SEC Filing | Oil States International, Inc.

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ois-20230930

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 September 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 October 20, 2023, the number of shares of common stock outstanding was 63,889,176.

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	–	33

Item 3. Quantitative and Qualitative Disclosures About Market Risk			33

Item 4. Controls and Procedures			34

Part II – OTHER INFORMATION

Item 1. Legal Proceedings			35

Item 1A. Risk Factors			35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36

Item 3. Defaults Upon Senior Securities			36

Item 4. Mine Safety Disclosures			36

Item 5. Other Information			36

Item 6. Exhibits			37

Signature Page			38

Table 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Products	$	102,636	$	99,743	$	295,106	$	284,537
Services	91,653		89,651		278,911		250,735
	194,289		189,394		574,017		535,272

Costs and expenses:
Product costs	80,188		81,576		231,524		225,765
Service costs	70,239		69,723		211,668		194,294
Cost of revenues (exclusive of depreciation and amortization expense presented below)	150,427		151,299		443,192		420,059
Selling, general and administrative expense	24,241		23,374		71,785		70,964
Depreciation and amortization expense	15,416		16,413		46,209		51,469
Other operating income, net	(1,985)		(6,750)		(2,503)		(6,852)
	188,099		184,336		558,683		535,640
Operating income (loss)	6,190		5,058		15,334		(368)



Interest expense, net	(1,928)		(2,637)		(6,378)		(7,947)
Other income, net	186		491		672		1,892
Income (loss) before income taxes	4,448		2,912		9,628		(6,423)
Income tax provision	(236)		(769)		(2,700)		(6,002)
Net income (loss)	$	4,212	$	2,143	$	6,928	$	(12,425)

Net income (loss) per share:
Basic	$	0.07	$	0.03	$	0.11	$	(0.20)
Diluted	0.07		0.03		0.11		(0.20)

Weighted average number of common shares outstanding:
Basic	62,651		62,674		62,760		61,292
Diluted	63,060		62,676		63,135		61,292

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 COMPREHENSIVE INCOME (LOSS)

(In Thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	4,212	$	2,143	$	6,928	$	(12,425)

Other comprehensive income (loss):
Currency translation adjustments	(5,749)		(11,939)		1,670		(23,758)



Comprehensive income (loss)	$	(1,537)	$	(9,796)	$	8,598	$	(36,183)

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

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)


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

Current assets:
Cash and cash equivalents	$	52,904	$	42,018
Accounts receivable, net	189,249		218,769
Inventories, net	206,541		182,658
Prepaid expenses and other current assets	36,015		19,317
Total current assets	484,709		462,762

Property, plant, and equipment, net	279,146		303,835
Operating lease assets, net	22,002		23,028
Goodwill, net	79,399		79,282
Other intangible assets, net	157,077		169,798
Other noncurrent assets	25,687		25,687
Total assets	$	1,048,020	$	1,064,392

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt	$	589	$	17,831
Accounts payable	58,489		73,251
Accrued liabilities	49,138		49,057
Current operating lease liabilities	6,461		6,142
Income taxes payable	2,593		2,605
Deferred revenue	50,370		44,790
Total current liabilities	167,640		193,676

Long-term debt	135,437		135,066
Long-term operating lease liabilities	18,768		20,658
Deferred income taxes	7,386		6,652
Other noncurrent liabilities	20,425		18,782
Total liabilities	349,656		374,834

Stockholders' equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 77,218,035 shares and 76,587,920 shares issued, respectively	772		766
Additional paid-in capital	1,127,443		1,122,292
Retained earnings	278,955		272,027
Accumulated other comprehensive loss	(77,271)		(78,941)
Treasury stock, at cost, 13,328,859 and 12,684,101 shares, respectively	(631,535)		(626,586)
Total stockholders' equity	698,364		689,558
Total liabilities and stockholders' equity	$	1,048,020	$	1,064,392

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 STOCKHOLDERS' EQUITY

(In Thousands)


