Oil States Announces Third Quarter 2016 Results

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Third Quarter Highlights:

  • Reports net loss per diluted share of $0.22; $0.19 adjusted net loss per diluted share excluding severance and other downsizing charges
  • Offshore products' EBITDA margin averaged 22.2%
  • Reduced total debt by $17 million during the quarter; total debt to total capitalization ratio ended the quarter at 5.2%

HOUSTON, Oct. 27, 2016 (GLOBE NEWSWIRE) -- Oil States International, Inc. OIS reported a net loss for the third quarter ended September 30, 2016 of $10.8 million, or $0.22 per diluted share, which included pre-tax charges of $2.0 million ($1.3 million after-tax, or $0.03 per diluted share) for severance and other downsizing charges. These results compare to reported net income for the third quarter ended September 30, 2015 of $1.7 million, or $0.03 per diluted share, which included a tax valuation allowance resulting in a higher effective tax rate ($3.2 million, or $0.06 per diluted share) and pre-tax charges of $0.7 million ($0.6 million after-tax, or $0.01 per diluted share) for severance and other downsizing charges.

During the third quarter of 2016, the Company generated revenues of $179.0 million and Adjusted Consolidated EBITDA (Note B) of $16.2 million (excluding $2.0 million for severance and other downsizing charges). These results compare to revenues of $258.9 million and Adjusted Consolidated EBITDA of $39.5 million reported in the third quarter of 2015 (excluding $0.7 million of severance and other downsizing charges). 

For the first nine months of 2016, the Company reported revenues of $524.5 million and Adjusted Consolidated EBITDA of $41.9 million (excluding $4.6 million of severance and other downsizing charges). The net loss for the first nine months of 2016 totaled $35.8 million, or $0.71 per diluted share, and included $4.6 million ($3.0 million after-tax, or $0.06 per diluted share) of severance and other downsizing charges. For the first nine months of 2015, the Company reported revenues of $865.5 million and Adjusted Consolidated EBITDA of $151.6 million (excluding $4.5 million of severance and other downsizing charges). Net income for the first nine months of 2015 totaled $27.3 million, or $0.53 per diluted share, and included $10.3 million, or $0.18 per diluted share after-tax, from severance and other downsizing initiatives ($4.5 million pre-tax, $3.3 million after-tax, or $0.06 per diluted share), a higher effective tax rate driven by a $2.3 million ($0.05 per diluted share) deferred tax adjustment recorded in the first quarter of 2015 for certain non-deductible items and $3.5 million ($0.07 per diluted share) of tax valuation allowances recorded against certain of the Company's deferred tax assets.

Oil States' President and Chief Executive Officer, Cindy B. Taylor, stated, "The third quarter provided a number of constructive leading indicators for the energy industry. The average quarterly U.S. rig count improved 14% quarter-over-quarter, average natural gas prices increased over 30% in the third quarter and WTI crude oil prices increased following the second quarter, with WTI currently trading at $50 per barrel. Despite these positive data points, activity levels have not yet improved materially in our well site services segment which is primarily weighted to the U.S. onshore markets we serve. Our well site services revenues grew sequentially due to increases in the number of completion services jobs performed coupled with an increase in our land rig fleet utilization. However, adjusted quarterly EBITDA for the segment, while improved sequentially, was still below break-even. Our offshore products segment reported revenues above our guided range with average EBITDA margins of 22% for the third quarter. However, our book to bill ratio was 0.54x, resulting in a sequential backlog decline of 24%, ending the quarter at $203 million."

BUSINESS SEGMENT RESULTS

Offshore Products
Offshore products generated revenues and Segment EBITDA (Note A) of $132.7 million and $29.5 million, respectively, in the third quarter of 2016 compared to revenues of $175.7 million and Segment EBITDA of $39.5 million in the third quarter of 2015. Offshore products revenues and Segment EBITDA decreased 24% and 25% year-over-year, respectively, due to lower contributions across most of the segment's product and service lines. The lower quarterly revenues were primarily the result of reductions in production-related products, weaker demand for drilling products, lower levels of service activities and a backlog position that has trended lower since mid-2014, partially offset by improved elastomer and subsea pipeline product revenues. Segment EBITDA margins were 22.2% in the third quarter of 2016 compared to 22.5% realized in the third quarter of 2015.  Backlog declined 24% sequentially, totaling $203 million at September 30, 2016 compared to $268 million reported at June 30, 2016 and $394 million reported at September 30, 2015. There were no individual backlog awards in excess of $10 million during the third quarter.  

