SEC Filing | Oil States International, Inc.

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ois-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-16337

OIL STATES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		76-0476605
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Three Allen Center, 333 Clay Street
Suite 4620		77002
Houston,	Texas	(Zip Code)
(Address of principal executive offices)

(713) 652-0582

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

OIS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes			☒			No			☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes			☒			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes			☐			No			☒

As of July 21, 2023, the number of shares of common stock outstanding was 63,902,866.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


	Page
Part I – FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed Consolidated Financial Statements
Unaudited Consolidated Statements of Operations			3
Unaudited Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Unaudited Consolidated Statements of Stockholders' Equity			6
Unaudited Consolidated Statements of Cash Flows			8
Notes to Unaudited Condensed Consolidated Financial Statements	9	–	17

Cautionary Statement Regarding Forward-Looking Statements	18	–	19

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	19	–	31

Item 3. Quantitative and Qualitative Disclosures About Market Risk			31

Item 4. Controls and Procedures			32

Part II – OTHER INFORMATION

Item 1. Legal Proceedings			33

Item 1A. Risk Factors			33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34

Item 3. Defaults Upon Senior Securities			34

Item 4. Mine Safety Disclosures			34

Item 5. Other Information			34

Item 6. Exhibits			35

Signature Page			36

Tabl e of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Products	$	92,630	$	99,033	$	192,470	$	184,794
Services	90,899		82,801		187,258		161,084
	183,529		181,834		379,728		345,878

Costs and expenses:
Product costs	72,659		79,388		151,336		144,189
Service costs	69,371		62,768		141,429		124,571
Cost of revenues (exclusive of depreciation and amortization expense presented below)	142,030		142,156		292,765		268,760
Selling, general and administrative expense	23,528		23,757		47,544		47,590
Depreciation and amortization expense	15,537		17,239		30,793		35,056
Other operating income, net	(835)		(228)		(518)		(102)
	180,260		182,924		370,584		351,304
Operating income (loss)	3,269		(1,090)		9,144		(5,426)



Interest expense, net	(2,059)		(2,638)		(4,450)		(5,310)
Other income, net	210		376		486		1,401
Income (loss) before income taxes	1,420		(3,352)		5,180		(9,335)
Income tax provision	(862)		(1,792)		(2,464)		(5,233)
Net income (loss)	$	558	$	(5,144)	$	2,716	$	(14,568)

Net income (loss) per share:
Basic	$	0.01	$	(0.08)	$	0.04	$	(0.24)
Diluted	0.01		(0.08)		0.04		(0.24)

Weighted average number of common shares outstanding:
Basic	62,803		60,704		62,814		60,601
Diluted	63,174		60,704		63,161		60,601

The accompanying notes are an integral part of these financial statements.

Tabl e of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income (loss)	$	558	$	(5,144)	$	2,716	$	(14,568)

Other comprehensive income (loss):
Currency translation adjustments	3,270		(12,680)		7,419		(11,819)



Comprehensive income (loss)	$	3,828	$	(17,824)	$	10,135	$	(26,387)

The accompanying notes are an integral part of these financial statements.

Tabl e of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)


	June 30, 2023		December 31, 2022
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	42,420	$	42,018
Accounts receivable, net	180,917		218,769
Inventories, net	205,132		182,658
Prepaid expenses and other current assets	28,217		19,317
Total current assets	456,686		462,762

Property, plant, and equipment, net	296,015		303,835
Operating lease assets, net	23,266		23,028
Goodwill, net	79,778		79,282
Other intangible assets, net	161,476		169,798
Other noncurrent assets	27,799		25,687
Total assets	$	1,045,020	$	1,064,392

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt	$	513	$	17,831
Accounts payable	56,726		73,251
Accrued liabilities	42,987		49,057
Current operating lease liabilities	6,750		6,142
Income taxes payable	2,740		2,605
Deferred revenue	53,027		44,790
Total current liabilities	162,743		193,676

Long-term debt	135,273		135,066
Long-term operating lease liabilities	20,027		20,658
Deferred income taxes	8,601		6,652
Other noncurrent liabilities	20,271		18,782
Total liabilities	346,915		374,834

Stockholders' equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 77,231,725 shares and 76,587,920 shares issued, respectively	772		766
Additional paid-in capital	1,125,647		1,122,292
Retained earnings	274,743		272,027
Accumulated other comprehensive loss	(71,522)		(78,941)
Treasury stock, at cost, 13,328,859 and 12,684,101 shares, respectively	(631,535)		(626,586)
Total stockholders' equity	698,105		689,558
Total liabilities and stockholders' equity	$	1,045,020	$	1,064,392

The accompanying notes are an integral part of these financial statements.

