Oil States Announces Second Quarter 2017 Results


Second Quarter Highlights:

  • Reports net loss per diluted share of $0.28; $0.27 adjusted net loss per diluted share excluding severance and other downsizing charges
  • Well site services revenues increased 70% year-over-year
  • Offshore/manufactured products- Segment EBITDA margin averaged 16.8% (17.0% Adjusted)
  • Offshore/manufactured products- achieved a book-to-bill ratio of 0.99x
  • Invested $9 million in M&A activities
  • Invested $16 million in share repurchases

HOUSTON, July 31, 2017 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported a net loss for the second quarter of 2017 of $14.2 million, or $0.28 per diluted share, which included pre-tax charges of $0.8 million ($0.6 million after-tax, or $0.01 per diluted share) for severance and other downsizing charges. These results compare to a reported net loss for the second quarter of 2016 of $11.7 million, or $0.23 per diluted share, which included pre-tax charges of $1.1 million ($0.7 million after-tax, or $0.01 per diluted share) of severance and other downsizing charges.

During the second quarter of 2017, the Company generated revenues of $171.4 million and Adjusted Consolidated EBITDA (Note B) of $10.4 million (excluding $0.8 million of severance and other downsizing charges). These results compare to revenues of $175.8 million and Adjusted Consolidated EBITDA of $13.5 million reported in the second quarter of 2016 (excluding $1.1 million of severance and other downsizing charges). 

For the first half of 2017, the Company reported revenues of $322.9 million and Adjusted Consolidated EBITDA of $15.8 million (excluding $1.6 million of severance and other downsizing charges). The net loss for the first half of 2017 totaled $31.9 million and included $1.6 million ($1.2 million after-tax, or $0.02 per diluted share) of severance and other downsizing charges. For the first half of 2016, the Company reported revenues of $345.5 million and Adjusted Consolidated EBITDA of $25.7 million (excluding $2.7 million of severance and other downsizing charges). The net loss for the first half of 2016 totaled $24.9 million and included $2.7 million ($1.7 million after-tax, or $0.03 per diluted share) of severance and other downsizing charges.

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, “Our results for the second quarter of 2017 reflect current industry trends and demonstrate strong year-over-year growth in U.S. shale-based drilling and completion-related activity, partially offset by reduced spending internationally and in deepwater. Our U.S. land completion services revenues increased 28% sequentially, exceeding the 21% increase in the second quarter average U.S. rig count. In addition, sales of our short-cycle offshore/manufactured products experienced significant growth during the quarter, much of which is also tied to shale play driven activity. Our revenues that were driven by U.S. shale play activity exceeded 50% of our consolidated revenues this quarter. Despite limited industry award activity, backlog in our offshore/manufactured products segment remained above $200 million with a book-to-bill ratio of 0.99x.”

BUSINESS SEGMENT RESULTS
(See Segment Data Tables)

Well Site Services
Well site services generated revenues of $69.4 million and Segment EBITDA (Note A) of $5.0 million in the second quarter of 2017 compared to revenues and a Segment EBITDA loss of $40.7 million and $3.6 million, respectively, in the second quarter of 2016.  Well site services revenues and Segment EBITDA increased 70% and 237%, respectively, due to a 41% year-over-year increase in the number of completion services job tickets coupled with a 12% year-over-year increase in revenue per completion services job as a result of increased activity and job mix. Adjusted Segment EBITDA margins (Note A) averaged 8.0% and (8.3%) after severance and other downsizing charges in the second quarters of 2017 and 2016, respectively. For the second quarters of 2017 and 2016, completion services generated 77% and 62%, respectively, of its revenues from U.S. land-based activity. Improved utilization in the land drilling business, which averaged 25% in the second quarter of 2017 compared to only 9% in the second quarter of 2016, also positively impacted the segment’s results.

Offshore/Manufactured Products
Offshore/manufactured products generated revenues and Segment EBITDA of $102.0 million and $17.2 million, respectively, in the second quarter of 2017 compared to revenues of $135.2 million and Segment EBITDA of $27.2 million in the second quarter of 2016. Revenues and Segment EBITDA decreased 25% and 37% year-over-year, respectively, due to lower contributions across most of the segment’s product and service lines, particularly those tied to major deepwater project sanctions. Lower major deepwater project revenues were partially offset by a 115% improvement in sales of our shorter-cycle products (elastomer and valve products), which continued to benefit from expanded U.S. land-based activity. Segment EBITDA margin was 16.8% in the second quarter of 2017 compared to a margin of 20.1% realized in the second quarter of 2016. Adjusted Segment EBITDA margins averaged 17.0% and 20.8% after severance and other downsizing charges in the second quarters of 2017 and 2016, respectively. Second quarter 2016 margins benefitted from the larger number of major projects in process or nearing completion during 2016.  Backlog totaled $202 million at June 30, 2017 compared to $204 million at March 31, 2017 and $199 million reported at December 31, 2016.

