Oil States Announces Fourth Quarter 2016 Results

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| Source: Oil States International

Fourth Quarter Highlights:

  • Reports net loss per diluted share of $0.21; $0.20 adjusted net loss per diluted share excluding severance and other downsizing charges
  • Well site services generated positive EBITDA margins for the first time in three quarters
  • Offshore products’ EBITDA margin averaged 22.1%
  • Offshore products’ book-to-bill ratio totaled 0.98x; full year book-to-bill ratio totaled 0.74x
  • Reduced total debt by $21 million during the quarter; total debt to total capitalization ratio ended the quarter at 3.7%

HOUSTON, Feb. 15, 2017 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported a net loss for the fourth quarter of 2016 of $10.6 million, or $0.21 per diluted share, which included pre-tax charges of $0.6 million ($0.4 million after-tax, or $0.01 per diluted share) for severance and other downsizing charges. These results compare to reported net income for the fourth quarter of 2015 of $1.1 million, or $0.02 per diluted share, which included a total of $5.3 million after-tax, or $0.11 per diluted share, of severance and other downsizing charges, a leasehold restoration provision for one of our offshore products facilities in the U.K. (charge was included as a component of depreciation and amortization expense), a higher quarterly effective tax rate due to deferred tax asset write-offs and tax valuation allowances.

During the fourth quarter of 2016, the Company generated revenues of $169.9 million and Adjusted Consolidated EBITDA (Note B) of $13.7 million (excluding $0.6 million for severance and other downsizing charges). These results compare to revenues of $234.5 million and Adjusted Consolidated EBITDA of $42.5 million reported in the fourth quarter of 2015 (excluding $1.9 million of severance and other downsizing charges). 

For the year ended December 31, 2016, the Company reported revenues of $694.4 million and Adjusted Consolidated EBITDA of $55.5 million (excluding $5.2 million of severance and other downsizing charges). The net loss for full year 2016 totaled $46.4 million, or $0.92 per diluted share, and included $5.2 million ($3.3 million after-tax, or $0.06 per diluted share) of severance and other downsizing charges. For the year ended December 31, 2015, the Company reported revenues of $1.1 billion and Adjusted Consolidated EBITDA of $194.1 million (excluding $6.4 million of severance and other downsizing charges). Net income for full year 2015 totaled $28.4 million, or $0.55 per diluted share, and included a total of $17.5 million ($14.7 million after-tax, or $0.29 per diluted share) of severance and other downsizing initiatives ($6.4 million pre-tax, or $0.09 per diluted share), a leasehold restoration provision for one of our offshore products facilities in the U.K. ($3.4 million pre-tax, or $0.05 per diluted share; charge was included as a component of depreciation and amortization expense), a higher effective tax rate driven by $3.6 million ($0.07 per diluted share) of deferred tax asset write-offs and $4.1 million ($0.08 per diluted share) of tax valuation allowances recorded against certain of the Company's deferred tax assets.

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, “We concluded the fourth quarter 2016 with results that reflect the benefit of existing backlog and sound project execution in our offshore products segment coupled with the beginnings of a recovery in U.S. onshore markets, which benefitted our well site services segment. Our quarterly book-to-bill ratio was 0.98x in our offshore products segment suggesting that a floor in backlog should emerge in early 2017. Nonetheless, we entered 2017 with backlog that is down 41% from the beginning of 2016, creating revenue headwinds for 2017. Commodity prices and U.S. land rig count trends are favorable for our well site services segment going into 2017.”

BUSINESS SEGMENT RESULTS

Offshore Products
Offshore products generated revenues and Segment EBITDA (Note A) of $115.0 million and $25.4 million, respectively, in the fourth quarter of 2016 compared to revenues of $169.8 million and Segment EBITDA of $50.8 million in the fourth quarter of 2015. Offshore products revenues and Segment EBITDA decreased 32% and 50% year-over-year, respectively, due to lower contributions across most of the segment’s product and service lines, particularly those tied to major project sanctions. The lower quarterly revenues were primarily the result of weaker demand for drilling products, production and pipeline infrastructure products, lower levels of service activities and a backlog position that has trended lower since mid-2014, partially offset by an 82% improvement in elastomer product revenues which are benefitting from U.S. land based activity. Segment EBITDA margin was 22.1% in the fourth quarter of 2016 compared to an unusually high margin of 30.0% realized in the fourth quarter of 2015, due to the number of major projects that were nearing completion at the end of 2015.  Backlog declined 2% sequentially, totaling $199 million at December 31, 2016 compared to $203 million reported at September 30, 2016 and $340 million reported at December 31, 2015. Major backlog additions during the fourth quarter included an order for production riser equipment on a floating production system.  