Tabl e of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In Thousands)


Three Months Ended June 30, 2023	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, March 31, 2023	$	771	$	1,123,876	$	274,185	$	(74,792)	$	(628,522)	$	695,518
Net income	—		—		558		—		—		558
Currency translation adjustments (excluding intercompany advances)	—		—		—		2,709		—		2,709
Currency translation adjustments on intercompany advances	—		—		—		561		—		561
Stock-based compensation expense	1		1,771		—		—		—		1,772
Stock repurchases	—		—		—		—		(3,001)		(3,001)
Surrender of stock to settle taxes on stock awards	—		—		—		—		(12)		(12)
Balance, June 30, 2023	$	772	$	1,125,647	$	274,743	$	(71,522)	$	(631,535)	$	698,105


Six Months Ended June 30, 2023	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2022	$	766	$	1,122,292	$	272,027	$	(78,941)	$	(626,586)	$	689,558
Net income	—		—		2,716		—		—		2,716
Currency translation adjustments (excluding intercompany advances)	—		—		—		6,203		—		6,203
Currency translation adjustments on intercompany advances	—		—		—		1,216		—		1,216
Stock-based compensation expense	6		3,355		—		—		—		3,361
Stock repurchases	—		—		—		—		(3,001)		(3,001)
Surrender of stock to settle taxes on stock awards	—		—		—		—		(1,948)		(1,948)
Balance, June 30, 2023	$	772	$	1,125,647	$	274,743	$	(71,522)	$	(631,535)	$	698,105

The accompanying notes are an integral part of these financial statements.

Tabl e of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In Thousands)


Three Months Ended June 30, 2022	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, March 31, 2022	$	746	$	1,106,963	$	272,143	$	(65,170)	$	(626,574)	$	688,108
Net loss	—		—		(5,144)		—		—		(5,144)
Currency translation adjustments (excluding intercompany advances)	—		—		—		(9,628)		—		(9,628)
Currency translation adjustments on intercompany advances	—		—		—		(3,052)		—		(3,052)
Stock-based compensation expense	1		1,668		—		—		—		1,669
Surrender of stock to settle taxes on stock awards	—		—		—		—		(12)		(12)
Balance, June 30, 2022	$	747	$	1,108,631	$	266,999	$	(77,850)	$	(626,586)	$	671,941


Six Months Ended June 30, 2022	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2021	$	739	$	1,105,135	$	281,567	$	(66,031)	$	(625,584)	$	695,826
Net loss	—		—		(14,568)		—		—		(14,568)
Currency translation adjustments (excluding intercompany advances)	—		—		—		(13,208)		—		(13,208)
Currency translation adjustments on intercompany advances	—		—		—		1,389		—		1,389
Stock-based compensation expense	8		3,496		—		—		—		3,504
Surrender of stock to settle taxes on stock awards	—		—		—		—		(1,002)		(1,002)
Balance, June 30, 2022	$	747	$	1,108,631	$	266,999	$	(77,850)	$	(626,586)	$	671,941

The accompanying notes are an integral part of these financial statements.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	2,716	$	(14,568)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense	30,793		35,056
Stock-based compensation expense	3,361		3,504
Amortization of deferred financing costs	892		944
Deferred income tax provision	997		2,584
Gains on disposals of assets	(561)		(1,185)

Settlement of disputes with seller of GEODynamics, Inc.	—		620
Other, net	(267)		360
Changes in operating assets and liabilities, net of effect from acquired business:
Accounts receivable	39,042		(20,469)
Inventories	(21,197)		(14,664)
Accounts payable and accrued liabilities	(25,924)		(5,994)
Deferred revenue	8,237		4,647
Other operating assets and liabilities, net	653		(870)
Net cash flows provided by (used in) operating activities	38,742		(10,035)

Cash flows from investing activities:
Capital expenditures	(17,338)		(6,453)
Proceeds from disposition of property and equipment	690		1,652
Acquisition of business, net of cash acquired	—		(8,125)
Other, net	(66)		(85)
Net cash flows used in investing activities	(16,714)		(13,011)