Well Site Services
Well site services generated revenues of $46.3 million and a Segment EBITDA loss of $3.1 million in the third quarter of 2016 compared to revenues and Segment EBITDA of $83.2 million and $10.9 million, respectively, in the third quarter of 2015.  Well site services revenues and Segment EBITDA decreased 44% and 129% year-over-year, respectively, primarily due to a 49% year-over-year decrease in the number of completion services jobs performed, partially offset by a 15% year-over-year increase in revenue per completion service job primarily as a result of a shift to more long-duration jobs in international markets and longer-term project work in the U.S. Gulf of Mexico. The segment's third quarter 2016 results continued to be negatively impacted by extreme competitive pressures and depressed activity levels in the U.S. shale basins. Lower utilization in the land drilling business, which averaged 15% in the third quarter of 2016 compared to 33% in the third quarter of 2015, also negatively impacted results. However, quarterly land drilling utilization improved sequentially for the second quarter in a row, a trend which has not occurred since the second quarter of 2014.

Income Taxes
The Company recognized an effective tax rate benefit of 35.8% in the third quarter of 2016. This compares to an effective tax rate expense of 69.9% reported in the third quarter of 2015. The higher effective tax rate in the third quarter of 2015 was primarily due to a tax valuation allowance recorded against certain of the Company's deferred tax assets.

Financial Condition
The Company invested $5.5 million in capital expenditures during the third quarter of 2016. Capital expenditures made during the third quarter included expansionary investments for certain offshore products facilities along with maintenance capital spent on completion services equipment.

As of September 30, 2016, $63.1 million was outstanding under the Company's revolving credit facility. Total availability under the facility as of September 30, 2016 was $217.8 million (net of standby letters of credit totaling $27.8 million).

Conference Call Information
The call is scheduled for Friday, October 28, 2016 at 11:00 am ET, and is being webcast and can be accessed from the Company's website at www.ir.oilstatesintl.com. Participants may also join the conference call by dialing (800) 446-2782 in the United States or by dialing +1 847 413 3235 internationally and using the passcode 43614252. A replay of the conference call will be available one and a half hours after the completion of the call by dialing (888) 843-7419 in the United States or by dialing +1 630 652 3042 internationally and entering the passcode 43614252.

About Oil States
Oil States International, Inc. is an energy services company with a leading market position as a manufacturer of products for deepwater production facilities and certain drilling equipment, as well as a provider of completion services and land drilling services to the oil and gas industry.  Oil States is publicly traded on the New York Stock Exchange under the symbol "OIS".

For more information on the Company, please visit Oil States International's website at www.oilstatesintl.com

Forward Looking Statements
The foregoing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included therein are based on then current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the energy service industry and other factors discussed in the "Business" and "Risk Factors" sections of the Form 10-K for the year ended December 31, 2015 filed by Oil States with the Securities and Exchange Commission on February 22, 2016.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
 
   Three Months Ended Nine Months Ended
   September 30, September 30, 
    2016   2015   2016   2015  
           
Revenues:         
Products $109,312  $139,871  $323,566  $422,464  
Service  69,694   119,015   200,944   443,039  
   179,006   258,886   524,510   865,503  
          
Costs and expenses:         
Product costs  75,345   101,045   227,855   309,559  
Service costs  60,421   87,545   173,125   311,417  
Selling, general and administrative expenses  30,388   33,126   90,854   100,732  
Depreciation and amortization expense  29,848   31,730   89,666   96,742  
Other operating income, net  (1,370)  (1,206)  (4,098)  (2,077) 
   194,632   252,240   577,402   816,373  
Operating (loss) income  (15,626)  6,646   (52,892)  49,130  
          
Interest expense  (1,364)  (1,541)  (4,124)  (4,876) 
Interest income  119   153   321   428  
Other income  32   401   462   1,221  
(Loss) income from continuing operations before income taxes  (16,839)  5,659   (56,233)  45,903  
Income tax benefit (expense)  6,021   (3,953)  20,474   (18,646) 
Net (loss) income from continuing operations  (10,818)  1,706   (35,759)  27,257  
Net (loss) income from discontinued operations, net of tax     23   (4)  224  
Net (loss) income attributable to Oil States $(10,818) $1,729  $(35,763) $27,481  
          