Well Site Services
Well site services generated revenues of $54.9 million and Segment EBITDA of $1.1 million in the fourth quarter of 2016 compared to revenues and Segment EBITDA of $64.7 million and $1.2 million, respectively, in the fourth quarter of 2015.  Well site services revenues and Segment EBITDA decreased 15% and 7% year-over-year, respectively, primarily due to a 39% year-over-year decrease in the number of completion services jobs performed, partially offset by a 40% year-over-year increase in revenue per completion service job primarily as a result of a mix shift to more long-duration jobs in international markets and longer-term project work in the U.S. Gulf of Mexico, in contrast to any significant market price improvements. The average U.S. rig count declined 164 rigs, or 22%, in the fourth quarter 2016 compared to the same quarter in 2015. Lower utilization in the land drilling business, which averaged 18% in the fourth quarter of 2016 compared to 22% in the fourth quarter of 2015, also impacted the quarterly results.

Income Taxes
The Company recognized an effective tax rate benefit of 37.8% in the fourth quarter of 2016 and an annualized effective tax rate benefit of 36.7% for 2016. This compares to an unusually high effective tax rate provision of 76.1% in the fourth quarter of 2015 bringing the annualized effective tax rate provision for 2015 to 43.9%. The higher effective tax rate in the fourth quarter and full year 2015 was due to deferred tax adjustments, certain non-deductible items and tax valuation allowances recorded.

Financial Condition
As of December 31, 2016, $42.2 million was outstanding under the Company’s revolving credit facility while cash totaled $68.8 million. Total availability under the facility as of December 31, 2016 was $153.1 million (net of standby letters of credit totaling $30.7 million), which is less than the full amount of the facility due to limitations imposed by the maintenance covenant of 3.25 times trailing twelve months Consolidated EBITDA, adjusted for certain non-cash items.

Conference Call Information
The call is scheduled for Thursday, February 16, 2017 at 11:00 am ET, and is being webcast and can be accessed from the Company’s website at www.ir.oilstatesintl.com. Participants may also join the conference call by dialing (800) 446-2782 in the United States or by dialing +1 847 413 3235 internationally and using the passcode 44303503. A replay of the conference call will be available one and a half hours after the completion of the call by dialing (888) 843-7419 in the United States or by dialing +1 630 652 3042 internationally and entering the passcode 44303503.

About Oil States
Oil States International, Inc. is an energy services company with a leading market position as a manufacturer of products for deepwater production facilities, certain drilling equipment and shorter-cycle consumable products, as well as a provider of completion services and land drilling services to the oil and gas industry.  Oil States is publicly traded on the New York Stock Exchange under the symbol “OIS”.

For more information on the Company, please visit Oil States International’s website at www.oilstatesintl.com.

Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included therein are based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the energy service industry and other factors discussed in the "Business" and "Risk Factors" sections of the Form 10-K for the year ended December 31, 2015 filed by Oil States with the Securities and Exchange Commission on February 22, 2016.


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
 
  Three Months Ended December 31,   Year Ended December 31,
   2016   2015   2016   2015 
  (unaudited) (unaudited) (unaudited)  
Revenues:        
Products $92,608  $138,553  $416,174  $561,018 
Service  77,326   95,921   278,270   538,959 
   169,934   234,474   694,444   1,099,977 
         
Costs and expenses:        
Product costs  60,415   85,578   288,270   395,137 
Service costs  65,375   79,144   238,500   390,561 
Selling, general and administrative expenses  33,179   31,932   124,033   132,664 
Depreciation and amortization expense  29,054   34,515   118,720   131,257 
Other operating income, net  (1,698)  (2,571)  (5,796)  (4,648)
   186,325   228,598   763,727   1,044,971 
Operating income (loss)  (16,391)  5,876   (69,283)  55,006 
         
