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Oil States Announces Second Quarter 2014 Earnings of $0.88 per Share Before Spin-Off Related Charges

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HOUSTON, July 31, 2014 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported net income from continuing operations for the quarter ended June 30, 2014 of $47.6 million, or $0.88 per diluted share after-tax, before spin-off related charges totaling $110 million, or $1.33 per diluted share after-tax, associated with the spin-off of the Company's accommodations business, now named Civeo Corporation, on May 30, 2014.

A summary of the spin-off related charges follows:

  • $100.4 million, or $1.22 per diluted share after-tax, from a loss incurred on debt extinguishment associated with the repurchase of the Company's senior notes completed in connection with the spin-off (due to the fair market value exceeding the carrying value of the senior notes) and the write-off of unamortized debt issue costs associated with the senior notes and the previous credit facility which was terminated.
  • $9.6 million, or $0.11 per diluted share after-tax, from transaction and related costs incurred in connection with the spin-off of Civeo.

Historical results for Civeo and the tubular services segments have been reported as discontinued operations for all periods reported herein through the respective transaction closing dates (Civeo through May 30, 2014 and tubular services through September 6, 2013). For the second quarter of 2014, discontinued operations for Civeo included the allocation of transition costs, a portion of the interest expense associated with the senior notes and the write-off of deferred financing costs (associated with the Canadian portion of the terminated credit facility).

The Company generated revenues of $459.6 million and Adjusted EBITDA of $109.1 million (after elimination of $9.6 million of spin-off related charges summarized above) during the second quarter of 2014. These results compared to revenues of $390.8 million and Adjusted EBITDA of $88.8 million (after elimination of $4.5 million of acquisition and transaction costs) reported in the second quarter of 2013.

For the first half of 2014, the Company reported revenues of $864.8 million and Adjusted EBITDA of $202.0 million (after elimination of $11.0 million of spin-off related charges). The results for the first half of 2014 included $111.4 million, or $1.32 per diluted share after-tax, of spin-off related charges. For the first half of 2013, the Company reported revenues of $769.6 million and Adjusted EBITDA of $166.3 million (after elimination of $4.5 million of acquisition and transaction costs).

Excluding the spin-off related charges in the six months ended June 30, 2014, and the acquisition and transaction costs in the six months ended June 30, 2013, EBITDA would have increased 21% year-over-year as a result of strong demand for the Company's completion services business offerings, higher utilization of its land drilling rigs and increased sales of production facility and subsea products in the offshore products segment.

Cindy B. Taylor, Oil States' President and Chief Executive Officer stated, "We completed a major strategic initiative on May 30, 2014, culminating with the spin-off of Civeo into a separate, publicly traded company. Moving forward, we are excited about our opportunities to focus on technology-based solutions as a pure-play energy services company."

"Oil States reported strong second quarter results for both offshore products and well site services. Revenues, EBITDA and backlog in our offshore products segment reached new record levels. In addition, demand for our completion services business offerings remains strong as the number of unconventional wells and ensuing complexity continues to grow in North America. We are positioned very well in both segments to capture our share of expected growth in the markets we serve."

Income Taxes

The Company recognized an effective tax rate of 36.1% (benefit) in the second quarter of 2014 compared to 39.6% (provision) in the second quarter of 2013. The decrease in the effective tax rate from the prior year was largely the result of lower domestic earnings due to the loss incurred from the extinguishment of debt associated with the debt refinancings completed in conjunction with the spin-off of Civeo. Due to the fact that a significant portion of the Company's foreign income was derived from Civeo, the spin-off will have the effect of increasing the Company's effective tax rate in future periods from the rates reported in 2013 and 2012.

Financial Condition

The Company invested $43.3 million in capital expenditures related to continuing operations during the second quarter of 2014. Spending primarily related to the addition of incremental completion services equipment deployed to service the active U.S. shale plays along with ongoing facility expansions in the offshore products segment.

On May 28, 2014, the Company entered into a $600 million, 5-year revolving credit facility with a syndicate of banks. As of June 30, 2014, there was $181.9 million outstanding under the revolving credit facility. Total availability as of June 30, 2014 was $385.8 million (net of standby letters of credit totaling $32.3 million).

BUSINESS SEGMENT RESULTS

(Unless otherwise noted, the following discussion compares the quarterly results from continuing operations for the second quarter of 2014 to the results from continuing operations for the second quarter of 2013. The historical results of operations of the accommodations and tubular services segments through the transaction closing dates have been reported as discontinued operations for all periods reported herein.)

Well Site Services

Well site services generated revenues of $208.9 million and EBITDA of $67.0 million, respectively, in the second quarter of 2014 compared to revenues and EBITDA of $186.4 million and $57.1 million, respectively, in the second quarter of 2013. Revenues and EBITDA increased 12% and 17% year-over-year, respectively, primarily due to an 8% year-over-year increase in the number of completion services jobs performed along with increased utilization in the land drilling business, which averaged 91% for the second quarter of 2014 compared with 77% for the second quarter of 2013.