          
Basic net (loss) income per share attributable to Oil States from:         
Continuing operations $(0.22) $0.03  $(0.71) $0.53  
Discontinued operations             
Net (loss) income $(0.22) $0.03  $(0.71) $0.53  
          
Diluted net (loss) income per share attributable to Oil States from:           
Continuing operations $(0.22) $0.03  $(0.71) $0.53  
Discontinued operations             
Net (loss) income $(0.22) $0.03  $(0.71) $0.53  
          
Weighted average number of common shares outstanding:         
Basic  50,222   50,011   50,158   50,422  
Diluted  50,222   50,050   50,158   50,500  


OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
 
 September 30, December 31,
ASSETS 2016   2015 
 (Unaudited)  
  
Current assets:   
Cash and cash equivalents$53,790  $35,973 
Accounts receivable, net 256,582   333,494 
Inventories, net 193,329   212,882 
Prepaid expenses and other current assets 11,412   29,124 
Total current assets 515,113   611,473 
    
Property, plant, and equipment, net 577,298   638,725 
Goodwill, net 263,795   263,787 
Other intangible assets, net 54,839   59,385 
Other noncurrent assets 24,082   23,101 
Total assets$1,435,127  $1,596,471 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
    
Current liabilities:   
Current portion of long-term debt and capitalized leases$515  $533 
Accounts payable 38,754   59,116 
Accrued liabilities 49,493   49,300 
Income taxes payable 4,949   8,303 
Deferred revenue 21,272   36,655 
Other current liabilities 290   293 
Total current liabilities 115,273   154,200 
    
Long-term debt and capitalized leases (1) 66,363   125,887 
Deferred income taxes  14,806   40,497 
Other noncurrent liabilities 21,884   20,215 
Total liabilities 218,326   340,799 
    
Stockholders' equity:   
Common stock, $.01 par value, 200,000,000 shares authorized, 62,295,720 shares and 61,712,805 shares issued, respectively   623   617 
Additional paid-in capital  726,350   712,980 
Retained earnings  1,144,100   1,179,863 
Accumulated other comprehensive loss (63,232)  (50,698)
Treasury stock, at cost, 10,920,663 and 10,759,656 shares, respectively (591,040)  (587,090)
Total stockholders' equity 1,216,801   1,255,672 
Total liabilities and stockholders' equity$1,435,127  $1,596,471 


(1) As of September 30, 2016, the Company had $217.8 million available under its revolving credit facility.

 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
  
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In Thousands)
  
  Nine Months
Ended September 30,
   2016   2015 
     
 Cash flows from operating activities:   
 Net (loss) income$(35,763) $27,481 
 Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
 Loss (income) from discontinued operations 4   (224)
 Depreciation and amortization 89,666   96,742 
 Stock-based compensation expense 15,938   16,245 
 Amortization of deferred financing costs 585   585 
 Deferred income tax benefit (28,264)  (2,862)
 Tax impact of stock-based payment arrangements    (550)
 Provision for bad debt 759   (99)
 Gain on disposals of assets (445)  (907)
 Other, net 689    
 Changes in operating assets and liabilities, net of effect from acquired businesses:       
Accounts receivable 68,193   189,882 
Inventories 15,600   5,207 
Accounts payable and accrued liabilities (18,588)  (71,848)
Income taxes payable (2,987)  5,784 
Other operating assets and liabilities, net 2,392   (12,959)
 Net cash flows provided by continuing operating activities 107,779   252,477 
 Net cash flows provided by discontinued operating activities 3   350 
 Net cash flows provided by operating activities 107,782   252,827 
     
 Cash flows from investing activities:   
 Capital expenditures (23,893)  (92,314)
 Acquisitions of businesses, net of cash acquired    (33,427)
 Proceeds from disposition of property, plant and equipment 1,026   1,911 
 Other, net (1,534)  (491)
 Net cash flows used in investing activities (24,401)  (124,321)
     
 Cash flows from financing activities:   
 Revolving credit (repayments) borrowings, net (59,731)  13,084 
 Debt and capital lease repayments (398)  (411)
 Issuance of common stock from stock-based payment arrangements 367   2,385 
 Purchase of treasury stock    (104,596)
 Tax impact of stock-based payment arrangements    550 
 Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock   (3,950)  (6,786)
 Other, net    (2)
 Net cash flows used in financing activities (63,712)  (95,776)
     
