Oil States International, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Unless noted otherwise, dollar amounts below are in U.S. dollars.
Business context and reporting period
Oil States is a technology-focused energy-services company operating in two segments: offshore products and well site services. Its accommodations business was spun off in May 2014; the tubular services business was sold in 2013. Prior-period results were presented as discontinued operations, so continuing-operations figures best describe the current business.
Key financial metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $1,100.0 million | $1,819.6 million |
| Gross profit and margin | $314.3 million; 29% | $613.7 million; 34% |
| Operating income | $55.0 million | $310.3 million |
| Continuing-operations net income | $28.4 million; diluted EPS $0.55 | $127.2 million; diluted EPS $2.35 |
| Cash from continuing operating activities | $255.8 million | $302.6 million |
| Capital expenditures | $114.7 million | $199.3 million |
| Cash and cash equivalents at year-end | $36.0 million | $53.3 million |
| Total debt, including capital leases | $129.1 million | $147.4 million |
At year-end, stockholders’ equity was $1,255.7 million. The $600 million revolving facility had $122.9 million drawn and $37.7 million in outstanding letters of credit; reported remaining availability was $439.4 million, though borrowing capacity could fall as trailing EBITDA declines. The company reported compliance with its financial covenants at year-end.
Revenue fell 40% year over year. Well site services revenue declined 56% to $375.9 million, and segment operating income moved to a $44.1 million loss from $178.4 million income. Offshore products revenue declined 25% to $724.1 million; segment operating income was $146.4 million, down from $200.1 million. The consolidated gross-margin decline primarily reflected lower well site services margins.
Fourth quarter: Revenue was $234.5 million versus $483.7 million in Q4 2014; gross profit was $69.8 million versus $164.6 million. Continuing-operations net income was $1.1 million versus $58.3 million. Q4 2015 included $1.9 million of severance and downsizing charges, a $3.4 million U.K. leasehold-restoration provision, and tax adjustments and valuation allowance.
Material changes versus prior periods
- Sharp commodity-price declines and reduced customer spending drove lower revenue, margins, and operating income. Completion-services revenue fell 53%; drilling-services revenue fell 66%.
- Completion-services tickets declined 38%, while revenue per job fell 25%. Drilling-rig utilization dropped to 33% on average in 2015 from 87% in 2014; only five of 34 rigs were working or under contract at year-end.
- Offshore-products backlog fell to $340 million from $490 million at year-end 2014 and $580 million at year-end 2013. Cancellations totaled $21.1 million in 2015.
- Management attributed lower 2015 net income partly to $6.4 million of severance and downsizing charges, the $3.4 million leasehold-restoration provision, and higher taxes. It stated that excluding these items, continuing-operations net income would have been $43.1 million, or $0.84 per diluted share. The comparable 2014 adjusted figures were $199.6 million and $3.69 per diluted share; 2014 reported results included a $100.4 million debt-extinguishment loss and $11.2 million of spin-off-related transaction costs.
- The company acquired Montgomery Machine Company for $33.4 million, net of cash acquired. It repurchased $105.9 million of shares in 2015.
Outlook, risks, contingencies, and unusual items
- Management expected weak oil and gas prices and low customer activity to persist into 2016 unless commodity prices improved. It anticipated continued pressure on well site services and possible further offshore backlog declines, reduced revenue, and lower profitability.
- Planned 2016 capital expenditures were approximately $50–55 million, including about $19 million carried over from 2015. Spending remained subject to industry conditions, approvals, cash generation, and liquidity.
- Approximately 80% of year-end offshore backlog was expected to convert to 2016 revenue, but customer cancellations, deferrals, project changes, and payment defaults could reduce realization. Some orders are cancellable subject to contractual fees or reimbursement.
- Cost actions included closing underperforming completion-services locations and company-wide headcount reductions of approximately 33% since the start of 2015.
- Management said cash, operating cash flow, and facility borrowings should meet liquidity needs for the next 12 months, but cautioned that lower EBITDA could constrain revolver access under the 3.25x maximum leverage covenant. It expected covenant compliance through the remainder of 2016.
- No goodwill or long-lived asset impairment was recorded in 2015. The filing warns that continued market weakness could lead to impairment charges; goodwill was $263.8 million at year-end.
- Other risks include customer credit deterioration, fixed-price project cost overruns and delays, foreign-exchange exposure, environmental and offshore-drilling regulation, and potential liabilities related to the Civeo spin-off. The FLSA class action settlement was approved in November 2015; most claims were settled and remaining individual claims were not expected to be significant.
Important facts for investors to verify
- Whether 2016 customer spending, rig utilization, and completion activity followed management’s expectations, and the resulting revenue and margin trend by segment.
- How much of the $340 million offshore backlog converted to revenue, and whether cancellations or deferrals increased.
- Actual 2016 EBITDA, covenant headroom, and usable revolver capacity compared with the reported $439.4 million availability.
- Whether planned capital spending was reduced or funded as forecast, and how liquidity changed.
- Whether weaker operating forecasts triggered goodwill or long-lived asset impairments, or further restructuring charges.
- The effects of foreign-currency movements, customer collections, and any material legal, regulatory, or spin-off-related liabilities.