Oil States International, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. All financial amounts below are in U.S. dollars; millions unless noted. The company supplies manufactured products and services to energy, industrial and military customers through Offshore/Manufactured Products, Well Site Services and Downhole Technologies.
Financial performance
- Third quarter: Revenue was $194.3 million, up 3% year over year. Operating income was $6.2 million versus $5.1 million; net income was $4.2 million, or $0.07 per diluted share, versus $2.1 million, or $0.03.
- First nine months: Revenue was $574.0 million, up 7%. Operating income was $15.3 million, compared with an operating loss of $0.4 million; net income was $6.9 million, or $0.11 per diluted share, versus a net loss of $12.4 million, or $0.20 per share.
- Margins: Operating margin was approximately 3.2% in Q3 2023 versus 2.7% in Q3 2022; for the first nine months it was 2.7% versus negative 0.1%. Cost of revenues excluding depreciation and amortization was 77.4% of Q3 revenue and 77.2% of nine-month revenue.
- Cash flow: Operating cash flow was $52.4 million for the first nine months, up from $19.0 million. Investing cash outflow was $19.1 million, including $23.4 million of capital expenditures; financing cash outflow was $22.7 million. Cash increased by $10.9 million to $52.9 million.
- Liquidity and debt: Current assets were $484.7 million and current liabilities $167.6 million. Total debt carrying value was $136.0 million, including $135.0 million principal of 4.75% convertible notes due 2026; the $17.3 million 2023 notes were repaid at maturity in February. There were no ABL borrowings, $16.4 million of letters of credit and $84.5 million available to draw. The company reported compliance with ABL covenants.
- Other balance-sheet metrics: Total assets were $1.048 billion and stockholders’ equity $698.4 million at September 30. Inventories were $206.5 million, up from $182.7 million at year-end 2022; accounts receivable was $189.2 million, down from $218.8 million.
Material changes and segment trends
- Offshore/Manufactured Products revenue grew 16% in Q3 to $111.0 million, with operating income of $17.8 million. Segment backlog reached $348 million, up from $308 million at year-end 2022; Q3 bookings were $129 million and book-to-bill was 1.2x.
- Well Site Services Q3 revenue declined 1% to $59.8 million, while operating income rose to $3.3 million. Nine-month revenue increased 17%, and the segment moved from a prior-year loss to $15.0 million operating income.
- Downhole Technologies Q3 revenue fell 29% to $23.4 million and its operating loss widened to $4.1 million. Nine-month revenue fell 17% and the operating loss widened to $8.2 million, reflecting lower U.S. demand, lower manufacturing volumes and higher costs.
- Management attributed improvement in nine-month results to increased customer investment, offshore project growth, cost control and capital discipline. Growth was partly offset by the industry-wide decline in U.S. well completions that began early in 2023.
Outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. The company expects approximately $35 million of capital expenditures in 2023, including land purchase and construction of a new facility in Batam, Indonesia. It expects to sell facilities in Singapore and Houston in late 2023 or early 2024 for combined proceeds of approximately $35–$40 million.
- Remaining backlog on contracts with original expected durations over one year was $225.9 million; approximately 19% was expected to be recognized in the remainder of 2023, 51% in 2024 and the balance thereafter.
- Q3 2023 included $1.6 million of Offshore/Manufactured Products facility consolidation charges and $2.8 million of gains on asset disposals. Q3 2022 included a $6.1 million litigation-settlement gain. These items affect year-over-year comparability.
- Key business risks include oil and gas price and activity volatility, reduced U.S. completion demand, inflation and supply-chain costs, customer financial health, geopolitical conflict and sanctions, tariffs, foreign exchange, climate-related regulation and access to capital. The filing also adds risk disclosure concerning financial-institution instability and potential impacts on deposits, credit access and counterparties.
- Management believes cash, operating cash flow and ABL availability will meet liquidity needs for the next 12 months. Pending or threatened legal matters were not expected by management to have a material adverse effect, although outcomes are uncertain. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether offshore backlog converts to revenue and earnings as expected, and whether bookings remain above billings.
- Whether declining U.S. well completions and weaker Downhole Technologies demand persist or stabilize.
- Execution, timing, cost and sale proceeds for the facility consolidation and Batam relocation plans.
- Cash generation, working-capital needs, capital spending and continued access to the $84.5 million of reported ABL availability.
- Terms and refinancing or repayment plans for the $135 million principal amount of 2026 convertible notes; their reported fair value was $151 million at September 30, 2023.
- Commodity prices, customer capital budgets, input-cost pressures and other disclosed macroeconomic, regulatory and geopolitical risks.