 Effect of exchange rate changes on cash  and  cash  equivalents (1,852)  (278)
 Net change in cash and cash equivalents 17,817   32,452 
 Cash and cash equivalents, beginning of period 35,973   53,263 
     
 Cash and cash equivalents, end of period$53,790  $85,715 


Oil States International, Inc. and Subsidiaries 
Segment Data 
(in thousands) 
(unaudited) 
  
             
       Three Months Ended September 30, Nine Months Ended September 30, 
        2016   2015   2016   2015  
               
Revenues            
  Completion services   $38,975  $66,734  $116,748  $254,265  
  Drilling services    7,375   16,506   14,016   56,888  
 Well site services    46,350   83,240   130,764   311,153  
 Offshore products    132,656   175,646   393,746   554,350  
Total revenues    $179,006  $258,886  $524,510  $865,503  
               
Operating (loss) income           
  Completion services (1,2)  $(20,450) $(9,991) $(66,251) $(8,492) 
  Drilling services (1)    (5,641)  (4,844)  (19,697)  (11,725) 
 Well site services    (26,091)  (14,835)  (85,948)  (20,217) 
 Offshore products (1,2)    22,867   33,512   67,854   104,889  
 Corporate     (12,402)  (12,031)  (34,798)  (35,542) 
Total operating (loss) income  $(15,626) $6,646  $(52,892) $49,130  
               
Reconciliation of GAAP to Non-GAAP Financial Information- Segment EBITDA and Adjusted Segment EBITDA (A) 
               
(in thousands) 
(unaudited) 
               
       Three Months Ended September 30, Nine Months Ended September 30, 
        2016   2015   2016   2015  
               
Well site services           
 Completion services           
  Operating loss   $(20,450) $(9,991) $(66,251) $(8,492) 
  Depreciation and amortization expense 17,230   18,701   52,789   57,289  
  Other income    107   340   618   1,048  
 EBITDA     (3,113)  9,050   (12,844)  49,845  
               
  Severance and other downsizing charges   683   168   1,833   2,023  
 Adjusted EBITDA   $(2,430) $9,218  $(11,011) $51,868  
               
 Drilling services           
  Operating loss   $(5,641) $(4,844) $(19,697) $(11,725) 
  Depreciation and amortization expense 5,629   6,725   18,053   20,368  
  Other income    -   9   1   50  
 EBITDA     (12)  1,890   (1,643)  8,693  
               
  Severance and other downsizing charges 160   -   160   -  
 Adjusted EBITDA   $148  $1,890  $(1,483) $8,693  
               
Well site services           
  Operating loss   $(26,091) $(14,835) $(85,948) $(20,217) 
  Depreciation and amortization expense 22,859   25,426   70,842   77,657  
  Other income    107   349   619   1,098  
 Segment EBITDA    (3,125)  10,940   (14,487)  58,538  
               
  Severance and other downsizing charges 843   168   1,993   2,023  
 Adjusted Segment EBITDA  $(2,282) $11,108  $(12,494) $60,561  
               
Offshore products           
  Operating income   $22,867  $33,512  $67,854  $104,889  
  Depreciation and amortization expense 6,712   5,985   17,977   18,054  
  Other income (expense)   (75)  52   (157)  123  
 Segment EBITDA    29,504   39,549   85,674   123,066  
               
  Severance and other downsizing charges 1,104   552   2,635   2,514  
 Adjusted Segment EBITDA  $30,608  $40,101  $88,309  $125,580  
               
Corporate            
  Operating loss   $(12,402) $(12,031) $(34,798) $(35,542) 
  Depreciation and amortization expense 277   319   847   1,031  
 Segment EBITDA    (12,125)  (11,712)  (33,951)  (34,511) 
               
  Severance and other downsizing charges 5   -   5   -  
 Adjusted Segment EBITDA  $(12,120) $(11,712) $(33,946) $(34,511) 

(1) Operating (loss) income for the three and nine months ended September 30, 2016 included severance and other downsizing charges of $0.7 million and $1.8 million, respectively, related to the completion services business, $0.2 million and $0.2 million, respectively, related to the drilling services business and $1.1 million and $2.6 million, respectively, related to the offshore products segment.