Interest expense  (1,219)  (1,551)  (5,343)  (6,427)
Interest income  78   115   399   543 
Other income  440   225   902   1,446 
Income (loss) from continuing operations before income taxes  (17,092)  4,665   (73,325)  50,568 
Income tax benefit (provision)  6,465   (3,550)  26,939   (22,197)
Net income (loss) from continuing operations  (10,627)  1,115   (46,386)  28,371 
Net income (loss) from discontinued operations, net of tax     2   (4)  226 
Net income (loss) attributable to Oil States $(10,627) $1,117  $(46,390) $28,597 
         
         
Basic net income (loss) per share attributable to Oil States from:        
Continuing operations $(0.21) $0.02  $(0.92) $0.55 
Discontinued operations           0.01 
Net income (loss) $(0.21) $0.02  $(0.92) $0.56 
         
Diluted net income (loss) per share attributable to Oil States from:        
Continuing operations $(0.21) $0.02  $(0.92) $0.55 
Discontinued operations           0.01 
Net income (loss) $(0.21) $0.02  $(0.92) $0.56 
         
Weighted average number of common shares outstanding:        
Basic  50,224   49,813   50,174   50,269 
Diluted  50,224   49,839   50,174   50,335 


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
 
 December 31,
  2016     2015 
 (unaudited)  
ASSETS
Current assets:   
Cash and cash equivalents$68,800  $35,973 
Accounts receivable, net 234,513   333,494 
Inventories, net 175,490   212,882 
Prepaid expenses and other current assets 11,174   29,124 
Total current assets 489,977   611,473 
    
Property, plant and equipment, net 553,402   638,725 
Goodwill, net 263,369   263,787 
Other intangible assets, net 52,746   59,385 
Other noncurrent assets 24,404   23,101 
Total assets$1,383,898  $1,596,471 
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
Current liabilities:   
Current portion of long-term debt and capitalized leases$538  $533 
Accounts payable 34,207   59,116 
Accrued liabilities 45,018   49,300 
Income taxes payable 5,839   8,303 
Deferred revenue 21,315   36,655 
Other current liabilities 315   293 
Total current liabilities 107,232   154,200 
    
Long-term debt and capitalized leases (1) 45,388   125,887 
Deferred income taxes 5,036   40,497 
Other noncurrent liabilities 21,935   20,215 
Total liabilities 179,591   340,799 
    
Stockholders' equity:   
Common stock, $.01 par value, 200,000,000 shares authorized, 62,295,870 shares and 61,712,805 shares issued, respectively 623   617 
Additional paid-in capital 731,562   712,980 
Retained earnings 1,133,473   1,179,863 
Accumulated other comprehensive loss (70,300)  (50,698)
Treasury stock at cost, 10,921,509 and 10,759,656 shares, respectively (591,051)  (587,090)
Total stockholders' equity 1,204,307   1,255,672 
Total liabilities and stockholders' equity$1,383,898  $1,596,471 
    

(1) As of December 31, 2016, the Company had $153.1 million available under its revolving credit facility (net of standby letters of credit totaling $30.7 million), which is less than the full amount of the facility due to the maintenance covenant of 3.25 times trailing twelve months Consolidated EBITDA, adjusted for certain non-cash items.


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
 Year Ended December 31 
  2016     2015  
 (unaudited)   
Cash flows from operating activities:    
Net income (loss)$  (46,390) $  28,597  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Income (loss) from discontinued operations 4     (226) 
Depreciation and amortization 118,720   131,257  
Stock-based compensation expense 21,322   21,778  
Deferred income tax provision (37,606)  (3,173) 
Tax impact of stock-based payment arrangements      (469) 
Gains on disposals of assets (802)  (1,274) 
Amortization of deferred financing costs 785     780  
Other, net 2,923     283  
Changes in operating assets and liabilities, net of effect from acquired businesses:    
Accounts receivable 85,503   156,945  
Inventories 32,158   17,777  
Accounts payable and accrued liabilities (27,716)  (98,354) 
Income taxes payable (1,930)    4,897  
Other operating assets and liabilities, net 2,286    (3,050) 
Net cash flows provided by continuing operating activities 149,257   255,768  
Net cash flows provided by discontinued operating activities      353  
Net cash flows provided by operating activities 149,257   256,121  
     
