Oil States International, Inc. — Q1 2013 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2013, compared with Q1 2012. The company provides oilfield products and services through well site services, accommodations, offshore products and tubular services; results are sensitive to commodity prices, customer spending and activity levels.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $1,069.4 million | $1,099.0 million | Down 3% |
| Gross profit / margin | $277.1 million / 25.9% | $303.2 million / 27.6% | Down $26.1 million / 1.7 percentage points |
| Operating income / margin | $161.0 million / 15.1% | $204.2 million / 18.6% | Down 21% |
| Net income attributable to Oil States | $102.2 million | $135.1 million | Down 24% |
| Diluted EPS | $1.85 | $2.43 | Down 24% |
| Operating cash flow | $218.6 million | $67.2 million | Up $151.4 million |
| Capital expenditures | $107.4 million | $101.4 million | Up $6.0 million |
| Cash and total debt at March 31, 2013 | $326.0 million cash; $1,271.9 million debt | — | Net debt approximately $945.9 million |
Operating cash flow less capital expenditures was approximately $111.2 million. Cash rose from $253.2 million at year-end 2012. Current assets were $1,826.2 million and current liabilities $506.4 million. The company reported $705.7 million available under U.S. and Canadian facilities, plus AUD$282 million available under its Australian facility. It was in compliance with debt covenants.
Material changes versus Q1 2012
- Revenue declined primarily because tubular services revenue fell 8% and well site services fell 3%; offshore products grew 8%. Accommodations revenue was down 2%, but increased 5% excluding the prior-year favorable contract settlement.
- Gross margin contracted, reflecting lower tubular pricing and product mix, lower accommodations occupancy, and offshore product mix. The comparison also included an $18.3 million favorable accommodations contract settlement in Q1 2012.
- Operating income also reflected higher SG&A ($54.9 million, up 15%) and depreciation and amortization ($66.9 million, up 32%), largely associated with acquisitions and prior-year investment.
- Q1 2013 included a $4.0 million gain from reversal of a contingent acquisition consideration liability. Management reported this as $0.05 per diluted share after tax.
- Operating cash flow improved substantially, aided by $56.5 million from net working-capital reductions, primarily lower tubular-services receivables and inventory. Q1 2012 had used $122.4 million for working capital.
Outlook, commentary and risks
- Management expected 2013 capital expenditures of approximately $600–$650 million, with about two-thirds directed to accommodations expansions in Canada and Australia. Funding was expected from cash, operating cash flow and credit facilities.
- Offshore products backlog was $564 million at March 31, 2013, versus $529 million a year earlier and $561 million at December 31, 2012. Management anticipated robust global deepwater spending and award opportunities over the next 12 months.
- Commodity and activity conditions were mixed: oil prices supported activity, while weak natural-gas drilling, deferred oil-sands projects associated with the WCS discount, and falling OCTG prices and margins posed risks. North American rig count averaged 11.2% lower year over year.
- Management stated existing cash, operating cash generation and borrowing availability should meet liquidity needs for the next 12 months. Additional acquisitions or changed assumptions could require more capital and potentially increase debt or dilute shareholders.
- Floating-rate debt was approximately $265.3 million; a 1 percentage-point rise in rates was estimated to increase annual interest expense by about $2.7 million. Foreign-exchange movements are another risk; the quarter included a $22.3 million currency translation loss in other comprehensive income.
- Pending claims and proceedings include product, warranty and other matters; management did not expect ultimate liabilities, net of applicable insurance or indemnity, to materially affect financial position, results or liquidity. The filing reported no significant changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether operating cash flow and working-capital improvements are sustainable, particularly given the planned $600–$650 million of 2013 capital spending.
- Progress on accommodations occupancy and expansion returns, and exposure to deferred oil-sands projects and Australian occupancy trends.
- Whether offshore backlog converts to revenue and margins, and whether tubular-services pricing and margins stabilize.
- Debt maturities, facility availability, covenant headroom and the effects of interest-rate or foreign-exchange changes.
- The comparability of earnings: Q1 2013 included a $4.0 million gain, while Q1 2012 included an $18.3 million contract settlement.