(2) Operating (loss) income for the three and nine months ended September 30, 2015 included severance and other downsizing charges of $0.2 million and $2.0 million, respectively, related to the completion services business and $0.6 million and $2.5 million, respectively, related to the offshore products segment.

(A) The terms Segment EBITDA and Adjusted Segment EBITDA consist of operating (loss) income plus depreciation and amortization expense, and certain other items.  Segment EBITDA and Adjusted Segment EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for operating (loss) income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, Segment EBITDA and Adjusted Segment EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included Segment EBITDA and Adjusted Segment EBITDA as a supplemental disclosure because its management believes that Segment EBITDA and Adjusted Segment EBITDA provide useful information regarding its ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.  The Company uses Segment EBITDA and Adjusted Segment EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The tables above set forth reconciliations of Segment EBITDA and Adjusted Segment EBITDA to operating (loss) income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

Oil States International, Inc. and Subsidiaries 
Reconciliation of GAAP to Non-GAAP Financial Information 
(in thousands) 
(unaudited) 
  
    Three Months Ended September 30, Nine Months Ended September 30, 
     2016  2015   2016  2015  
          
Net (loss) income from continuing operations$(10,818)$1,706  $(35,759)$27,257  
Income tax (benefit) expense  (6,021) 3,953   (20,474) 18,646  
Depreciation and amortization expense 29,848  31,730   89,666  96,742  
Interest income   (119) (153)  (321) (428) 
Interest expense   1,364  1,541   4,124  4,876  
 Consolidated EBITDA (B) 14,254  38,777   37,236  147,093  
          
Adjustments to Consolidated EBITDA (3,4):      
 Severance and other downsizing charges     1,952  720   4,633  4,537  
Adjusted Consolidated EBITDA (B)$16,206 $39,497  $41,869 $151,630  

(3) Adjustments to Consolidated EBITDA for the three and nine months ended September 30, 2016 included severance and other downsizing charges of $0.7 million and $1.8 million, respectively, related to the completion services business, $0.2 million and $0.2 million, respectively, related to the drilling services business and $1.1 million and $2.6 million, respectively, related to the offshore products segment.

(4) Adjustments to Consolidated EBITDA for the three and nine months ended September 30, 2015 included severance and other downsizing charges of $0.2 million and $2.0 million, respectively, related to the completion services business and $0.6 million and $2.5 million, respectively, related to the offshore products segment.

(B) The terms Consolidated EBITDA and Adjusted Consolidated EBITDA consist of net (loss) income plus net interest expense, taxes, depreciation and amortization expense, and certain other items.  Consolidated EBITDA and Adjusted Consolidated EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net (loss) income from continuing operations or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  Additionally, Consolidated EBITDA and Adjusted Consolidated EBITDA may not be comparable to other similarly titled measures of other companies.  The Company has included Consolidated EBITDA and Adjusted Consolidated EBITDA as a supplemental disclosure because its management believes that Consolidated EBITDA and Adjusted Consolidated EBITDA provide useful information regarding its ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.  The Company uses Consolidated EBITDA and Adjusted Consolidated EBITDA to compare and to monitor the performance of the Company and its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan.  The table above sets forth a reconciliation of Consolidated EBITDA and Adjusted Consolidated EBITDA to net (loss) income from continuing operations, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

            
Oil States International, Inc. and Subsidiaries 
Additional Quarterly Segment and Operating Data 
(unaudited) 
            
           
         Three Months Ended September 30, 
          2016  2015  
            
Supplemental operating data:        
            
            
 Offshore products backlog ($ in millions)   $203.0 $394.4  
            
 Completion services job tickets     3,802  7,463  
 Average revenue per ticket ($ in thousands)   $10.3 $8.9  
            
 Land drilling operating statistics:       
  Average rigs available      34  34  
  Utilization      15.3% 33.1% 
  Implied day rate ($ in thousands per day)   $15.4 $16.0  
  Implied daily cash margin ($ in thousands per day)      $0.8 $2.4  
            
Company Contact: Lloyd A. Hajdik Oil States International, Inc. Executive Vice President, Chief Financial Officer and Treasurer 713-652-0582 Patricia Gil Oil States International, Inc. Investor Relations 713-470-4860

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