Three Months Ended September 30, 2023	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, June 30, 2023	$	772	$	1,125,647	$	274,743	$	(71,522)	$	(631,535)	$	698,105
Net income	—		—		4,212		—		—		4,212
Currency translation adjustments (excluding intercompany advances)	—		—		—		(4,429)		—		(4,429)
Currency translation adjustments on intercompany advances	—		—		—		(1,320)		—		(1,320)
Stock-based compensation expense	—		1,796		—		—		—		1,796
Stock repurchases	—		—		—		—		—		—
Surrender of stock to settle taxes on stock awards	—		—		—		—		—		—
Balance, September 30, 2023	$	772	$	1,127,443	$	278,955	$	(77,271)	$	(631,535)	$	698,364


Nine Months Ended September 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	—		—		6,928		—		—		6,928
Currency translation adjustments (excluding intercompany advances)	—		—		—		1,774		—		1,774
Currency translation adjustments on intercompany advances	—		—		—		(104)		—		(104)
Stock-based compensation expense	6		5,151		—		—		—		5,157
Stock repurchases	—		—		—		—		(3,001)		(3,001)
Surrender of stock to settle taxes on stock awards	—		—		—		—		(1,948)		(1,948)
Balance, September 30, 2023	$	772	$	1,127,443	$	278,955	$	(77,271)	$	(631,535)	$	698,364

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 STOCKHOLDERS' EQUITY

(In Thousands)


Three Months Ended September 30, 2022	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance, June 30, 2022	$	747	$	1,108,631	$	266,999	$	(77,850)	$	(626,586)	$	671,941
Net income	—		—		2,143		—		—		2,143
Currency translation adjustments (excluding intercompany advances)	—		—		—		(10,363)		—		(10,363)
Currency translation adjustments on intercompany advances	—		—		—		(1,576)		—		(1,576)
Issuance of common stock in connection with settlement of disputes with seller of GEODynamics, Inc.	19		10,313		—		—		—		10,332
Stock-based compensation expense	—		1,663		—		—		—		1,663
Surrender of stock to settle taxes on stock awards	—		—		—		—		—		—
Balance, September 30, 2022	$	766	$	1,120,607	$	269,142	$	(89,789)	$	(626,586)	$	674,140


Nine Months Ended September 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	—		—		(12,425)		—		—		(12,425)
Currency translation adjustments (excluding intercompany advances)	—		—		—		(23,571)		—		(23,571)
Currency translation adjustments on intercompany advances	—		—		—		(187)		—		(187)
Issuance of common stock in connection with settlement of disputes with seller of GEODynamics, Inc.	19		10,313		—		—		—		10,332
Stock-based compensation expense	8		5,159		—		—		—		5,167
Surrender of stock to settle taxes on stock awards	—		—		—		—		(1,002)		(1,002)
Balance, September 30, 2022	$	766	$	1,120,607	$	269,142	$	(89,789)	$	(626,586)	$	674,140

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)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	6,928	$	(12,425)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	46,209		51,469
Stock-based compensation expense	5,157		5,167
Amortization of deferred financing costs	1,344		1,416
Deferred income tax provision (benefit)	(66)		1,295
Gains on disposals of assets	(3,335)		(1,538)

Settlement of disputes with seller of GEODynamics, Inc.	—		620
Other, net	(614)		459
Changes in operating assets and liabilities, net of effect from acquired business:
Accounts receivable	29,538		(27,745)
Inventories	(23,754)		(18,680)
Accounts payable and accrued liabilities	(17,515)		8,873
Deferred revenue	5,580		7,496
Other operating assets and liabilities, net	2,905		2,586
Net cash flows provided by operating activities	52,377		18,993

Cash flows from investing activities:
Capital expenditures	(23,370)		(13,263)
Proceeds from disposition of property and equipment	4,374		2,211
Acquisition of business, net of cash acquired	—		(8,125)
Other, net	(120)		(168)
Net cash flows used in investing activities	(19,116)		(19,345)

Cash flows from financing activities:
Revolving credit facility borrowings	35,693		9,830
Revolving credit facility repayments	(35,693)		(9,830)

Repayment of 1.50% convertible senior notes	(17,315)		(6,272)
Payment of promissory note to seller of GEODynamics, Inc.	—		(10,000)
Other debt and finance lease repayments	(340)		(541)
Payment of financing costs	(101)		(81)
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	(22,705)		(17,896)

Effect of exchange rate changes on cash and cash equivalents	330		(1,501)
Net change in cash and cash equivalents	10,886		(19,749)
Cash and cash equivalents, beginning of period	42,018		52,852
Cash and cash equivalents, end of period	$	52,904	$	33,103

Cash paid (received) for:
Interest	$	4,353	$	4,605
Income taxes, net	(34)		(67)

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

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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 10, "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. Charges and Benefits

During the third quarter of 2023, the Offshore/Manufactured Products segment recognized facility consolidation charges totaling $1.6 million in connection with the ongoing consolidation and relocation of certain manufacturing and service facilities and the relocation of related equipment. In the third quarter of 2022, the Offshore/Manufactured Products segment recognized a gain of $6.1 million associated with the settlement of outstanding litigation against certain service providers.

