on February 28, 2018.  Segment results for the current quarter included $2.6 million of prior years' FLSA claim settlements.

Downhole Technologies (acquisition of GEODynamics, Inc. closed on January 12, 2018)
In the third quarter of 2018, Downhole Technologies generated revenues of $56.6 million, Segment EBITDA of $11.1 million and a Segment EBITDA margin of 20%. The segment results were negatively impacted by $3.5 million of patent defense costs incurred in the third quarter of 2018. No results for GEODynamics were included in the third quarter of 2017 given our acquisition of the business in January 2018.

Offshore/Manufactured Products
Offshore/Manufactured Products generated revenues and Segment EBITDA of $89.4 million and $12.6 million, respectively, in the third quarter of 2018 compared to revenues of $86.9 million and Segment EBITDA of $13.8 million in the third quarter of 2017. Revenues increased 3% while Segment EBITDA decreased 9% year-over-year. Other product and service revenues increased 25% year-over-year, offset partially by lower short-cycle product sales (elastomer and valve products), which decreased 10% year-over-year due to lower customer demand, likely due to stocking cycles. Segment EBITDA margin in the third quarter of 2018 was 14% compared to 16% in the third quarter of 2017.

Backlog increased 6% sequentially to total $175 million at September 30, 2018 compared to $165 million at June 30, 2018 and $198 million at September 30, 2017. The third quarter book-to-bill ratio was 1.1x.

Income Taxes
The Company recognized an effective tax rate benefit of 48.8% in the third quarter of 2018 which compared to an effective tax rate benefit of 21.1% in the third quarter of 2017. The higher effective tax rate benefit in the third quarter of 2018 was primarily attributable to a $5.8 million discrete tax benefit related to recent U.S. tax reform guidance allowing the carry back of U.S. net operating losses incurred in 2017 against taxable income reported in 2015.

Financial Condition
As of September 30, 2018, $160.6 million was outstanding under the Company’s revolving credit facility along with an additional $23.0 million of outstanding letters of credit, while cash totaled $36.3 million. The Company had access to $149.8 million of revolving credit facility availability as of September 30, 2018.

Conference Call Information
The call is scheduled for Monday, October 29, 2018 at 9:00 am CT, and 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 47745272. 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 47745272.

About Oil States
Oil States International, Inc. is a global oilfield products and services company 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. Through its recent acquisition of GEODynamics, Inc., 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 other things, risks and uncertainties relating to Oil States' ability to retain GEODynamics' and Falcon's customers and employees, the ability to successfully integrate GEODynamics' and Falcon's operations, product lines, technology and employees into Oil States' operations, and the ability to achieve the expected synergies as well as accretion in earnings; risks associated with the general nature of the energy service industry; and other factors discussed in the “Business” and “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, 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 September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Revenues:              
Products $ 120,271     $ 67,339     $ 385,279     $ 223,269  
Services 154,323     96,709     428,736     263,648  
  274,594     164,048     814,015     486,917  
               
Costs and expenses:              
Product costs 87,822     50,593     276,122     160,252  
Service costs 127,836     78,596     342,829     219,697  
Cost of revenues (exclusive of depreciation and amortization expense presented below) 215,658     129,189     618,951     379,949  
Selling, general and administrative expense 32,285     26,843     102,399     84,055  
Depreciation and amortization expense 30,586     26,788     90,698     82,552  
Other operating (income) expense, net (213 )   (589 )   (2,097 )   374  
  278,316     182,231     809,951     546,930  
Operating income (loss) (3,722 )   (18,183 )   4,064     (60,013 )
               
Interest expense (4,913 )   (1,147 )   (14,359 )   (3,370 )
Interest income 70     73     272     243  
Other income 709     207     1,927     477  
Loss before income taxes (7,856 )   (19,050 )   (8,096 )   (62,663 )
Income tax benefit 3,837     4,019     3,327     15,708  
Net loss $ (4,019 )   $ (15,031 )   $ (4,769 )   $ (46,955 )
               
Net loss per share:              
Basic $ (0.07 )   $ (0.30 )   $ (0.08 )   $ (0.94 )
Diluted $ (0.07 )   $ (0.30 )   $ (0.08 )   $ (0.94 )
               
Weighted average number of common shares outstanding:              
Basic 59,026     49,978     58,606     50,190  
Diluted 59,026     49,978     58,606     50,190  
                       

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

  September 30, 2018   December 31, 2017
  (Unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $ 36,261     $ 53,459  
Accounts receivable, net 296,713     216,139  
Inventories, net 210,783     168,285  
Prepaid expenses and other current assets 21,872     18,054  
Total current assets 565,629     455,937  
       