Cash flows from investing activities:    
Capital expenditures (29,689)  (114,738) 
Acquisitions of businesses, net of cash acquired    (33,427) 
Proceeds from disposition of property, plant and equipment 1,532     2,655  
Other, net (1,135)  (1,686) 
Net cash flows used in investing activities (29,292)  (147,196) 
     
Cash flows from financing activities:    
Revolving credit repayments, net (80,674)  (17,825) 
Debt and capital lease repayments (534)    (541) 
Payment of financing costs (72)    (2) 
Issuance of common stock from stock-based payment arrangements 367     5,920  
Purchase of treasury stock    (105,916) 
Tax impact of stock-based payment arrangements      469  
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock   (3,962)  (6,827) 
Net cash flows used in financing activities (84,875)  (124,722) 
         
Effect of exchange rate changes on cash (2,263)  (1,493) 
Net change in cash and cash equivalents 32,827   (17,290) 
Cash and cash equivalents, beginning of year 35,973   53,263  
     
Cash and cash equivalents, end of year$68,800  $35,973  


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
SEGMENT DATA
(In Thousands)
(unaudited)
 
  Three Months Ended December 31, Year Ended December 31,
   2016   2015   2016   2015 
Revenues:        
Completion Services $   46,312  $   53,812  $   163,060  $   308,077 
Drilling Services    8,578     10,894   22,594     67,782 
Well Site Services  54,890   64,706   185,654   375,859 
Offshore Products  115,044   169,768   508,790   724,118 
Total revenues $    169,934  $    234,474  $  694,444  $    1,099,977 
         
Operating income (loss):        
Completion Services (1,2) $  (17,385) $  (17,788) $  (83,636) $  (26,280)
Drilling Services (1)    (4,542)    (6,140)    (24,239)    (17,866)
Well Site Services    (21,927)    (23,928)    (107,875)    (44,146)
Offshore Products (1,2,3)    19,230   41,499   87,084   146,389 
Corporate    (13,694)    (11,695)    (48,492)    (47,237)
Total operating income (loss)               $    (16,391) $    5,876  $    (69,283) $    55,006 
         


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION – SEGMENT EBITDA AND ADJUSTED SEGMENT EBITDA (A)
(In Thousands)
(unaudited)
 
  Three Months Ended December 31, Year Ended December 31,
   2016   2015   2016   2015 
Well Site Services:        
Completion Services:        
Operating loss $ (17,385) $   (17,788) $ (83,636) $   (26,280)
Depreciation and amortization expense    17,242     18,323   70,031     75,612 
Other income  409   238   1,027   1,286 
EBITDA  266   773   (12,578)  50,618 
Severance and other downsizing charges  165   1,060   1,998   3,083 
Adjusted EBITDA $  431  $  1,833  $  (10,580) $  53,701 
         
         
Drilling Services:        
Operating loss $ (4,542) $   (6,140) $ (24,239) $   (17,866)
Depreciation and amortization expense    5,313     6,521   23,366     26,889 
Other income (expense)  38   (1)  39   52 
EBITDA  809   380   (834)  9,075 
Severance and other downsizing charges  88   -   248   - 
Adjusted EBITDA $  897  $  380  $  (586) $  9,075 
         
         
Total Well Site Services:        
Operating loss $ (21,927) $   (23,928) $   (107,875) $   (44,146)
Depreciation and amortization expense    22,555     24,844   93,397     102,501 
Other income  447   237   1,066   1,338 
Segment EBITDA  1,075   1,153   (13,412)  59,693 
Severance and other downsizing charges  253   1,060   2,246   3,083 
Adjusted Segment EBITDA $  1,328  $  2,213  $  (11,166) $   62,776 
         
Offshore Products:        
Operating income $ 19,230  $   41,499  $   87,084  $   146,389 
Depreciation and amortization expense    6,228     9,362   24,205     27,416 
Other income (expense)  (76)  (12)  (233)  108 
Segment EBITDA  25,382   50,849   111,056   173,913 
Severance and other downsizing charges  317   814   2,952   3,328 
Adjusted Segment EBITDA  $  25,699  $    51,663  $  114,008  $  177,241 
         