3. Details of Selected Balance Sheet Accounts

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


	September 30, 2023			December 31, 2022
Accounts receivable, net:
Trade	$	137,020		$	145,540
Unbilled revenue	26,973			29,679
Contract assets	26,005			42,599
Other	4,310			6,177
Total accounts receivable	194,308			223,995
Allowance for doubtful accounts	(5,059)			(5,226)
	$	189,249		$	218,769

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

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	September 30, 2023		December 31, 2022
Deferred revenue (contract liabilities)	$	50,370	$	44,790

As of September 30, 2023, accounts receivable, net in the United States and the United Kingdom represented 68% and 11%, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of September 30, 2023.

For the nine months ended September 30, 2023, the $16.6 million net decrease in contract assets was attributable to $39.9 million transferred to accounts receivable during the period, which was partially offset by $23.3 million in revenue recognized. Deferred revenue (contract liabilities) increased by $5.6 million in the first nine months of 2023, reflecting $20.7 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $15.1 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 nine months ended September 30, 2023 and 2022 (in thousands):


	Nine Months Ended September 30,
	2023		2022
Allowance for doubtful accounts – January 1	$	5,226	$	4,471
Provisions	23		1,237
Write-offs	(208)		(1,581)
Other	18		272
Allowance for doubtful accounts – September 30	$	5,059	$	4,399


	September 30, 2023		December 31, 2022
Inventories, net:
Finished goods and purchased products	$	105,009	$	90,443
Work in process	31,258		32,079
Raw materials	110,401		97,817
Total inventories	246,668		220,339
Allowance for excess or obsolete inventory	(40,127)		(37,681)
	$	206,541	$	182,658


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







Property, plant and equipment	$	886,920		$	1,128,834
Accumulated depreciation	(607,774)			(824,999)
							$	279,146	$	303,835

During 2023, certain facilities in the Offshore/Manufactured Products segment were reclassified as held for sale assets, and transferred from property, plant and equipment to prepaid and other current assets. The carrying value of these facilities totaled $17.2 million as of September 30, 2023.

For the three months ended September 30, 2023 and 2022, depreciation expense was $11.1 million and $11.3 million, respectively. Depreciation expense was $33.3 million and $35.9 million, respectively, for the nine months ended September 30, 2023 and 2022.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	September 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	$	141,215	$	54,268	$	86,947	$	141,179	$	47,629	$	93,550
Patents/Technology/Know-how	69,971		33,188		36,783		69,830		29,214		40,616
Tradenames and other	52,492		19,145		33,347		52,488		16,856		35,632
	$	263,678	$	106,601	$	157,077	$	263,497	$	93,699	$	169,798

For the three months ended September 30, 2023 and 2022, amortization expense was $4.3 million and $5.1 million, respectively. Amortization expense was $12.9 million and $15.5 million for the nine months ended September 30, 2023 and 2022, respectively.


	September 30, 2023		December 31, 2022
Other noncurrent assets:
Deferred compensation plan	$	19,477	$	17,551
Deferred financing costs	1,317		1,893
Deferred income taxes	2,274		1,517
Other	2,619		4,726
	$	25,687	$	25,687


	September 30, 2023		December 31, 2022
Accrued liabilities:
Accrued compensation	$	24,783	$	33,659
Accrued taxes, other than income taxes	5,142		1,865
Insurance liabilities	3,653		4,640
Accrued interest	3,288		1,784
Accrued commissions	3,226		2,302
Other	9,046		4,807
	$	49,138	$	49,057

4. Long-term Debt

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


	September 30, 2023		December 31, 2022
Revolving credit facility(1)	$	—	$	—
2026 Notes(2)	132,817		132,164
2023 Notes	—		17,303
Other debt and finance lease obligations	3,209		3,430
Total debt	136,026		152,897
Less: Current portion	(589)		(17,831)
Total long-term debt	$	135,437	$	135,066

____________________

(1)Unamortized deferred financing costs of $1.3 million and $1.9 million as of September 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 September 30, 2023 and December 31, 2022.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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.