Property, plant, and equipment, net 544,653     498,890  
Goodwill, net 656,753     268,009  
Other intangible assets, net 247,876     50,265  
Other noncurrent assets 29,885     28,410  
Total assets $ 2,044,796     $ 1,301,511  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capitalized leases $ 25,535     $ 411  
Accounts payable 78,621     49,089  
Accrued liabilities 65,700     45,889  
Income taxes payable 2,514     1,647  
Deferred revenue 13,489     18,234  
Total current liabilities 185,859     115,270  
       
Long-term debt and capitalized leases 328,876     4,870  
Deferred income taxes 54,141     24,718  
Other noncurrent liabilities 26,245     23,940  
Total liabilities 595,121     168,798  
       
Stockholders’ equity:      
Common stock 718     627  
Additional paid-in capital 1,091,663     754,607  
Retained earnings 1,043,854     1,048,623  
Accumulated other comprehensive loss (69,731 )   (58,493 )
Treasury stock (616,829 )   (612,651 )
Total stockholders’ equity 1,449,675     1,132,713  
Total liabilities and stockholders’ equity $ 2,044,796     $ 1,301,511  
               
               

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

  Nine Months Ended September 30,
  2018   2017
Cash flows from operating activities:      
Net loss $ (4,769 )   $ (46,955 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization expense 90,698     82,552  
Stock-based compensation expense 16,554     17,023  
Amortization of debt discount and deferred financing costs 5,504     608  
Deferred income tax expense (benefit) 1,061     (2,224 )
Provision for bad debt 1,083     257  
Gain on disposals of assets (5,046 )   (526 )
Other, net (92 )   62  
Changes in operating assets and liabilities, net of effect from acquired businesses:      
Accounts receivable (25,454 )   26,909  
Inventories (7,867 )   5,912  
Accounts payable and accrued liabilities 18,311     11,811  
Income taxes payable 524     (4,789 )
Other operating assets and liabilities, net (10,406 )   (14,323 )
Net cash flows provided by operating activities 80,101     76,317  
       
Cash flows from investing activities:      
Capital expenditures (71,286 )   (20,331 )
Acquisitions of businesses, net of cash acquired (379,676 )   (12,859 )
Proceeds from disposition of property, plant and equipment 1,812     1,125  
Proceeds from flood insurance claims 3,589      
Other, net (1,218 )   (631 )
Net cash flows used in investing activities (446,779 )   (32,696 )
       
Cash flows from financing activities:      
Issuance of 1.50% convertible senior notes 200,000      
Revolving credit facility borrowings 769,147     167,183  
Revolving credit facility repayments (608,565 )   (193,761 )
Other debt and capital lease repayments, net (405 )   (403 )
Payment of financing costs (7,368 )    
Purchase of treasury stock     (16,283 )
Shares added to treasury stock as a result of net share settlements
due to vesting of restricted stock
(4,178 )   (5,305 )
Net cash flows provided by (used in) financing activities 348,631     (48,569 )
       
Effect of exchange rate changes on cash and cash equivalents 849     2,012  
Net change in cash and cash equivalents (17,198 )   (2,936 )
Cash and cash equivalents, beginning of period 53,459     68,800  
Cash and cash equivalents, end of period $ 36,261     $ 65,864  
               
               

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

SEGMENT DATA
(In Thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Revenues:              
Well Site Services:              
Completion Services $ 111,669     $ 61,015     $ 302,877     $ 167,577  
Drilling Services 16,920     16,162     51,235     39,120  
Total Well Site Services 128,589     77,177     354,112     206,697  
Downhole Technologies 56,571         161,626      
Offshore/Manufactured Products:              
Project-driven products 22,277     22,698     98,301     89,615  
Short-cycle products 34,170     37,781     111,936     110,872  
Other products and services 32,987     26,392     88,040     79,733  
Total Offshore/Manufactured Products 89,434     86,871     298,277     280,220  
Total revenues $ 274,594     $ 164,048     $ 814,015     $ 486,917  
               
Operating income (loss):              
Well Site Services:              
Completion Services(2) $ (3,271 )   $ (9,933 )   $ (6,538 )   $ (38,960 )
Drilling Services (2,206 )   (3,235 )   (7,474 )   (11,239 )
Total Well Site Services (5,477 )   (13,168 )   (14,012 )   (50,199 )
Downhole Technologies(1) 6,485         26,139      
Offshore/Manufactured Products(1,2) 7,069     7,334     32,185     27,460  
Corporate(1) (11,799 )   (12,349 )   (40,248 )   (37,274 )
Total operating income (loss) $ (3,722 )   $ (18,183 )   $ 4,064     $ (60,013 )
                               
                               

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

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

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Well Site Services:              
Completion Services:              
Operating loss $ (3,271 )   $ (9,933 )   $ (6,538 )   $ (38,960 )
Depreciation and amortization expense 16,884     15,679     49,082     48,400  
Other income 620     133     1,415     412  
EBITDA 14,233     5,879     43,959     9,852  
Severance and downsizing charges     175         1,077  
Adjusted EBITDA $ 14,233     $ 6,054     $ 43,959     $ 10,929  
               
