Oil States International, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company supplies engineered products and services to energy, industrial and military markets through Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Unless noted otherwise, figures below are in millions of dollars.
Financial performance
- Q2 revenue: $183.5, up 1% year over year. Product revenue was $92.6 (down 6%); services revenue was $90.9 (up 10%).
- Q2 profit: Operating income was $3.3 versus an operating loss of $1.1; net income was $0.6 versus a net loss of $5.1. Diluted EPS was $0.01 versus $(0.08).
- Q2 margins: Gross margin, calculated before depreciation and amortization, was approximately 22.6% versus 21.8%; operating margin was approximately 1.8% versus negative 0.6%.
- First-half results: Revenue was $379.7, up 10%; operating income was $9.1 versus a $5.4 loss; net income was $2.7 versus a $14.6 loss. Diluted EPS was $0.04 versus $(0.24). Calculated gross margin was approximately 22.9% versus 22.3%.
- Cash flow and investment: First-half operating cash flow was $38.7, compared with $10.0 used in the prior-year period. Capital expenditures were $17.3 versus $6.5; management expects approximately $28 in full-year 2023 capital expenditures.
- Liquidity and debt: Cash was $42.4 at June 30, compared with $42.0 at year-end 2022. Total debt was $135.8, down from $152.9, principally following repayment of $17.3 of 2023 convertible notes. Net debt was approximately $93.4. No ABL borrowings were outstanding; available borrowing capacity was $90.9, with $15.1 of letters of credit outstanding. The company reported covenant compliance.
- Balance sheet: Current assets were $456.7 and current liabilities $162.7. Inventory rose to $205.1 from $182.7; accounts receivable declined to $180.9 from $218.8.
Material changes and segment trends
- Q2 revenue growth was led by Well Site Services, up 18% to $64.5, with operating income improving to $4.7 from $0.6. Offshore/Manufactured Products revenue declined 2% to $94.1, while operating income increased to $11.3 from $9.4. Downhole Technologies revenue fell 18% to $24.9 and its operating loss widened to $2.5 from $1.5.
- For the first half, Well Site Services revenue grew 28% to $131.6 and returned to operating profit of $11.7 from a $2.8 loss. Offshore/Manufactured Products revenue rose 6% to $192.3 and operating income reached $22.3. Downhole Technologies revenue fell 10% to $55.8 and operating loss widened to $4.1.
- Offshore/Manufactured Products backlog was $338 at June 30, up from $308 at December 31, 2022 and $241 a year earlier. Q2 bookings were $106, with a 1.1x book-to-bill ratio; first-half bookings were $224 and year-to-date book-to-bill was 1.2x. Separately, remaining backlog on contracts originally expected to last more than one year was $210.7; about 33% was expected to be recognized in the rest of 2023.
- The company repaid its $17.3 of 1.50% convertible notes at maturity in February. It repurchased $3.0 of shares in Q2 under a $25.0 authorization running through February 2025; $22.0 remained authorized at quarter-end.
Outlook, commentary and risks
- Management said stronger customer investment, cost control and capital discipline contributed to improved results. It believes cash, operating cash flow and ABL availability will meet liquidity needs for the next 12 months.
- Demand remains sensitive to oil and gas prices, customer capital spending, drilling and completion activity, and regulatory conditions. Management noted commodity-price volatility and that the U.S. rig count on July 21 was 669, 7% below the Q2 average.
- Risks include banking and capital-market disruption, inflation and the ability to pass on higher costs, supply-chain and tariff issues, geopolitical events, foreign exchange movements, climate-related regulation, and customer financial health. The filing identifies a new financial-services-industry risk, including possible limits on access to deposits or credit.
- Downhole Technologies recorded a $1.0 non-cash provision for excess and obsolete inventory in Q2. A facility held for sale was reclassified to current assets; its estimated fair value exceeded its $6.9 carrying value, so no impairment was recorded.
- Management believes pending legal matters, net of applicable provisions, indemnities and insurance, will not materially adversely affect consolidated financial position, results or liquidity. The filing reports no off-balance-sheet arrangements and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether Offshore/Manufactured Products backlog converts to revenue as expected, and whether bookings continue to exceed shipments.
- Whether Well Site Services activity and profitability hold up if commodity prices or U.S. rig counts weaken; whether Downhole Technologies can reverse its revenue and loss trends.
- Whether working-capital needs—particularly inventory levels—and planned capital expenditures remain consistent with operating cash generation.
- Debt repayment and liquidity timing: the $135.0 principal of 4.75% convertible notes is due in 2026, while the ABL Facility matures in 2025 and has a springing maturity provision.
- How commodity prices, inflation, financing-market conditions and climate-related regulation affect customer spending, costs and access to capital.