Cash flows from financing activities:
Revolving credit facility borrowings	35,592		9,725
Revolving credit facility repayments	(35,592)		(9,725)

Repayment of 1.50% convertible senior notes	(17,315)		(6,272)
Other debt and finance lease repayments	(226)		(359)
Payment of financing costs	(95)		(74)
Purchases of treasury stock	(3,001)		—
Shares added to treasury stock as a result of net share settlements due to vesting of stock awards	(1,948)		(1,002)
Net cash flows used in financing activities	(22,585)		(7,707)

Effect of exchange rate changes on cash and cash equivalents	959		147
Net change in cash and cash equivalents	402		(30,606)
Cash and cash equivalents, beginning of period	42,018		52,852
Cash and cash equivalents, end of period	$	42,420	$	22,246

Cash paid (received) for:
Interest	$	4,060	$	4,105
Income taxes, net	(1,475)		291

The accompanying notes are an integral part of these financial statements.

Table of Contents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. Certain information in footnote disclosures normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair statement of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.

The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, reserves on inventory, allowances for doubtful accounts, settlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates.

The Company revised its presentation of supplemental disclosure of disaggregated revenue information in Note 9, "Segments and Related Information," in the second quarter of 2023. Prior-period disclosures of disaggregated revenue information were conformed with the current-period presentation.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by the Company as of the specified effective date. Management believes that recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.

The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2022.

2. Details of Selected Balance Sheet Accounts

Additional information regarding selected balance sheet accounts as of June 30, 2023 and December 31, 2022 is presented below (in thousands):


	June 30, 2023			December 31, 2022
Accounts receivable, net:
Trade	$	131,726		$	145,540
Unbilled revenue	26,796			29,679
Contract assets	23,714			42,599
Other	3,754			6,177
Total accounts receivable	185,990			223,995
Allowance for doubtful accounts	(5,073)			(5,226)
	$	180,917		$	218,769

Allowance for doubtful accounts as a percentage of total accounts receivable	3		%	2		%


	June 30, 2023		December 31, 2022
Deferred revenue (contract liabilities)	$	53,027	$	44,790

As of June 30, 2023, accounts receivable, net in the United States and the United Kingdom represented 73% and 10%, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of June 30, 2023.

Table of Co ntents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the six months ended June 30, 2023, the $18.9 million net decrease in contract assets was attributable to $37.3 million transferred to accounts receivable during the period, which was partially offset by $18.4 million in revenue recognized. Deferred revenue (contract liabilities) increased by $8.2 million in the first six months of 2023, reflecting $20.6 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $12.4 million of revenue that was deferred at the beginning of the period.

The following provides a summary of activity in the allowance for doubtful accounts for the six months ended June 30, 2023 and 2022 (in thousands):


	Six Months Ended June 30,
	2023		2022
Allowance for doubtful accounts – January 1	$	5,226	$	4,471
Provisions	14		1,044
Write-offs	(204)		(629)
Other	37		280
Allowance for doubtful accounts – June 30	$	5,073	$	5,166


	June 30, 2023		December 31, 2022
Inventories, net:
Finished goods and purchased products	$	103,641	$	90,443
Work in process	33,431		32,079
Raw materials	107,781		97,817
Total inventories	244,853		220,339
Allowance for excess or obsolete inventory	(39,721)		(37,681)
	$	205,132	$	182,658


			June 30, 2023			December 31, 2022
Property, plant and equipment, net:







Property, plant and equipment	$	1,054,155		$	1,128,834
Accumulated depreciation	(758,140)			(824,999)
							$	296,015	$	303,835

During the second quarter of 2023, a facility held for sale by the Offshore/Manufactured Products segment was reclassified from property, plant and equipment to prepaid and other current assets. The estimated fair value of the facility exceeded its net carrying value of $6.9 million and, thus no impairment charge was recognized.

For the three months ended June 30, 2023 and 2022, depreciation expense was $11.2 million and $12.0 million, respectively. Depreciation expense was $22.2 million and $24.6 million, respectively, for the six months ended June 30, 2023 and 2022.