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 September 30, 2023, the Company had no borrowings outstanding under the ABL Facility and $16.4 million of outstanding letters of credit. The total amount available to be drawn as of September 30, 2023 was $84.5 million, calculated based on the current borrowing base less outstanding borrowings and letters of credit. As of September 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 September 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.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

5. 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 September 30, 2023 was $151.0 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $135.0 million.

6. 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 nine months of 2023 (in thousands):







Shares of common stock outstanding – December 31, 2022															63,904
Restricted stock awards, net of forfeitures															630
Shares withheld for taxes on vesting of stock awards															(206)
Purchases of treasury stock															(439)
Shares of common stock outstanding – September 30, 2023															63,889

As of September 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 September 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 $77.3 million at September 30, 2023. For the three and nine months ended September 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 nine months ended September 30, 2023, the exchange rates for the British pound and the Brazilian real strengthened by 1% and 4%, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $1.7 million. During the nine months ended September 30, 2022, the exchange rate for the British pound weakened by 18% compared to the U.S. dollar while the Brazilian real strengthened by 3% compared to the U.S. dollar, contributing to other comprehensive loss of $23.8 million.

7. Income Taxes

The income tax expense for the three and nine months ended September 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 September 30, 2023, the Company's income tax expense was $0.2 million on pre-tax income of $4.4 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $0.8 million on pre-tax income of $2.9 million, which which was negatively impacted by valuation allowances recorded against deferred tax assets as well as certain non-deductible expenses and discrete tax items, for the three months ended September 30, 2022.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

For the nine months ended September 30, 2023, the Company's income tax expense was $2.7 million on pre-tax income of $9.6 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $6.0 million on a pre-tax loss of $6.4 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 nine months ended September 30, 2022.

8. 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 nine months ended September 30, 2023 and 2022 (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerators:
Net income (loss)	$	4,212	$	2,143	$	6,928	$	(12,425)
Less: Income attributable to unvested restricted stock awards	(82)		(41)		(135)		—
Numerator for basic net income (loss) per share	4,130		2,102		6,793		(12,425)
Effect of dilutive securities:
Unvested restricted stock awards	1		3		1		—
Numerator for diluted net income (loss) per share	$	4,131	$	2,105	$	6,794	$	(12,425)

Denominators:
Weighted average number of common shares outstanding	63,892		63,896		64,007		62,490
Less: Weighted average number of unvested restricted stock awards outstanding	(1,241)		(1,222)		(1,247)		(1,198)
Denominator for basic net income (loss) per share	62,651		62,674		62,760		61,292
Effect of dilutive securities:
Unvested restricted stock awards	—		2		—		—
Unvested performance share units	409		—		375		—


Denominator for diluted net income (loss) per share	63,060		62,676		63,135		61,292

Net income (loss) per share:
Basic	$	0.07	$	0.03	$	0.11	$	(0.20)
Diluted	0.07		0.03		0.11		(0.20)

The calculation of diluted net income per share for the three and nine months ended September 30, 2023 excluded 159 thousand shares and 177 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 nine months ended September 30, 2022 excluded 249 thousand shares and 287 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.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9. 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 nine months ended September 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	—	645		211
Vested and distributed	—	(618)		—
Forfeited	(87)	(15)		—
Outstanding – September 30, 2023	158	1,234		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 September 30, 2023. Performance-based stock unit awards generally 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 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 nine months ended September 30, 2023 totaled $1.8 million and $5.2 million, respectively. Stock-based compensation expense recognized during the three and nine months ended September 30, 2022 totaled $1.7 million and $5.2 million, respectively. As of September 30, 2023, there was $8.8 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.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

10. 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 nine months ended September 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 September 30, 2023
Offshore/Manufactured Products(1)	$	111,043	$	4,921	$	17,804	$	2,739	$	536,263
Well Site Services	59,831		6,313		3,285		2,602		201,384
Downhole Technologies	23,415		4,030		(4,118)		541		246,329
Corporate	—		152		(10,781)		150		64,044
Total(1)	$	194,289	$	15,416	$	6,190	$	6,032	$	1,048,020

____________________

(1)Operating income included $1.6 million of facility consolidation charges.