Income Taxes
The Company recognized an effective tax rate benefit of 26.2% in the second quarter of 2017 compared to an effective tax rate benefit of 35.5% in the second quarter of 2016. The lower effective tax rate benefit in the second quarter of 2017 was primarily attributable to a shift in the mix between domestic pre-tax losses and foreign pre-tax income compared to the prior-year period, and additional valuation allowances provided against deferred tax assets recorded in certain domestic and foreign jurisdictions.

Financial Condition
As of June 30, 2017, $47.0 million was outstanding under the Company’s revolving credit facility, while cash totaled $72.5 million. Total availability under the facility as of June 30, 2017 was $128.0 million (net of standby letters of credit totaling $24.0 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.

During the second quarter of 2017, the Company repurchased 561,765 shares under its authorized share repurchase program at an average price of $28.99 per share. A total of $120.5 million remains available under the share repurchase authorization, which was extended one year to July 29, 2018.

Conference Call Information
The call is scheduled for Monday, July 31, 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) 447-0521 in the United States or by dialing +1 847 413 3238 internationally and using the passcode 45302139. 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 45302139.

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 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, 2016 filed by Oil States with the Securities and Exchange Commission on February 17, 2017.

  
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES 
  
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 
(In Thousands, Except Per Share Amounts) 
  
  Three Months Ended Six Months Ended 
  June 30, June 30, 
   2017   2016   2017   2016  
Revenues:         
Products $82,750  $111,656  $155,930  $214,254  
Service  88,652   64,193   166,939   131,250  
   171,402   175,849   322,869   345,504  
          
Costs and expenses:         
Product costs  59,309   83,939   109,659   152,512  
Service costs  72,539   52,461   141,101   112,703  
Selling, general and administrative expense  29,482   30,486   57,212   60,466  
Depreciation and amortization expense  27,784   29,415   55,764   59,817  
Other operating (income) expense, net  794   (3,291)  963   (2,728) 
   189,908   193,010   364,699   382,770  
Operating loss  (18,506)  (17,161)  (41,830)  (37,266) 
          
Interest expense  (1,149)  (1,315)  (2,223)  (2,760) 
Interest income  85   110   170   202  
Other income  273   224   270   430  
Loss from continuing operations before income taxes  (19,297)  (18,142)  (43,613)  (39,394) 
Income tax benefit  5,051   6,437   11,689   14,453  
Net loss from continuing operations  (14,246)  (11,705)  (31,924)  (24,941) 
Net loss from discontinued operations, net of tax     (1)     (4) 
Net loss attributable to Oil States. $(14,246) $(11,706) $(31,924) $(24,945) 
          
          
Basic net loss per share attributable to Oil States from:         
Continuing operations $(0.28) $(0.23) $(0.63) $(0.50) 
Discontinued operations             
Net loss $(0.28) $(0.23) $(0.63) $(0.50) 
          
Diluted net loss per share attributable to Oil States from:         
Continuing operations $(0.28) $(0.23) $(0.63) $(0.50) 
Discontinued operations             
Net loss $(0.28) $(0.23) $(0.63) $(0.50) 
          
Weighted average number of common shares outstanding:         
Basic  50,232   50,210   50,296   50,126  
Diluted  50,232   50,210   50,296   50,126  


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 June 30, December 31,
ASSETS 2017   2016 
 (Unaudited)  
  
Current assets:   
Cash and cash equivalents$72,468  $68,800 
Accounts receivable, net 213,075   234,513 
Inventories, net 169,622   175,490 
Prepaid expenses and other current assets 11,112   11,174 
Total current assets 466,277   489,977 
    
Property, plant, and equipment, net 522,815   553,402 
Goodwill, net 268,698   263,369 
Other intangible assets, net 52,111   52,746 
Other noncurrent assets 37,927   24,404 
Total assets$1,347,828  $1,383,898 
    
  LIABILITIES AND STOCKHOLDERS’ EQUITY   
    
Current liabilities:   
Current portion of long-term debt and capitalized leases$522  $538 
Accounts payable 34,957   34,207 
Accrued liabilities 41,817   45,018 
Income taxes payable 2,658   5,839 
Deferred revenue 20,506   21,315 
Other current liabilities 318   315 
Total current liabilities 100,778   107,232 
    
