Oil States International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with Q1 2020. The company supplies products and services to the oil and gas industry through Offshore/Manufactured Products, Downhole Technologies and Well Site Services.
Financial performance and liquidity
- Revenue: $125.6 million, down 43% from $219.7 million. Product revenue was $61.4 million (down 40%) and service revenue was $64.1 million (down 45%).
- Profitability: Operating loss was $19.8 million and net loss was $15.8 million, or $0.26 per diluted share, compared with a $441.8 million operating loss and $405.0 million net loss ($6.79 per share) in Q1 2020. The prior-year loss included $436.5 million of goodwill and fixed-asset impairments and $25.2 million of inventory impairments. Q1 2021 included $3.4 million of severance and restructuring costs and a $3.6 million non-cash debt-extinguishment gain.
- Margins: Cost of revenues, excluding depreciation and amortization, was $102.3 million. This implies gross profit before depreciation and amortization of $23.3 million, or about 18.5% of revenue. The comparable reported Q1 2020 margin was about 10.1%, including inventory impairment charges; results are not directly comparable.
- Cash flow: Operating activities used $8.4 million, versus $5.4 million provided in Q1 2020. Capital expenditures were $4.1 million; investing activities used $2.4 million. Cash declined $17.5 million during the quarter.
- Balance sheet: Cash was $54.5 million, down from $72.0 million at year-end 2020. Total debt was $187.9 million, including $17.8 million current debt; stockholders’ equity was $732.2 million. Current assets were $419.5 million versus current liabilities of $161.1 million.
- Borrowing capacity: At quarter-end the company had $7.0 million drawn under its $125 million asset-based revolver, $19.0 million of letters of credit and $40.6 million available to draw. It reported compliance with covenants.
Material changes and operating trends
- Revenue declined across all segments: Offshore/Manufactured Products fell 34% to $60.6 million; Downhole Technologies fell 38% to $25.4 million; Well Site Services fell 55% to $39.6 million.
- Q1 2021 segment operating results were income of $1.1 million for Offshore/Manufactured Products, losses of $1.6 million for Downhole Technologies and $9.9 million for Well Site Services. Excluding substantial Q1 2020 impairments, management said operating performance weakened in Downhole Technologies and Well Site Services, while Offshore/Manufactured Products also declined.
- The company issued $135 million of 4.75% convertible notes due 2026, receiving $130.3 million net proceeds. It used $120 million to repurchase $125 million principal amount of 1.50% convertible notes due 2023, leaving $32.4 million principal outstanding on the 2023 notes and $135 million on the 2026 notes.
- The new $125 million ABL facility replaced the former revolving facility and matures February 2025, subject to a springing maturity provision. Adoption of convertible-debt accounting guidance reduced stockholders’ equity by $9.5 million on transition.
Outlook, risks and contingencies
- Management expected Offshore/Manufactured Products bookings in 2021 to trend above 2020 levels. Its backlog was $226 million at March 31, up 3% from year-end; Q1 bookings were $70 million and book-to-bill was 1.2x. Separately, $166 million of backlog related to contracts originally longer than one year; about 40% was expected to be recognized during the remaining nine months of 2021.
- Expected 2021 capital expenditures were approximately $15 million to $20 million, dependent on industry conditions, project approvals, cash generation and liquidity. Management said cash on hand, operating cash flow and available ABL capacity should meet liquidity needs for the next 12 months, while noting additional capital might be needed if plans or assumptions change.
- Management cited continuing uncertainty around the COVID-19 recovery, oil and gas prices, customer spending and collections. February 2021 winter weather disrupted well-site work, facility operations and shipments. The company also cited potential effects from tariffs and input costs, regulation, customer financial distress, supply constraints, foreign exchange and access to capital.
- Further impairments may be required if industry conditions, cash-flow expectations or asset valuations deteriorate. Q1 included $4.8 million of CARES Act employee-retention payroll-tax expense reductions.
- A dispute with the GEODynamics seller concerns indemnification claims and a $25 million promissory note. The company recorded the note at $17.1 million after estimated set-off and says the seller’s lawsuit, refiled in state court, is being vigorously defended. The seller also claims entitlement to approximately $19 million of CARES Act tax carryback proceeds. Management believes other pending claims will not materially affect financial position, results or liquidity, but gives no assurance on outcomes.
Key facts investors should verify
- Whether operating cash flow improves and the company preserves adequate cash and borrowing availability as activity recovers.
- Revenue, margins and bookings trends by segment, particularly in Well Site Services and the Offshore/Manufactured Products backlog.
- Debt maturities, springing-maturity terms, borrowing-base availability and covenant headroom under the ABL facility.
- Resolution and potential financial impact of the GEODynamics seller litigation, indemnification claims and promissory-note set-off.
- Whether industry recovery, customer spending and asset valuations support management’s outlook and avoid further impairments.