Oil States International, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Unless stated otherwise, amounts are in millions of dollars. The company operates through Well Site Services and Offshore/Manufactured Products.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $171.4 | $175.8 | $322.9 | $345.5 |
| Gross profit / margin | $39.6 / 23% | $39.4 / 22% | $72.1 / 22% | $80.3 / 23% |
| Operating loss | $(18.5) | $(17.2) | $(41.8) | $(37.3) |
| Net loss | $(14.2) | $(11.7) | $(31.9) | $(24.9) |
| Diluted loss per share | $(0.28) | $(0.23) | $(0.63) | $(0.50) |
- Q2 product revenue was $82.8 and service revenue $88.7. The first-half figures were $155.9 and $166.9, respectively.
- First-half cash from continuing operations was $44.9, down from $82.1; capital expenditures were $13.3, versus $18.4. Cash used for acquisitions was $12.9. Cash increased by $3.7 during the half to $72.5.
- At June 30, cash was $72.5, total debt and capital leases were $50.9, and stockholders’ equity was $1,170.5. The company reported $128.0 available under its revolving credit facility, constrained by its leverage covenant. It was compliant with covenants at period-end.
- Current assets were $466.3 and current liabilities $100.8. Approximately $35 million of foreign-subsidiary cash could be repatriated without incremental tax; substantially all cash was held internationally.
Changes versus prior comparable periods
- Q2 revenue declined 3%, and first-half revenue declined 7%. Well Site Services revenue rose 70% in Q2 and 53% for the half, while Offshore/Manufactured Products revenue fell 25% and 26%, respectively.
- Within Offshore/Manufactured Products, first-half project-driven revenue fell 58% to $66.9; short-cycle products increased 86% to $73.1. Segment backlog was $202 at June 30, up from $199 at year-end, with a first-half book-to-bill ratio of 1.0x.
- Well Site Services improved with stronger U.S. land activity: Completion Services job tickets rose 41% in Q2 and 19% for the half; revenue per job increased 12% and 15%, respectively. Drilling Services rig utilization averaged 25% in both the quarter and half, compared with 9% and 8% in the prior-year periods.
- Q2 consolidated gross margin improved to 23% from 22%, but first-half margin eased to 22% from 23%, partly due to a shift in revenue mix. First-half net loss widened, reflecting lower offshore-related operating income and a smaller income tax benefit.
- Currency translation contributed $8.6 of other comprehensive income in the first half, versus a $7.3 loss in the prior-year period.
Outlook, commentary, risks and unusual items
- Management expected 2017 capital expenditures of $35–$40, compared with $30 in 2016, subject to industry conditions, project timing, vendor deliveries and liquidity monitoring. Management believed cash, operating cash flow and available facility borrowings would meet needs over the next 12 months.
- Management described the oilfield market as recovering unevenly: U.S. shale activity supported Well Site Services and short-cycle products, while offshore project activity remained weak. Offshore backlog had fallen substantially from $599 at June 30, 2014; first-half 2017 bookings showed only a modest increase from year-end.
- Key risks include volatile oil and gas prices, customer capital-spending reductions and financial weakness, further supply-demand imbalances, offshore project delays, and foreign-exchange movements. The company noted that covenant restrictions could limit revolver availability; it expected this limitation to continue during 2017.
- Q2 included $0.8 of severance and downsizing charges; first-half charges were $1.6. The effective tax benefit rate declined to 26.8% for the first half from 36.7%, due mainly to the mix of domestic losses and foreign income and additional valuation allowances on certain tax assets.
- Two Offshore/Manufactured Products acquisitions cost $12.9 in cash; purchase-price allocations remained preliminary. The company repurchased 562,000 shares for $16.3 in Q2 and extended its $150 million repurchase authorization through July 29, 2018 after quarter-end.
- One customer accounted for 16% of Q2 revenue, 15% of first-half revenue and 11% of receivables at June 30. The company said pending claims and proceedings were not expected to have a material adverse effect, while noting outcomes cannot be assured. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether U.S. activity and pricing gains can sustain Well Site Services’ improving utilization and margins.
- Whether offshore orders, book-to-bill and backlog recover enough to offset continued weakness in project-driven revenue.
- Actual revolver availability under the leverage covenant, covenant headroom and compliance as operating results evolve.
- Cash generation, planned capital spending, acquisition spending and share repurchases, especially given the international location of most cash.
- Assumptions behind deferred tax asset valuation allowances and the potential impact of future taxable income estimates.
- Customer concentration, outstanding claims, and the final valuation of acquired assets and goodwill.