	June 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Other intangible assets:
Customer relationships	$	141,313	$	52,069	$	89,244	$	141,179	$	47,629	$	93,550
Patents/Technology/Know-how	69,977		31,863		38,114		69,830		29,214		40,616
Tradenames and other	52,502		18,384		34,118		52,488		16,856		35,632
	$	263,792	$	102,316	$	161,476	$	263,497	$	93,699	$	169,798

For the three months ended June 30, 2023 and 2022, amortization expense was $4.3 million and $5.3 million, respectively. Amortization expense was $8.6 million and $10.4 million for the six months ended June 30, 2023 and 2022, respectively.

Table of Co ntents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	June 30, 2023		December 31, 2022
Other noncurrent assets:
Deferred compensation plan	$	19,231	$	17,551
Deferred financing costs	1,543		1,893
Deferred income taxes	2,351		1,517
Other	4,674		4,726
	$	27,799	$	25,687


	June 30, 2023		December 31, 2022
Accrued liabilities:
Accrued compensation	$	21,742	$	33,659
Accrued taxes, other than income taxes	3,762		1,865
Insurance liabilities	4,150		4,640
Accrued interest	1,685		1,784
Accrued commissions	2,475		2,302
Other	9,173		4,807
	$	42,987	$	49,057

3. Long-term Debt

As of June 30, 2023 and December 31, 2022, long-term debt consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Revolving credit facility(1)	$	—	$	—
2026 Notes(2)	132,597		132,164
2023 Notes	—		17,303
Other debt and finance lease obligations	3,189		3,430
Total debt	135,786		152,897
Less: Current portion	(513)		(17,831)
Total long-term debt	$	135,273	$	135,066

____________________

(1)Unamortized deferred financing costs of $1.5 million and $1.9 million as of June 30, 2023 and December 31, 2022, respectively, are presented in other noncurrent assets.

(2)The outstanding principal amount of the 2026 Notes was $135.0 million as of June 30, 2023 and December 31, 2022.

Revolving Credit Facility

On February 10, 2021, the Company entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation.

The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million.

The ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of letters of credit. Borrowings under the ABL Agreement are secured by a pledge of substantially all of the Company's domestic assets (other than real property) and the stock of certain foreign subsidiaries.

Table of Co ntents

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Since December 13, 2022, borrowings under the ABL Agreement bear interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") rate (subject to a floor rate of 0%) plus a margin of 2.75% to 3.25%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. Quarterly, the Company must also pay a commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement.

The ABL Agreement places restrictions on the Company's ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2026 Notes discussed below), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of repayment of all amounts then outstanding. The ABL Agreement also requires the Company to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 (i) in the event that availability under the ABL Agreement is less than the greater of (a) 15% of the borrowing base and (b) $14.1 million; (ii) to complete certain specified transactions; or (iii) if an event of default has occurred and is continuing.

As of June 30, 2023, the Company had no borrowings outstanding under the ABL Facility and $15.1 million of outstanding letters of credit. The total amount available to be drawn as of June 30, 2023 was $90.9 million, calculated based on the current borrowing base less outstanding borrowings and letters of credit. As of June 30, 2023, the Company was in compliance with its debt covenants under the ABL Agreement.

2026 Notes

The Company issued $135.0 million aggregate principal amount of its 4.75% convertible senior notes due 2026 (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between the Company and Computershare Trust Company, National Association, as successor trustee.

The 2026 Notes bear interest at a rate of 4.75% per year and will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest and special interest may accrue on the 2026 Notes under certain circumstances as described in the 2026 Indenture. The initial conversion rate is 95.3516 shares of the Company's common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of $10.49 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2026 Indenture. The Company's intent is to repay the principal amount of the 2026 Notes in cash and settle the conversion feature (if any) in shares of the Company's common stock. As of June 30, 2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.

2023 Notes

On February 15, 2023, the Company's 1.50% convertible senior notes due 2023 (the "2023 Notes") matured and the outstanding $17.3 million principal amount was repaid in full.

4. Fair Value Measurements

The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2026 Notes as of June 30, 2023 was $143.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $135.0 million.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

5. Stockholders' Equity

Common and Preferred Stock

The following table provides details with respect to the changes to the number of shares of common stock, $0.01 par value, outstanding during the first six months of 2023 (in thousands):







Shares of common stock outstanding – December 31, 2022															63,904
Restricted stock awards, net of forfeitures															644
Shares withheld for taxes on vesting of stock awards															(206)
Purchases of treasury stock															(439)
Shares of common stock outstanding – June 30, 2023															63,903

As of June 30, 2023 and December 31, 2022, the Company had 25,000,000 shares of preferred stock, $0.01 par value, authorized, with no shares issued or outstanding.

