Oil States International, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Oil States supplies products and services to the energy, industrial and military markets through Well Site Services, Downhole Technologies and Offshore/Manufactured Products. The year’s results were severely affected by COVID-19, the oil-price collapse and reduced customer spending.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $638.1 million | $1,017.4 million |
| Operating loss | $534.3 million | $228.2 million |
| Net loss | $468.4 million; $7.83 per share | $231.8 million; $3.90 per share |
| Operating cash flow | $132.8 million | $137.4 million |
| Capital expenditures | $12.7 million | $56.1 million |
| Cash and cash equivalents at year-end | $72.0 million | $8.5 million |
| Total debt carrying value at year-end | $183.5 million | $248.2 million |
Revenue fell 37%. Product revenue was $331.3 million and service revenue was $306.8 million. Costs of revenue, excluding depreciation and amortization, were $561.8 million; on that basis, gross profit was approximately $76.3 million (12.0% of revenue), versus $214.8 million (21.1%) in 2019. The filing’s supplemental “EBITDA, as defined” was $17.0 million, down from $98.9 million; it is a non-GAAP measure and includes specified impairment and other adjustments.
Cash from operations included $69.7 million from working-capital decreases and $41.3 million of cash received on CARES Act tax-loss carryback claims. The company reported a current ratio of approximately 2.6, based on current assets of $423.6 million and current liabilities of $162.1 million. Total debt carrying value less cash was approximately $111.5 million.
Material changes and unusual items
- Well Site Services revenue decreased 54% to $199.8 million; Downhole Technologies revenue fell 46% to $97.9 million. Offshore/Manufactured Products revenue declined 16% to $340.3 million and was comparatively more resilient, supported by project-driven sales.
- The company recorded $449.7 million in non-cash asset impairment charges, including $406.1 million of goodwill, $31.2 million of inventory and $12.4 million of fixed-asset and lease impairments. It also recorded $9.1 million of severance and restructuring charges.
- Other income included a $10.7 million non-cash gain from repurchasing $34.9 million principal amount of convertible notes for $20.1 million. The income-tax benefit was $65.9 million, including $16.4 million of discrete CARES Act tax benefits.
- The company reduced workforce by 32%, cut 2020 capital expenditures by 77% versus 2019, reduced incentive awards and closed or consolidated facilities.
- Fourth-quarter 2020 revenue was $137.4 million and net loss was $18.7 million, compared with revenue of $238.4 million and net loss of $175.6 million in fourth-quarter 2019. Quarterly losses were affected by material, uneven impairment charges.
Liquidity, outlook and risks
- Management expected cash on hand, operating cash flow and borrowing capacity to meet liquidity needs for the following 12 months. It planned approximately $15 million of capital expenditures in 2021, subject to industry conditions and liquidity.
- On February 10, 2021, after year-end, the company entered a $125 million asset-based revolving facility maturing in February 2025, subject to a borrowing base, and terminated its prior facility. As of February 10, availability was approximately $29 million after borrowings and letters of credit.
- Management expected COVID-19 to continue adversely affecting demand in 2021 and anticipated activity improving from 2020 lows but remaining tempered. U.S. oil and gas capital spending had reached a 15-year low; the average WTI price was $39 per barrel in 2020, down 31% from 2019.
- Offshore/Manufactured Products backlog was $219 million at year-end, down 22% year over year; management expected about 75% to be recognized as revenue in 2021. Orders were $286 million and book-to-bill was 0.8x. Backlog may be delayed or canceled.
- Key risks include commodity-price volatility, continued customer spending reductions or nonpayment, COVID-19 disruptions, competition and pricing pressure, project execution and cancellation risk, access to credit, and environmental, climate and regulatory changes affecting oil and gas activity.
- A dispute with the GEODynamics seller involves indemnification claims and a promissory note. The seller alleges unpaid amounts and claims entitlement to about $19 million of CARES Act tax carryback proceeds; it refiled its lawsuit in state court in February 2021. The company disputes the claims. Management did not expect other pending proceedings to materially affect consolidated results, liquidity or financial position.
Important facts for investors to verify
- Whether customer activity, pricing and collections recover sufficiently to support revenue and operating cash flow.
- Borrowing-base availability and covenant triggers under the new credit facility, alongside the scheduled February 2023 convertible-note maturity.
- Whether the $219 million backlog converts to revenue as expected and whether further cancellations occur.
- Outcome and potential financial impact of the GEODynamics seller dispute, including the promissory-note set-off and tax carryback claims.
- Assumptions supporting the remaining $76.5 million of goodwill and the possibility of further impairments if forecasts weaken.