Drilling Services:              
Operating loss $ (2,206 )   $ (3,235 )   $ (7,474 )   $ (11,239 )
Depreciation and amortization expense 3,479     4,454     10,898     14,283  
Other income (expense) (1 )   44     379     48  
EBITDA $ 1,272     $ 1,263     $ 3,803     $ 3,092  
               
Total Well Site Services:              
Operating loss $ (5,477 )   $ (13,168 )   $ (14,012 )   $ (50,199 )
Depreciation and amortization expense 20,363     20,133     59,980     62,683  
Other income 619     177     1,794     460  
Segment EBITDA 15,505     7,142     47,762     12,944  
Severance and downsizing charges     175         1,077  
Adjusted Segment EBITDA $ 15,505     $ 7,317     $ 47,762     $ 14,021  
               
Downhole Technologies:              
Operating income $ 6,485     $     $ 26,139     $  
Depreciation and amortization expense 4,582         12,998      
Other income (expense) 1         (12 )    
Segment EBITDA 11,068         39,125      
Transaction-related charges         211      
Adjusted Segment EBITDA $ 11,068     $     $ 39,336     $  
               
Offshore/Manufactured Products:              
Operating income $ 7,069     $ 7,334     $ 32,185     $ 27,460  
Depreciation and amortization expense 5,426     6,404     17,026     19,091  
Other income 89     30     145     17  
Segment EBITDA 12,584     13,768     49,356     46,568  
Severance and downsizing charges     253     783     946  
Adjusted Segment EBITDA $ 12,584     $ 14,021     $ 50,139     $ 47,514  
               
Corporate:              
Operating loss $ (11,799 )   $ (12,349 )   $ (40,248 )   $ (37,274 )
Depreciation and amortization expense 215     251     694     778  
Other expense              
EBITDA (11,584 )   (12,098 )   (39,554 )   (36,496 )
Transaction-related charges         2,371      
Adjusted EBITDA $ (11,584 )   $ (12,098 )   $ (37,183 )   $ (36,496 )
                               
                               

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

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

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
               
Net loss $ (4,019 )   $ (15,031 )   $ (4,769 )   $ (46,955 )
Income tax benefit (3,837 )   (4,019 )   (3,327 )   (15,708 )
Depreciation and amortization expense 30,586     26,788     90,698     82,552  
Interest income (70 )   (73 )   (272 )   (243 )
Interest expense 4,913     1,147     14,359     3,370  
Consolidated EBITDA (A) 27,573     8,812     96,689     23,016  
               
Adjustments to Consolidated EBITDA (1,2):              
Transaction-related charges         2,582      
Severance and downsizing charges     428     783     2,023  
Adjusted Consolidated EBITDA (A) $ 27,573     $ 9,240     $ 100,054     $ 25,039  
                               

(1) Operating income (loss) and Segment and Consolidated EBITDA 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 severance charges of $0.8 million related to the Offshore/Manufactured Products segment.

(2) Operating income (loss) and Segment and Consolidated EBITDA for the three and nine months ended September 30, 2017 included severance and downsizing charges of $0.2 million and $1.1 million, respectively, related to the Completion Services business and $0.3 million and $0.9 million, respectively, related to the Offshore/Manufactured Products segment.

(A) The terms Consolidated EBITDA and Adjusted Consolidated EBITDA consist of net income (loss) plus net interest expense, taxes, depreciation and amortization expense, and certain other items.  Consolidated EBITDA and Adjusted Consolidated 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 net income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, Consolidated EBITDA and Adjusted Consolidated EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included Consolidated EBITDA and Adjusted Consolidated EBITDA as a supplemental disclosure because its management believes that Consolidated EBITDA and Adjusted Consolidated 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 Consolidated EBITDA and Adjusted 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 and Adjusted Consolidated EBITDA to net income (loss), which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

(B) The terms EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, and certain other items.  EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted 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, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA as a supplemental disclosure because its management believes that EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted 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, Adjusted EBITDA, Segment EBITDA and Adjusted 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, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA to operating income (loss), which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

ADDITIONAL QUARTERLY SEGMENT AND OPERATING DATA
(unaudited)

  Three Months Ended September 30,
  2018   2017
Supplemental operating data:      
Offshore/Manufactured Products backlog ($ in millions) $ 174.6     $ 198.1  
       
Completion Services job tickets 8,485     4,970  
Average revenue per ticket ($ in thousands) $ 13.2     $ 12.3  
       
Land drilling operating statistics:      
Average rigs available 34     34  
Utilization 30.5 %   33.6 %
Implied day rate ($ in thousands per day) $ 17.7     $ 15.4  
Implied daily cash margin ($ in thousands per day) $ 1.8     $ 1.6  

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.

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Source: Oil States International, Inc.

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