Long-term debt and capitalized leases (1) 50,367   45,388 
Deferred income taxes 3,500   5,036 
Other noncurrent liabilities 22,696   21,935 
Total liabilities 177,341   179,591 
    
Stockholders’ equity:   
Common stock 627   623 
Additional paid-in capital 742,512   731,562 
Retained earnings 1,101,549   1,133,473 
Accumulated other comprehensive loss (61,667)  (70,300)
Treasury stock (612,534)  (591,051)
Total stockholders’ equity 1,170,487   1,204,307 
Total liabilities and stockholders’ equity$1,347,828  $1,383,898 
        

(1) As of June 30, 2017, the Company had $128.0 million available under its revolving credit facility (net of standby letters of credit totaling $24.0 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 
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In Thousands)
 
     Six Months Ended June 30,
      2017   2016 
        
Cash flows from operating activities:    
 Net loss $(31,924) $(24,945)
 Adjustments to reconcile net loss to net cash provided by operating activities:    
  Loss from discontinued operations     4 
  Depreciation and amortization  55,764   59,817 
  Stock-based compensation expense  10,954   10,569 
  Deferred income tax benefit  (14,917)  (20,206)
  Provision for bad debt  210   784 
  Gain on disposals of assets  (210)  (372)
  Amortization of deferred financing costs  405   390 
  Other, net  29   665 
 Changes in operating assets and liabilities, net of effect from acquired businesses:    
  Accounts receivable  23,404   62,321 
  Inventories  8,689   7,677 
  Accounts payable and accrued liabilities  (3,075)  (14,798)
  Income taxes payable  (3,211)  5,908 
  Other operating assets and liabilities, net  (1,191)  (5,688)
 Net cash flows provided by continuing operating activities  44,927   82,126 
 Net cash flows used in discontinued operating activities     (6)
   Net cash flows provided by operating activities  44,927   82,120 
        
Cash flows from investing activities:    
  Capital expenditures  (13,291)  (18,398)
  Acquisitions of businesses  (12,859)   
  Proceeds from disposition of property, plant and equipment  742   546 
  Other, net  (453)  (1,551)
 Net cash flows used in investing activities  (25,861)  (19,403)
        
Cash flows from financing activities:    
  Revolving credit facility borrowings (repayments), net  4,825   (42,422)
  Debt and capital lease repayments  (267)  (263)
  Purchase of treasury stock  (16,283)   
  Issuance of common stock from stock-based payment arrangements     366 
  Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock  (5,200)  (3,924)
 Net cash flows used in financing activities  (16,925)  (46,243)
        
Effect of exchange rate changes on cash  and  cash  equivalents  1,527   (490)
Net change in cash and cash equivalents  3,668   15,984 
Cash and cash equivalents, beginning of period  68,800   35,973 
        
Cash and cash equivalents, end of period $72,468  $51,957 
     


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
SEGMENT DATA
(In Thousands)
(unaudited)
 
  Three Months Ended June 30,  Six Months Ended June 30,
   2017   2016   2017   2016 
Revenues:        
Well Site Services -        
Completion Services $57,890  $36,824  $106,562  $77,773 
Drilling Services  11,477   3,869   22,958   6,641 
Total Well Site Services  69,367   40,693   129,520   84,414 
Offshore/Manufactured Products -        
Project-driven products  34,582   83,767   66,917   157,899 
Short-cycle products  40,020   18,579   73,091   39,267 
Other products and services  27,433   32,810   53,341   63,924 
Total Offshore/Manufactured Products  102,035   135,156   193,349   261,090 
Total revenues $171,402  $175,849  $322,869  $345,504 
         
Operating income (loss):        
Well Site Services -        
Completion Services (1,2) $(12,547) $(21,466) $(29,027) $(45,801)
Drilling Services  (3,787)  (5,951)  (8,004)  (14,056)
Total Well Site Services  (16,334)  (27,417)  (37,031)  (59,857)
Offshore/Manufactured Products (1,2)  10,662   21,676   20,126   44,987 
Corporate  (12,834)  (11,420)  (24,925)  (22,396)
Total operating loss $(18,506) $(17,161) $(41,830) $(37,266)
         