On February 16, 2023, the Company's Board of Directors authorized $25.0 million for the repurchase of the Company's common stock, par value $0.01 per share, through February 2025. During the second quarter of 2023, the Company repurchased 438,563 shares of common stock under the program at a total cost of $3.0 million. The amount remaining under the Company's share repurchase authorization as of June 30, 2023 was $22.0 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, reported as a component of stockholders' equity, primarily relates to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain of the international operations of the Company's operating segments. Accumulated other comprehensive loss decreased from $78.9 million at December 31, 2022 to $71.5 million at June 30, 2023. For the three and six months ended June 30, 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

During the six months ended June 30, 2023, the exchange rates for the British pound and the Brazilian real strengthened by 5% and 8%, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $7.4 million. During the six months ended June 30, 2022, the exchange rate for the British pound weakened by 10% compared to the U.S. dollar while the Brazilian real strengthened by 7% compared to the U.S. dollar, contributing to other comprehensive loss of $11.8 million.

6. Income Taxes

The income tax expense for the three and six months ended June 30, 2023 was calculated using a discrete approach. This methodology was used because changes in the Company's results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the three months ended June 30, 2023, the Company's income tax expense was $0.9 million on pre-tax income of $1.4 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $1.8 million on a pre-tax loss of $3.4 million, which included the impact of changes in valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items, for the three months ended June 30, 2022.

For the six months ended June 30, 2023, the Company's income tax expense was $2.5 million on pre-tax income of $5.2 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $5.2 million on a pre-tax loss of $9.3 million, which included the impact of valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items, for the six months ended June 30, 2022.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

7. Net Income (Loss) Per Share

The table below provides a reconciliation of the numerators and denominators of basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerators:
Net income (loss)	$	558	$	(5,144)	$	2,716	$	(14,568)
Less: Income attributable to unvested restricted stock awards	(11)		—		(53)		—
Numerator for basic net income (loss) per share	547		(5,144)		2,663		(14,568)
Effect of dilutive securities:
Unvested restricted stock awards	—		—		—		—
Numerator for diluted net income (loss) per share	$	547	$	(5,144)	$	2,663	$	(14,568)

Denominators:
Weighted average number of common shares outstanding	64,061		61,948		64,064		61,788
Less: Weighted average number of unvested restricted stock awards outstanding	(1,258)		(1,244)		(1,250)		(1,187)
Denominator for basic net income (loss) per share	62,803		60,704		62,814		60,601
Effect of dilutive securities:
Unvested restricted stock awards	—		—		—		—
Unvested performance share units	371		—		347		—


Denominator for diluted net income (loss) per share	63,174		60,704		63,161		60,601

Net income (loss) per share:
Basic	$	0.01	$	(0.08)	$	0.04	$	(0.24)
Diluted	0.01		(0.08)		0.04		(0.24)

The calculation of diluted net income per share for the three and six months ended June 30, 2023 excluded 163 thousand shares and 186 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. The calculation of diluted net loss per share for the three and six months ended June 30, 2022 excluded 264 thousand shares and 306 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of the 2026 Notes were excluded due to, among other factors, the Company's share price.

8. Long-Term Incentive Compensation

The following table presents a summary of activity for stock options, service-based restricted stock and stock unit awards, and performance-based stock unit awards for the six months ended June 30, 2023 (in thousands):


	Stock Options	Service-based Restricted Stock		Performance- and Service-based Stock Units
Outstanding – December 31, 2022	245	1,222		494
Granted	—	644		211
Vested and distributed	—	(617)		—
Forfeited	(84)	—		—
Outstanding – June 30, 2023	161	1,249		705
Weighted average grant date fair value (2023 awards)		$	8.81	$	8.66

The restricted stock program consists of a combination of service-based restricted stock and stock units, as well as performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over a term of three years. Service-based stock unit awards vest over one-year, with the underlying shares issued at a specified future date. Eighty-two thousand service-based stock units were outstanding as of June 30, 2023. Performance-based stock unit awards generally

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

vest at the end of a three-year period, with the number of shares ultimately issued under the program dependent upon achievement of predefined specific performance objectives based on the Company's cumulative EBITDA over a three-year period.

