Oil States International, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Oil States supplies products and services to energy, industrial and military customers through Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Demand remains closely tied to customer spending and oil and gas activity.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $189.4 million | $140.5 million | $535.3 million | $411.8 million |
| Operating income (loss) | $5.1 million | $(16.1) million | $(0.4) million | $(53.5) million |
| Net income (loss) | $2.1 million | $(13.0) million | $(12.4) million | $(44.1) million |
| Diluted EPS | $0.03 | $(0.22) | $(0.20) | $(0.73) |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $19.0 million | $20.6 million |
Revenue increased 35% in Q3 and 30% for the nine-month period. Gross profit before depreciation and amortization was $38.1 million in Q3 (20.1% of revenue), versus $23.3 million (16.6%) a year earlier; for nine months it was $115.2 million (21.5%), versus $74.7 million (18.1%). These margins are calculated from reported revenue less cost of revenues, which excludes depreciation and amortization.
Nine-month operating cash flow was modestly lower year over year despite improved results, as working capital used $27.5 million, mainly for receivables and inventory. Capital expenditures were $13.3 million; management expected approximately $20 million for full-year 2022.
Financial position and liquidity
- At September 30, 2022, cash was $33.1 million, down from $52.9 million at December 31, 2021. Current assets were $442.2 million and current liabilities $194.2 million.
- Total debt was $155.0 million, compared with $178.8 million at year-end 2021. This included $135.0 million principal of 4.75% convertible notes due 2026 and $19.5 million principal of 1.50% convertible notes due February 15, 2023. No ABL borrowings were outstanding.
- The $125 million asset-based revolving facility had $79.9 million available, net of $17.6 million in letters of credit. The company reported compliance with its covenants and believed cash, operating cash flow and available borrowing capacity would meet needs over the next 12 months.
- Accounts receivable were $209.3 million and inventory was $181.6 million. Deferred revenue was $50.7 million.
Changes, segments and notable items
- All three segments grew revenue in Q3: Offshore/Manufactured Products $96.0 million, Well Site Services $60.5 million, and Downhole Technologies $32.8 million. Their operating results were respectively $13.4 million, $2.4 million and a $0.3 million loss. Corporate operating expense was $10.3 million.
- The quarter’s $2.1 million net income included a $6.1 million gain from settling litigation with service providers. Without that gain, reported quarterly profitability would have been weaker; management reported the gain as other operating income.
- The company settled disputes with the seller of GEODynamics: it paid $10.0 million cash and issued approximately 1.9 million shares valued at $10.3 million, extinguishing the promissory note and related disputes. A $0.6 million settlement charge was recorded in Q2.
- In April, the company acquired U.K.-based E-Flow for $8.1 million net of cash acquired. It also exited certain Well Site Services offerings in January 2022; those offerings generated $15.0 million of revenue in the first nine months of 2021.
- Offshore/Manufactured Products backlog was $258 million at September 30, versus $249 million a year earlier; nine-month bookings were $283 million and book-to-bill was 1.0x. Separately, company-wide remaining backlog under contracts originally longer than one year was $168.1 million; about 15% was expected to be recognized in the final three months of 2022 and 50% in 2023.
Outlook, commentary and risks
Management cited stronger customer activity and higher demand, alongside inflation in labor, materials, transportation and other costs. The U.S. average rig count rose 58% in the first nine months of 2022 versus the prior-year period. Management noted that commodity prices, customer capital discipline, recession concerns, supply-chain constraints and regulatory/ESG pressures could affect future activity; it did not provide earnings or revenue guidance.
Other disclosed risks include the Russia-Ukraine conflict, COVID-related disruptions, tariffs and duties, workforce constraints, foreign-exchange movements and changing climate-related rules. Management said the company had no remaining material balance-sheet exposure to Russia. Nine-month currency translation losses were $23.8 million, primarily associated with the U.K. and Brazil; the British pound weakened 18% against the U.S. dollar during the period. The nine-month tax provision was $6.0 million despite a pretax loss, affected by U.S. tax-asset valuation allowances, nondeductible items and discrete tax items.
The company reported no off-balance-sheet arrangements, effective disclosure controls, and no material changes in internal control over financial reporting during the quarter. Management stated that pending claims, apart from matters described in the filing, were not expected to have a material adverse effect, while acknowledging outcomes cannot be assured.
Investor verification priorities
- Assess underlying Q3 profitability apart from the $6.1 million litigation-settlement gain and the effects of prior-year impairments, restructuring charges and Hurricane Ida.
- Review cash conversion and working-capital needs, particularly the growth in receivables and inventory, against the company’s stated 12-month liquidity outlook.
- Confirm plans to repay or refinance the $19.5 million 2023 Notes and assess the ABL facility’s springing-maturity provision, which is linked to debt maturities exceeding $17.5 million.
- Track whether backlog converts to revenue as expected and whether segment growth offsets continued labor, material and other cost inflation.
- Monitor tax valuation allowances, foreign-exchange effects and customer demand risks tied to commodity prices, capital spending, regulation and geopolitical conditions.