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Three Months Ended September 30, 2022
Offshore/Manufactured Products(2)	$	96,037	$	5,072	$	13,373	$	1,620	$	540,940
Well Site Services	60,509		6,732		2,359		4,894		205,018
Downhole Technologies	32,848		4,442		(342)		273		257,676
Corporate	—		167		(10,332)		23		46,736
Total(2)	$	189,394	$	16,413	$	5,058	$	6,810	$	1,050,370

____________________

(2)Operating income included a $6.1 million gain on settlement of outstanding litigation against certain service providers.


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Nine Months Ended September 30, 2023
Offshore/Manufactured Products(3)	$	303,328	$	14,236	$	40,147	$	7,936	$	536,263
Well Site Services	191,425		19,023		14,983		14,046		201,384
Downhole Technologies	79,264		12,480		(8,173)		961		246,329
Corporate	—		470		(31,623)		427		64,044
Total(3)	$	574,017	$	46,209	$	15,334	$	23,370	$	1,048,020

____________________

(3)Operating income included $1.6 million of facility consolidation charges.


	Revenues		Depreciation and amortization		Operating income (loss)		Capital expenditures		Total assets
Nine Months Ended September 30, 2022
Offshore/Manufactured Products(4)	$	276,616	$	15,651	$	33,010	$	3,093	$	540,940
Well Site Services	163,500		22,059		(435)		9,360		205,018
Downhole Technologies	95,156		13,249		(3,332)		657		257,676
Corporate	—		510		(29,611)		153		46,736
Total(4)	$	535,272	$	51,469	$	(368)	$	13,263	$	1,050,370

_______________

(4)Operating income (loss) included a $6.1 million gain on settlement of outstanding litigation against certain service providers.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three and nine months ended September 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 September 30
Project-driven:
Products	$	45,527	$	38,911	$	—	$	—	$	—	$	—	$	45,527	$	38,911
Services	30,391		23,421		—		—		—		—		30,391		23,421
Total project-driven	75,918		62,332		—		—		—		—		75,918		62,332
Military and other products	7,195		9,995		—		—		—		—		7,195		9,995
Short-cycle:
Products	27,930		23,710		—		—		21,984		27,127		49,914		50,837
Services	—		—		59,831		60,509		1,431		5,721		61,262		66,230
Total short-cycle	27,930		23,710		59,831		60,509		23,415		32,848		111,176		117,067
	$	111,043	$	96,037	$	59,831	$	60,509	$	23,415	$	32,848	$	194,289	$	189,394


	Offshore/Manufactured Products				Well Site Services				Downhole Technologies				Total
	2023		2022		2023		2022		2023		2022		2023		2022
Nine Months Ended September 30
Project-driven:
Products	$	116,869	$	113,853	$	—	$	—	$	—	$	—	$	116,869	$	113,853
Services	79,867		71,714		—		—		—		—		79,867		71,714
Total project-driven	196,736		185,567		—		—		—		—		196,736		185,567
Military and other products	22,157		23,104		—		—		—		—		22,157		23,104
Short-cycle:
Products	84,435		67,945		—		—		71,645		79,635		156,080		147,580
Services	—		—		191,425		163,500		7,619		15,521		199,044		179,021
Total short-cycle	84,435		67,945		191,425		163,500		79,264		95,156		355,124		326,601
	$	303,328	$	276,616	$	191,425	$	163,500	$	79,264	$	95,156	$	574,017	$	535,272

Revenues from products and services transferred to customers over time accounted for approximately 66% and 63% of consolidated revenues for the nine months ended September 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 September 30, 2023, the Company had $225.9 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 19% of this remaining backlog is expected to be recognized as revenue over the remaining three months of 2023, with an additional 51% recognized in 2024 and the balance thereafter.

11. 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. 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 covered by 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 the ongoing military actions in Europe and the Middle East, 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 impact of disruptions in the bank and capital markets, including the four U.S. bank failures which occurred in March, May and July of 2023;

•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	$	86.65
2022