In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200% of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest.

The Company issued conditional long-term cash incentive awards ("Cash Awards") of $1.5 million in the first quarters of 2023 and 2022. The performance measure for each of these Cash Awards is relative total stockholder return compared to a peer group of companies over a three-year period. The ultimate dollar amount to be awarded for each annual grant may range from zero to a maximum of $3.1 million, limited to their targeted award value ($1.5 million) if the Company's total stockholder return were to be negative over the performance period. Obligations related to the Cash Awards are classified as liabilities and recognized over their respective vesting periods.

Stock-based compensation expense recognized during the three and six months ended June 30, 2023 totaled $1.8 million and $3.4 million, respectively. Stock-based compensation expense recognized during the three and six months ended June 30, 2022 totaled $1.7 million and $3.5 million, respectively. As of June 30, 2023, there was $10.6 million of total compensation costs related to unvested restricted stock awards, which is expected to be recognized in future periods as vesting conditions are satisfied.

9. Segments and Related Information

The Company operates through three operating segments: Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Financial information by operating segment for the three and six months ended June 30, 2023 and 2022 is summarized in the following tables (in thousands).


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Three Months Ended June 30, 2023
Offshore/Manufactured Products	$	94,086	$	4,647	$	11,253	$	4,662	$	538,490
Well Site Services	64,536		6,564		4,732		5,672		204,437
Downhole Technologies	24,907		4,175		(2,536)		171		249,540
Corporate	—		151		(10,180)		265		52,553
Total	$	183,529	$	15,537	$	3,269	$	10,770	$	1,045,020


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Three Months Ended June 30, 2022
Offshore/Manufactured Products	$	96,467	$	5,249	$	9,441	$	571	$	552,091
Well Site Services	54,819		7,395		601		2,918		195,444
Downhole Technologies	30,548		4,423		(1,485)		67		257,174
Corporate	—		172		(9,647)		39		47,594
Total	$	181,834	$	17,239	$	(1,090)	$	3,595	$	1,052,303


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Six Months Ended June 30, 2023
Offshore/Manufactured Products	$	192,285	$	9,315	$	22,343	$	5,197	$	538,490
Well Site Services	131,594		12,710		11,698		11,444		204,437
Downhole Technologies	55,849		8,450		(4,055)		420		249,540
Corporate	—		318		(20,842)		277		52,553
Total	$	379,728	$	30,793	$	9,144	$	17,338	$	1,045,020

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Six Months Ended June 30, 2022
Offshore/Manufactured Products	$	180,579	$	10,579	$	19,637	$	1,473	$	552,091
Well Site Services	102,991		15,327		(2,794)		4,466		195,444
Downhole Technologies	62,308		8,807		(2,990)		384		257,174
Corporate	—		343		(19,279)		130		47,594
Total	$	345,878	$	35,056	$	(5,426)	$	6,453	$	1,052,303

The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Offshore/Manufactured Products				Well Site Services				Downhole Technologies				Total
	2023		2022		2023		2022		2023		2022		2023		2022
Three Months Ended June 30
Project-driven:
Products	$	32,210	$	41,098	$	—	$	—	$	—	$	—	$	32,210	$	41,098
Services	24,846		23,995		—		—		—		—		24,846		23,995
Total project-driven	57,056		65,093		—		—		—		—		57,056		65,093
Military and other products	7,965		7,763		—		—		—		—		7,965		7,763
Short-cycle:
Products	29,065		23,611		—		—		23,390		26,561		52,455		50,172
Services	—		—		64,536		54,819		1,517		3,987		66,053		58,806
Total short-cycle	29,065		23,611		64,536		54,819		24,907		30,548		118,508		108,978
	$	94,086	$	96,467	$	64,536	$	54,819	$	24,907	$	30,548	$	183,529	$	181,834


