Oil States International, Inc. — Q1 2022 Form 10-Q
Business context and period: The company supplies manufactured products and services to energy, industrial and military customers through Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Results cover the three months ended March 31, 2022; balance-sheet figures are as of that date.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $164.0 million | $125.6 million; up 31% |
| Gross profit and margin | $37.4 million; 22.8% | $23.3 million; 18.5% |
| Operating loss and margin | $4.3 million; (2.6%) | $19.8 million; (15.7%) |
| Net loss / diluted loss per share | $9.4 million / $0.16 | $15.8 million / $0.26 |
| Operating cash flow | $(10.7) million | $(8.4) million |
| Capital expenditures | $2.9 million | $4.1 million |
| Cash and cash equivalents | $39.2 million | $52.9 million at Dec. 31, 2021 |
| Total debt | $178.8 million | $178.8 million at Dec. 31, 2021; net debt was approximately $139.7 million |
| Current assets / current liabilities | $434.5 million / $204.8 million; current ratio about 2.1 | — |
Revenue growth reflected stronger customer activity and demand for project-related equipment. Operating cash use included $21.3 million of working-capital investment, primarily higher receivables and inventories. The company reported $51.0 million of available ABL borrowing capacity after letters of credit and no ABL borrowings; it said available cash, operating cash flow and ABL capacity should meet needs over the next 12 months.
Segment revenue and operating results: Offshore/Manufactured Products revenue was $84.1 million and operating income $10.2 million; Well Site Services revenue was $48.2 million and operating loss $3.4 million; Downhole Technologies revenue was $31.8 million and operating loss $1.5 million. The ABL facility had $19.6 million of outstanding letters of credit. Debt included $26.0 million principal of 1.50% convertible notes due 2023, $135.0 million principal of 4.75% convertible notes due 2026, and other debt.
Material changes versus prior year
- Revenue increased 31%; operating loss narrowed by $15.4 million, with improved results in Offshore/Manufactured Products and Well Site Services.
- Offshore/Manufactured Products backlog rose to $265 million from $226 million a year earlier. Q1 bookings were $93 million and book-to-bill was 1.1x. Separately, remaining backlog for contracts originally expected to run more than one year was $152 million.
- Q1 2021 included a $3.6 million non-cash debt-extinguishment gain, $3.4 million severance and restructuring costs, a $0.7 million fixed-asset impairment and $4.8 million in CARES Act payroll tax credits. These items affect comparability.
- Cash declined $13.7 million from year-end 2021. Debt was broadly unchanged, but the current portion increased to $44.0 million from $18.3 million.
Outlook, risks and unusual items
- Management expected approximately $25 million of 2022 capital expenditures, subject to industry conditions, project schedules, liquidity and cash generation. No earnings or revenue guidance was provided.
- Management cited higher energy prices and improving activity, but noted customer capital discipline, commodity-price volatility, Russia-Ukraine-related uncertainty, COVID-19 effects, supply-chain constraints, labor availability and inflation in wages and materials.
- The company recorded $0.8 million of bad-debt expense on Russia-based customer receivables in Q1 and reported no remaining material Russia balance-sheet exposure at March 31.
- On April 14, 2022, after quarter-end, the company acquired E-Flow Control Holdings for $8.6 million in cash, subject to customary adjustments.
- A dispute with the GEODynamics seller remains pending, involving indemnification claims, the promissory note and CARES Act tax carryback proceeds. The company carries the note at $17.5 million after its asserted set-off; the ultimate outcome is uncertain.
- Management said pending legal matters were not expected to have a material adverse effect, but outcomes cannot be assured. Potential further impairments and restructuring costs, climate-related regulation, and litigation and financing risks were also disclosed.
Important facts for investors to verify
- Whether revenue growth and segment profitability improvements continue, particularly in Offshore/Manufactured Products and Well Site Services.
- Whether working-capital investment converts into cash and the company achieves positive operating cash flow while funding planned capex.
- Liquidity and refinancing risks around the 2023 notes, ABL borrowing availability and the GEODynamics promissory-note dispute.
- Backlog conversion, bookings and customer project timing; distinguish the $265 million segment backlog from the $152 million long-duration contract backlog.
- Effects of cost inflation, supply constraints, geopolitical developments and customer spending discipline on margins and demand.