Business context and reporting period
Oil States International, Inc. supplies products and services to the oil and gas industry through Well Site Services, Downhole Technologies, and Offshore/Manufactured Products. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $146.2 | $264.7 | $365.9 | $515.3 |
| Operating loss | $(33.3) | $(6.4) | $(475.1) | $(17.2) |
| Net loss | $(24.6) | $(9.7) | $(429.7) | $(24.4) |
| Diluted loss per share | $(0.41) | $(0.16) | $(7.19) | $(0.41) |
| Operating cash flow | Not separately provided for Q2 | $44.1 | $66.0 |
Q2 revenue fell 45% year over year: product revenue declined 34% and service revenue 54%. Revenue less cost of revenues, excluding depreciation and amortization, was $18.2 million, or 12.4% of revenue, versus $56.6 million, or 21.4%, in Q2 2019. Operating margin was approximately negative 22.8% versus negative 2.4%. First-half revenue declined 29%; the reported operating loss includes substantial non-cash impairments.
- Q2 segment revenue: Well Site Services $36.3 million (down 69%); Downhole Technologies $15.0 million (down 68%); Offshore/Manufactured Products $94.9 million (down 7%). Offshore/Manufactured Products was the most resilient, supported by project-driven sales.
- First-half operating cash flow was $44.1 million, investing cash outflow $3.8 million, and financing cash inflow $5.0 million. Capital expenditures were $8.9 million, compared with $31.6 million a year earlier.
- At June 30, cash was $53.8 million; current assets were $478.4 million and current liabilities $153.9 million. Total debt was $255.1 million, including $71.0 million drawn on the revolver and $174.6 million principal on convertible notes. Total stockholders’ equity was $778.9 million.
Material changes and unusual items
- First-half net loss included $439.5 million of non-cash asset impairments: $406.1 million goodwill, $25.2 million inventory, and $8.2 million fixed assets. The goodwill write-down fully impaired the Completion Services and Downhole Technologies goodwill and partially impaired Offshore/Manufactured Products goodwill. These charges did not affect cash flows or debt covenants.
- Q2 included $5.4 million of severance and facility-closure costs, a $3.0 million fixed-asset impairment, $2.2 million of bad-debt provisions associated with customer bankruptcies, and a $4.8 million non-cash gain from repurchasing convertible notes.
- Cash rose from $8.5 million at year-end 2019 to $53.8 million at June 30, 2020. Receivables declined to $168.8 million from $233.5 million; the doubtful-account allowance increased to $10.3 million from $8.7 million.
- First-half other comprehensive loss was $16.0 million, primarily reflecting weaker British pound and Brazilian real exchange rates.
Outlook, management commentary, and risks
- Management expects COVID-19, depressed oil prices, and lower customer activity to materially adversely affect demand through the rest of 2020 and into 2021. U.S. drilling and completion activity, especially shale activity, was sharply reduced; the July 24 U.S. rig count was 251, versus a Q2 average of 392.
- The company reduced planned 2020 capital spending by approximately 70% from 2019 and expects 2020 capital expenditures of about $15 million. U.S. headcount declined approximately 32% from December 31, 2019 to June 30, 2020. Management also reported further workforce reductions and facility closures.
- Offshore/Manufactured Products backlog was $235 million at June 30, down 12% from March 31 and 17% year over year. Q2 bookings were $64 million, for a 0.7x book-to-bill ratio; management expects 2020 bookings below 2019 levels. Separately, remaining backlog under contracts with original duration over one year was $151 million.
- The revolver was amended in June: commitments fell from $350 million to $200 million in exchange for suspension of financial covenants from July 1, 2020 through March 30, 2021. Availability was $37.3 million as of July 1, after borrowing-base limits and letters of credit. The company was compliant at June 30, but anticipates it may not meet covenants after the suspension ends; management believes available cash and operating cash flow can repay revolver borrowings and meet liabilities over the next 12 months.
- Management expects approximately $42.1 million of tax refunds in the second half of 2020 from CARES Act loss carrybacks. This is an expectation, not cash received at June 30; the receivable was recorded on the balance sheet.
- Principal risks include prolonged COVID-19 disruption, further oil-price or customer-spending declines, customer insolvency and delayed or missed collections, supply-chain or facility interruptions, tariffs and trade-duty exposure, foreign-exchange movements, and possible additional asset impairments. The company also has unresolved indemnification claims concerning potentially applicable duties on certain GEODynamics imports; the related $25.0 million seller promissory note’s maturity is extended pending resolution, and the company expects claims to reduce any payment. Management stated ordinary-course litigation was not expected to have a material adverse effect, but outcomes are uncertain.
Key facts for investors to verify
- Whether the expected $42.1 million tax refund is received and when.
- Cash generation, customer collections and bad-debt allowances as oilfield activity and customer credit conditions evolve.
- Revolver borrowing-base availability and the company’s ability to repay borrowings or satisfy financial covenants when the suspension ends in March 2021.
- Backlog conversion, bookings, and whether Offshore/Manufactured Products orders and margins remain resilient.
- Whether additional impairments, restructuring charges, or further cost reductions are required, and the outcome of the GEODynamics indemnification and import-duty matter.
The filing provides no formal earnings or revenue guidance; forward-looking expectations are subject to significant uncertainty.