	Offshore/Manufactured Products				Well Site Services				Downhole Technologies				Total
	2023		2022		2023		2022		2023		2022		2023		2022
Six Months Ended June 30
Project-driven:
Products	$	71,342	$	74,942	$	—	$	—	$	—	$	—	$	71,342	$	74,942
Services	49,476		48,293		—		—		—		—		49,476		48,293
Total project-driven	120,818		123,235		—		—		—		—		120,818		123,235
Military and other products	14,962		13,109		—		—		—		—		14,962		13,109
Short-cycle:
Products	56,505		44,235		—		—		49,661		52,508		106,166		96,743
Services	—		—		131,594		102,991		6,188		9,800		137,782		112,791
Total short-cycle	56,505		44,235		131,594		102,991		55,849		62,308		243,948		209,534
	$	192,285	$	180,579	$	131,594	$	102,991	$	55,849	$	62,308	$	379,728	$	345,878

Revenues from products and services transferred to customers over time accounted for approximately 66% and 64% of consolidated revenues for the six months ended June 30, 2023 and 2022, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of June 30, 2023, the Company had $210.7 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 33% of this remaining backlog is expected to be recognized as revenue over the remaining six months of 2023, with an additional 47% recognized in 2024 and the balance thereafter.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10. Commitments and Contingencies

The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other statements we make contain certain "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 (the "Exchange Act"). Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 17, 2023, as well as to "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q.

You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances.

While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, us:

•the impact of disruptions in the bank and capital markets, including the three U.S. bank failures which occurred in March and May of 2023;

•the impact of the ongoing military action between Russia and Ukraine, that began in February 2022, including, but not limited to, energy market disruptions, supply chain disruptions and increased costs, government sanctions, and delays or potential cancellation of planned customer projects;

•the ability and willingness of the Organization of Petroleum Exporting Countries ("OPEC") and other producing nations to set and maintain oil production levels and pricing;

•the level of supply of and demand for oil and natural gas;

•fluctuations in the current and future prices of oil and natural gas;

•the level of exploration, drilling and completion activity;

•the cyclical nature of the oil and natural gas industry;

•the level of offshore oil and natural gas developmental activities;

•the financial health of our customers;

•the impact of environmental matters, including executive actions and regulatory or legislative efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced oil and natural gas production or demand globally;

•proposed new rules by the SEC relating to the disclosure of a range of climate-related information and risks;

•political, economic and litigation efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change;

•the availability of and access to attractive oil and natural gas field prospects, which may be affected by governmental actions or actions of other parties restricting drilling and completion activities;

•general global economic conditions;

•global weather conditions and natural disasters, including hurricanes in the Gulf of Mexico;

•changes in tax laws and regulations;

•supply chain disruptions;

•the impact of tariffs and duties on imported materials and exported finished goods;

•our ability to timely obtain and maintain critical permits for operating facilities;

•our ability to attract and retain skilled personnel;

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•negative outcome of litigation, threatened litigation or government proceedings;

•our ability to develop new competitive technologies and products;

•inflation, including our ability to increase prices to our customers as our costs increase;

•fluctuations in currency exchange rates;

•physical, digital, cyber, internal and external security breaches and other incidents affecting information security and data privacy;

•the cost of capital in the bank and capital markets and our ability to access them;

•our ability to protect and enforce our intellectual property rights;

•our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and

•the other factors identified in "Part I, Item 1A. Risk Factors" in our 2022 Annual Report on Form 10-K, as well as in "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q.

Should one or more of these risks or uncertainties materialize, or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.

In addition, in certain places in this Quarterly Report on Form 10-Q, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in better understanding the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 2022 Annual Report on Form 10-K in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact comparability from period to period.

We provide a broad range of manufactured products and services to customers in the energy, industrial and military sectors through our Offshore/Manufactured Products, Well Site Services and Downhole Technologies segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, making demand for our products and services sensitive to expectations regarding future crude oil and natural gas prices, as well as economic growth, commodity demand and estimates of resource production and regulatory pressures related to environmental, social and governance ("ESG") considerations.

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Recent Developments

Brent and West Texas Intermediate ("WTI") crude oil and natural gas pricing trends were as follows:


	Average Price(1) for quarter ended								Average Price(1) for year ended December 31
Year	March 31		June 30		September 30		December 31
Brent Crude (per bbl)
2023	$	81.01	$	77.99
2022	100.87		113.84		$	100.71	$	88.77	$	100.99
WTI Crude (per bbl)
2023	$	75.91	$	73.54
2022	95.18		108.83		$	93.06	$	82.79	$	94.90
Henry Hub Natural Gas (per MMBtu)
2023	$	2.64	$	2.16
2022	4.67		7.50		$	8.03