Oil States International, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Oil States supplies products and services to the oil and gas industry through Offshore/Manufactured Products, Downhole Technologies, and Well Site Services. Results remain sensitive to customer activity and energy-market conditions.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $145.7m | $146.2m | $271.3m | $365.9m |
| Operating loss | $17.6m | $33.3m | $37.4m | $475.1m |
| Net loss | $15.3m | $24.6m | $31.1m | $429.7m |
| Net loss per share | $0.25 | $0.41 | $0.52 | $7.19 |
| Operating cash flow | Not stated for quarter | $13.9m | $44.1m |
Q2 revenue was nearly flat year over year and up 16% sequentially, while first-half revenue fell 26%. Q2 cost of revenue excluding depreciation and amortization was $117.6m, implying gross profit of $28.1m and a 19.3% margin, compared with $18.2m and 12.4% in Q2 2020. These are calculated from reported revenue and cost figures. Q2 results included a $2.8m non-cash lease-asset impairment and $2.6m restructuring costs; first-half 2021 included $3.4m of asset impairments, $6.0m of restructuring costs, and $4.0m of gains on debt extinguishment.
Segments and material changes
- Offshore/Manufactured Products: Q2 revenue fell 19% to $76.9m; operating income declined to $4.8m from $9.4m. Backlog was $214m; Q2 bookings were $65m and book-to-bill was 0.9x.
- Downhole Technologies: Q2 revenue rose 79% to $26.8m and operating loss narrowed to $2.3m from $11.1m, reflecting stronger U.S. completion activity and cost reductions.
- Well Site Services: Q2 revenue rose 16% to $42.1m, but operating loss remained $11.6m, including impairment and restructuring charges. First-half revenue decreased 34% year over year.
- First-half 2020 comparison was heavily affected by $406.1m of goodwill impairment, plus inventory and other asset impairments. The much smaller 2021 loss therefore does not solely reflect improved underlying performance.
Cash, debt, and liquidity
- Cash was $62.7m at June 30, 2021, down from $72.0m at year-end. First-half operating cash flow was $13.9m; capital expenditures were $7.3m; investing cash use was $4.2m.
- Total debt was $178.6m, including $135.0m principal of 4.75% convertible notes due 2026, $26.0m principal of 1.50% convertible notes due 2023, and other debt. The company had no ABL borrowings and $50.3m available to draw, after letters of credit.
- In March, the company issued $135m of 2026 notes and used $120m of proceeds to repurchase $125m principal of 2023 notes. It also repurchased another $6.4m principal of 2023 notes in Q2. Management said the transactions extended debt maturities and improved liquidity access.
- Current assets were $425.3m and current liabilities $174.3m. Management said cash, operating cash flow, and ABL availability should meet liquidity needs for the next 12 months. Debt covenants were reported in compliance.
Outlook, risks, and contingencies
- Management expected approximately $15m of 2021 capital expenditures, subject to industry conditions, project timing, cash generation, and liquidity. No earnings or revenue guidance was provided.
- Management noted improving customer activity from 2020 lows but cautioned that recovery remained uncertain. A renewed COVID-19 impact, lower oil prices, reduced customer spending, or delayed projects could harm demand, revenue, cash flow, and liquidity.
- Other material risks include customer credit and collection exposure, commodity-price and rig-activity cyclicality, tariffs and raw-material costs, access to capital, foreign-exchange movements, and environmental and regulatory developments.
- A continuing dispute with the GEODynamics seller concerns indemnification claims, the outstanding promissory note, and approximately $19m of CARES Act tax carryback claims asserted by the seller. The company disputes the claims and intends to defend the lawsuit. Management did not expect pending proceedings, net of insurance or indemnities, to materially affect the company.
- During Q2 the company recognized $2.8m of CARES Act employee-retention payroll tax credits; first-half credits totaled $7.6m. Further benefits were still under evaluation.
Investor verification priorities
- Assess whether revenue and margin improvement are sustainable, particularly given segment differences and continued operating losses.
- Track operating cash flow, working-capital movements, and actual capital spending against the $15m outlook.
- Review ABL borrowing-base availability, covenant headroom, and the 2023 and 2026 convertible-note terms and maturities.
- Monitor Offshore/Manufactured Products backlog, bookings, and book-to-bill, alongside customer activity and commodity conditions.
- Follow developments in the GEODynamics seller litigation and the company’s claimed promissory-note set-off.