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 June 30, Six Months Ended June 30,
   2017   2016   2017   2016 
Well Site Services:        
Completion Services:        
Operating loss $(12,547) $(21,466) $(29,027) $(45,801)
Depreciation and amortization expense  16,193   17,615   32,721   35,558 
Other income  295   286   279   512 
EBITDA  3,941   (3,565)  3,973   (9,731)
Severance and other downsizing charges  630   226   902   1,150 
Adjusted EBITDA $4,571  $(3,339) $4,875  $(8,581)
         
         
Drilling Services:        
Operating loss $(3,787) $(5,951) $(8,004) $(14,056)
Depreciation and amortization expense  4,794   5,902   9,829   12,424 
Other income  3      4   1 
EBITDA  1,010   (49)  1,829   (1,631)
Severance and other downsizing charges            
Adjusted EBITDA $1,010  $(49) $1,829  $(1,631)
         
         
Total Well Site Services:        
Operating loss $(16,334) $(27,417) $(37,031) $(59,857)
Depreciation and amortization expense  20,987   23,517   42,550   47,982 
Other income  298   286   283   513 
Segment EBITDA  4,951   (3,614)  5,802   (11,362)
Severance and other downsizing charges  630   226   902   1,150 
Adjusted Segment EBITDA $5,581  $(3,388) $6,704  $(10,212)
         
         
Offshore/Manufactured Products:        
Operating income $10,662  $21,676  $20,126  $44,987 
Depreciation and amortization expense  6,534   5,611   12,687   11,265 
Other expense  (25)  (61)  (13)  (81)
Segment EBITDA  17,171   27,226   32,800   56,171 
Severance and other downsizing charges  186   845   693   1,531 
Adjusted Segment EBITDA $17,357  $28,071  $33,493  $57,702 
         
Corporate:        
Operating loss $(12,834) $(11,420) $(24,925) $(22,396)
Depreciation and amortization expense  263   287   527   570 
EBITDA $(12,571) $(11,133) $(24,398) $(21,826)
         


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Information 
 
(In Thousands)
(unaudited)
 
  Three Months Ended June 30, Six Months Ended June 30,
   2017   2016   2017   2016 
Net loss from continuing operations $(14,246) $(11,705) $(31,924) $(24,941)
Income tax provision  (5,051)  (6,437)  (11,689)  (14,453)
Depreciation and amortization expense  27,784   29,415   55,764   59,817 
Interest income  (85)  (110)  (170)  (202)
Interest expense  1,149   1,315   2,223   2,760 
Consolidated EBITDA (B)  9,551   12,478   14,204   22,981 
         
Adjustments to Consolidated EBITDA (1,2):        
Severance and other downsizing charges  816   1,071   1,595   2,681 
Adjusted Consolidated EBITDA (B) $10,367  $13,549  $15,799  $25,662 
         

(1) Operating income (loss) and Consolidated EBITDA for the three months ended June 30, 2017 included severance and other downsizing charges of $0.6 million related to the completion services business and $0.2 million related to the offshore/manufactured products segment. Operating income (loss) and Consolidated EBITDA for the six months ended June 30, 2017 included severance and other downsizing charges of $0.9 million related to the completion services business and $0.7 million related to the offshore/manufactured products segment.

(2) Operating income (loss) and Consolidated EBITDA for the three months ended June 30, 2016 included severance and other downsizing charges of $0.2 million related to the completion services business and $0.9 million related to the offshore/manufactured products segment. Operating income (loss) and Consolidated EBITDA for the six months ended June 30, 2016 included severance and other downsizing charges of $1.2 million related to the completion services business and $1.5 million related to the offshore/manufactured products segment.

(A) The terms EBITDA, Segment EBITDA and Adjusted Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, and certain other items.  EBITDA, Segment EBITDA and Adjusted Segment EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for operating income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, EBITDA, Segment EBITDA and Adjusted Segment EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included EBITDA, Segment EBITDA and Adjusted Segment EBITDA as a supplemental disclosure because its management believes that EBITDA, Segment EBITDA and Adjusted Segment EBITDA provide useful information regarding its ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.  The Company uses EBITDA, Segment EBITDA and Adjusted Segment EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The tables above set forth reconciliations of EBITDA, 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) from continuing operations 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 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 June 30, 
Supplemental operating data:  2017   2016  
Offshore/Manufactured Products backlog ($ in millions) $202.0  $267.7  
      
Completion services job tickets  4,863   3,455  
Average revenue per ticket ($ in thousands) $11.9  $10.7  
      
Land drilling operating statistics:     
Average rigs available  34   34  
Utilization  24.6%   9.0%  
Implied day rate ($ in thousands per day) $15.1  $13.9  
Implied daily cash margin (loss) ($ in thousands per day) $1.9  $1.4  
      



            

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