Corporate:        
Operating loss $ (13,694) $   (11,695) $   (48,492) $   (47,237)
Depreciation and amortization expense    271     309   1,118     1,340 
Other income  69   -   69   - 
EBITDA  (13,354)  (11,386)  (47,305)  (45,897)
Severance and other downsizing charges  (5)  -      - 
Adjusted EBITDA  $  (13,359) $  (11,386) $  (47,305) $  (45,897)
         


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In Thousands)
(unaudited)
 
  Three Months Ended December 31, Year Ended December 31,
   2016   2015   2016   2015 
Net income (loss) from continuing operations $  (10,627) $  1,115  $  (46,386) $  28,371 
Income tax provision (benefit)  (6,465)  3,550   (26,939)  22,197 
Depreciation and amortization expense  29,054   34,515   118,720   131,257 
Interest income   (78)  (115)  (399)  (543)
Interest expense   1,219   1,551   5,343   6,427 
Consolidated EBITDA (B)  13,103   40,616   50,339   187,709 
         
Adjustments to Consolidated EBITDA (1,2):        
Severance and other downsizing charges  565   1,874   5,198   6,411 
Adjusted Consolidated EBITDA (B) $  13,668  $  42,490  $  55,537  $  194,120 
         

(1) Operating income (loss) and Consolidated EBITDA for the three and twelve months ended December 31, 2016 included severance and other downsizing charges of $0.2 million and $2.0 million, respectively, related to the completion services business, $0.1 million and $0.2 million, respectively, related to the drilling services business and $0.3 million and $3.0 million, respectively, related to the offshore products segment.

(2) Operating income (loss) and Consolidated EBITDA for the three and twelve months ended December 31, 2015 included severance and other downsizing charges of $1.1 million and $3.1 million, respectively, related to the completion services business and $0.8 million and $3.3 million, respectively, related to the offshore products segment.

(3) Operating income (loss) for the three and twelve months ended December 31, 2015 included a $3.4 million depreciation charge related to a leasehold restoration provision for one of our offshore products facilities in the U.K.

(A) The terms Segment EBITDA and Adjusted Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, and certain other items.  Segment EBITDA and Adjusted Segment EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for operating income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, Segment EBITDA and Adjusted Segment EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included Segment EBITDA and Adjusted Segment EBITDA as a supplemental disclosure because its management believes that Segment EBITDA and Adjusted Segment EBITDA provide useful information regarding its ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.  The Company uses Segment EBITDA and Adjusted Segment EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The tables above set forth reconciliations of Segment EBITDA and Adjusted Segment EBITDA to operating income (loss), which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

(B) The terms Consolidated EBITDA and Adjusted Consolidated EBITDA consist of net income (loss) plus net interest expense, taxes, depreciation and amortization expense, and certain other items.  Consolidated EBITDA and Adjusted Consolidated EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income (loss) from continuing operations or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, Consolidated EBITDA and Adjusted Consolidated EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included Consolidated EBITDA and Adjusted Consolidated EBITDA as a supplemental disclosure because its management believes that Consolidated EBITDA and Adjusted Consolidated EBITDA provide useful information regarding its ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.  The Company uses Consolidated EBITDA and Adjusted Consolidated EBITDA to compare and to monitor the performance of the Company and its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The table above sets forth a reconciliation of Consolidated EBITDA and Adjusted Consolidated EBITDA to net income (loss) from continuing operations, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
ADDITIONAL QUARTERLY SEGMENT AND OPERATING DATA
(unaudited)
 
  Three Months Ended December 31, 
Supplement operating data:  2016   2015  
  Offshore product backlog ($ in millions) $   199.3  $   340.4  
      
  Completion services job tickets  3,899   6,354  
  Average revenue per ticket ($ in thousands)  11.9   8.5  
      
  Land drilling operating statistics:     
  Average rigs available  34   34  
  Utilization    18.2%    22.1% 
  Implied day rate ($ in thousands per day) $    15.1  $    15.8  
  Implied daily cash margin ($ in thousands per day)   $     2.0  $    1.5  
      
Company Contact:      
Lloyd A. Hajdik
Oil States International, Inc.
Executive Vice President, Chief Financial Officer and Treasurer 
713-652-0582

Patricia Gil
Oil States International, Inc.
Investor Relations
713-470-4860