Oil States International, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are principally with fiscal 2020. The company provides engineered products and services to oil and gas, industrial, and military markets through Offshore/Manufactured Products, Downhole Technologies, and Well Site Services.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $573.2 million | $638.1 million |
| Operating loss | $64.8 million | $534.3 million |
| Net loss | $64.0 million; $1.06 per share | $468.4 million; $7.83 per share |
| Operating cash flow | $7.2 million | $132.8 million |
| Capital expenditures | $17.5 million | $12.7 million |
| Cash and equivalents at year-end | $52.9 million | $72.0 million |
| Total debt carrying value at year-end | $178.8 million | $183.5 million |
Revenue declined 10%. Product revenue fell 10% and service revenue fell 11%. Cost of revenue, excluding depreciation and amortization, was $470.4 million, implying a gross margin of approximately 17.9% on that basis. Reported operating margin was approximately negative 11.3%; net margin was approximately negative 11.2%.
Reported operating and net losses improved substantially from 2020, primarily because 2020 included $406.1 million of goodwill impairment. The 2021 net loss included $7.7 million of non-cash asset impairment charges, $7.5 million of severance and restructuring costs, a $9.3 million foreign-currency translation loss reclassified on liquidation of an international operation, and a $4.0 million gain on convertible-debt repurchases. The 2020 loss also included $31.2 million of inventory impairments, other asset impairments, restructuring costs, and a $16.4 million discrete CARES Act tax benefit.
Cash from operations dropped to $7.2 million, including a $17.2 million use of cash for working-capital increases. Year-end cash was $52.9 million. The $125 million asset-based revolving credit facility had no borrowings outstanding; borrowing availability was $48.9 million after letters of credit. Management said available cash, operating cash flow, and ABL capacity should cover liquidity needs for the next 12 months.
Debt actions included issuing $135 million of 4.75% convertible notes due 2026 and using $120 million of proceeds to repurchase $125 million principal amount of 1.50% convertible notes due 2023. At year-end, $26.0 million principal of the 2023 notes and $135.0 million principal of the 2026 notes remained outstanding. The $17.5 million carrying amount of a GEODynamics acquisition promissory note is disputed and subject to asserted offsets.
Segment results and changes
| Segment | 2021 revenue | 2021 operating income (loss) | Change versus 2020 |
|---|---|---|---|
| Offshore/Manufactured Products | $298.7 million | $15.4 million | Revenue down 12%; project-driven sales weakened, partly offset by short-cycle growth. |
| Downhole Technologies | $103.5 million | $(13.5) million | Revenue up 6%, mainly on higher U.S. completion activity; operating loss narrowed. |
| Well Site Services | $170.9 million | $(34.5) million | Revenue down 14%; operating loss narrowed, aided by cost reductions and lower depreciation. |
Offshore/Manufactured Products backlog rose to $260 million from $219 million at year-end 2020; 2021 bookings were $345 million and book-to-bill was 1.2x. The company expects about 65% of that backlog to convert to revenue in 2022, while noting customer cancellations and project timing can affect realization. Short-cycle products and services accounted for 59% of consolidated revenue, up from 54%.
During 2021, the company exited underperforming Well Site Services offerings and regions that had generated about $20 million of revenue while incurring net losses. Management expects the exits to reduce future revenue but improve segment margins.
Outlook, risks, and unusual items
- Management expected activity to improve further in 2022, citing stronger commodity prices and customers’ potential to replenish capital budgets. It also said the outlook remained uncertain, particularly for U.S. land activity and customer spending.
- Planned 2022 capital expenditures were approximately $25 million, subject to industry conditions, project approvals, vendor timing, cash generation, and liquidity.
- Key exposures include oil and gas price and activity volatility; COVID-19 impacts; inflation, supply-chain disruption, and tariffs; customer financial health; competition; and environmental, climate, ESG, hydraulic-fracturing, seismicity, and offshore permitting regulation. Severe weather, including Hurricane Ida’s 2021 impact in southeast Louisiana and the Gulf of Mexico, may disrupt operations.
- The GEODynamics seller dispute concerns the acquisition promissory note and approximately $19 million of CARES Act tax carryback claims. The seller’s motion for partial summary judgment was denied in September 2021; the company filed a counterclaim in December 2021. Management believes ultimate liabilities from proceedings will not materially affect consolidated results, but cannot assure outcomes.
- The remaining $76.4 million of goodwill is in Offshore/Manufactured Products. The 2021 annual impairment test found fair value above carrying value, but the auditor identified this assessment as a critical audit matter because its valuation depends on assumptions including revenue growth, commodity-market forecasts, and discount rates.
- The company set a voluntary goal to reduce its own greenhouse-gas emissions 10% between 2022 and 2024; achievement is not assured. The filing also describes ongoing regulatory uncertainty and potential constraints on financing for fossil-fuel-related businesses.
Most important facts for investors to verify
- Whether operating cash flow recovers from $7.2 million and supports planned $25 million of 2022 capital expenditures.
- Whether the $260 million offshore backlog converts to revenue as expected, and whether bookings and margins continue to improve.
- Liquidity and refinancing capacity around the $26 million 2023 notes maturity, including the ABL borrowing base, covenant triggers, and the facility’s springing maturity provisions.
- The resolution and potential cash impact of the GEODynamics seller litigation and disputed promissory note.
- Whether management’s expected 2022 activity improvement is borne out despite commodity, regulatory, COVID-19, inflation, and supply-chain risks.