Oil States International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Oil States supplies manufactured products and services to energy, industrial and military customers through Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Results are unaudited and interim performance may not indicate full-year results.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $196.2 million | $164.0 million |
| Gross profit, before depreciation and amortization | $45.5 million; 23.2% margin | $37.4 million; 22.8% margin |
| Operating income (loss) | $5.9 million; 3.0% margin | $(4.3) million; (2.6)% margin |
| Net income (loss) | $2.2 million; $0.03 per diluted share | $(9.4) million; $(0.16) per diluted share |
| Operating cash flow | $(5.9) million | $(10.7) million |
| Capital expenditures | $6.6 million | $2.9 million |
| Cash and cash equivalents, at period end | $15.8 million | $42.0 million at Dec. 31, 2022 |
| Total debt, at period end | $139.0 million | $152.9 million at Dec. 31, 2022 |
Revenue increased 20% year over year, while cost of revenue (excluding depreciation and amortization) rose 19%. Operating cash use reflected $25.6 million of working-capital investment, principally incentive payments and higher inventory. Cash declined $26.2 million during the quarter. Debt includes $135.0 million principal of 4.75% convertible notes due 2026; the $17.3 million 1.50% notes due 2023 were repaid at maturity in February.
Segments and material changes
- Offshore/Manufactured Products: Revenue rose 17% to $98.2 million; operating income increased to $11.1 million from $10.2 million. Backlog was $326 million, up from $308 million at year-end; Q1 bookings were $118 million and book-to-bill was 1.2x.
- Well Site Services: Revenue grew 39% to $67.1 million, primarily on increased U.S. activity. The segment moved to $7.0 million of operating income from a $3.4 million loss.
- Downhole Technologies: Revenue declined 3% to $30.9 million; operating loss was $1.5 million, essentially unchanged.
Overall, the company returned to quarterly profitability from a year-earlier loss. Management attributed improvement to stronger customer investment, cost control and capital discipline. Higher material, transportation and labor costs partly offset revenue growth. Corporate operating loss increased to $10.7 million from $9.6 million.
Liquidity, outlook and risks
- At March 31, the company reported $5.0 million of ABL borrowings, $15.9 million of letters of credit and $92.8 million available to draw. It stated it was in compliance with ABL covenants. The facility has a $125 million commitment, subject to borrowing-base availability, and matures February 2025, with a springing maturity provision.
- Management expects approximately $25 million of 2023 capital expenditures and believes cash, operating cash flow and ABL availability will meet liquidity needs for the next 12 months. The filing provides no specific revenue or earnings guidance.
- A $25 million share-repurchase authorization runs through February 2025; no program repurchases had occurred by quarter-end. Shares withheld to cover employee award taxes were not program repurchases.
- Remaining backlog for contracts with original durations over one year was $209.9 million; approximately 35% was expected to be recognized during the remainder of 2023 and 46% in 2024.
- Demand is cyclical and sensitive to oil and gas prices, customer spending, drilling and completion activity, and regulatory conditions. Risks highlighted include inflation and supply-chain constraints, tariffs and sanctions, geopolitical and banking-market disruptions, climate-related regulation and capital access, foreign-exchange movements, and customer financial health.
- The company has pending or threatened legal matters, including some involving hazardous-material exposure; management believes any ultimate liability not covered by provisions, indemnity or insurance will not materially adversely affect its financial position, results or liquidity. No off-balance-sheet arrangements were reported.
Most important facts to verify
- Whether operating cash flow and working-capital needs improve as activity grows, given the quarter’s cash decline.
- Whether projected 2023 capital spending remains near $25 million and ABL availability is maintained.
- Whether Offshore/Manufactured Products backlog converts as expected and Well Site Services growth is sustained.
- How input-cost inflation, commodity-price volatility, banking-market conditions and climate-related rules affect margins, customers and access to capital.
- The terms and potential dilution implications of the 2026 convertible notes, and any future use of the share-repurchase authorization.