Offshore Products

Offshore products generated record revenues and EBITDA of $250.7 million and $56.2 million, respectively, in the second quarter of 2014 compared to revenues and EBITDA of $204.4 million and $41.6 million, respectively, in the second quarter of 2013. Revenues and EBITDA increased 23% and 35% year-over-year, respectively, primarily due to higher revenue from production facility and subsea product sales along with increased demand for services worldwide. This segment's results also benefited from the Quality Connector Systems acquisition that closed in December 2013. EBITDA margins increased to 22% in the second quarter of 2014 compared to 20% in the second quarter of 2013. Backlog increased to a record $599 million at June 30, 2014 compared to $578 million reported at March 31, 2014. Notable backlog additions during the second quarter included subsea connector products destined for Brazil, tension leg platform equipment for both the Gulf of Mexico and Southeast Asia, cranes for Southeast Asia, and proprietary connectors for the Caspian Sea.

Conference Call Information

The call is scheduled for Friday, August 1, 2014 at 11:00 am EDT, is being webcast and can be accessed from the Company's website at http://www.oilstatesintl.com. Participants may also join the conference call by dialing (888) 895-5479 in the United States or by dialing +1 847 619 6250 internationally and using the passcode of 37748151. A replay of the conference call will be available one hour 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 of 37748151.

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 http://www.oilstatesintl.com.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning 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, 2013 filed by Oil States with the Securities and Exchange Commission on February 25, 2014.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2014 2013 2014 2013
Revenues $ 459,607 $390,789 $ 864,844 $ 769,649
Costs and expenses:
Cost of sales and services 307,908 265,829 580,280 533,769
Selling, general and administrative expenses 43,039 36,931 84,447 72,069
Depreciation and amortization expense 31,107 26,605 61,894 51,829
Other operating expense 10,008 4,086 11,412 2,349
392,062 333,451 738,033 660,016
Operating income 67,545 57,338 126,811 109,633
Interest expense (5,853) (10,092) (13,898) (20,147)
Interest income 146 163 261 301
Loss on extinguishment of debt (100,410) -- (100,410) --
Equity in earnings (losses) of unconsolidated affiliates 122 (95) 218 (831)
Other income 688 486 2,119 1,148
Income (loss) from continuing operations before income taxes (37,762) 47,800 15,101 90,104
Income tax (expense) benefit 13,646 (18,924) (4,496) (32,611)
Net income (loss)from continuing operations (24,116) 28,876 10,605 57,493
Net income from discontinued operations, net of tax 16,242 47,660 53,037 121,250
Net income (loss) (7,874) 76,536 63,642 178,743
Less: Net income attributable to noncontrolling interest 6 11 18 29
Net income (loss) attributable to Oil States International, Inc. $ (7,880) $ 76,525 $ 63,624 $ 178,714
Net income (loss) attributable to Oil States International, Inc.:
Continuing operations $ (24,122) $ 28,865 $ 10,587 $ 57,464
Discontinued operations 16,242 47,660 53,037 121,250
Net income (loss) attributable to Oil States International, Inc. $ (7,880) $ 76,525 $ 63,624 $ 178,714
Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations $ (0.45) $ 0.52 $ 0.20 $ 1.04
Discontinued operations 0.30 0.87 0.98 2.21
Net income (loss) $ (0.15) $ 1.39 $ 1.18 $ 3.25
Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:
Continuing operations $ (0.45) $ 0.52 $ 0.20 $ 1.04
Discontinued operations 0.30 0.86 0.98 2.18
Net income (loss) $ (0.15) $ 1.38 $ 1.18 $ 3.22
Weighted average number of common shares outstanding:
Basic 53,090 55,061 53,189 54,935
Diluted 53,090 55,582 53,486 55,477
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, DECEMBER 31,
ASSETS 2014 2013
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 64,895 $ 599,306
Accounts receivable, net 460,664 620,333
Inventories, net 247,905 266,552
Prepaid expenses and other current assets 57,660 39,716
Total current assets 831,124 1,525,907
Property, plant, and equipment, net 602,640 1,902,789
Goodwill, net 253,837 513,650
Other intangible assets, net 53,743 133,531
Other noncurrent assets 24,199 55,384
Total assets $ 1,765,543 $ 4,131,261
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 104,221 $ 149,079
Accrued liabilities 72,790 132,046
Income taxes 8,229 32,679
Current portion of long-term debt and capitalized leases 527 529
Deferred revenue 34,516 50,366
Other current liabilities 15,398 9,137
Total current liabilities 235,681 373,836
Long-term debt and capitalized leases (1) 188,361 972,692
Deferred income taxes 26,108 122,821
Other noncurrent liabilities 16,079 36,618
Total liabilities 466,229 1,505,967
Stockholders' equity:
Oil States International, Inc. stockholders' equity:
Common stock, $.01 par value, 200,000,000 shares authorized, 60,759,085 shares and 59,777,766 shares issued, respectively, and 54,302,476 shares and 54,767,284
shares outstanding, respectively
608 592
Additional paid-in capital 666,799 637,438
Retained earnings 1,021,105 2,320,453
Accumulated other comprehensive income (loss) 1,290 (85,675)
Common stock held in treasury at cost, 6,456,609 and 5,010,482 shares, respectively (390,672) (249,391)
Total Oil States International, Inc. stockholders' equity 1,299,130 2,623,417
Noncontrolling interest 184 1,877
Total stockholders' equity 1,299,314 2,625,294
Total liabilities and stockholders' equity $ 1,765,543 $ 4,131,261

(1) As of June 30, 2014, the Company had approximately $385.8 million available under its revolving credit facility.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUING AND DISCONTINUED OPERATIONS
(In Thousands)
SIX MONTHS ENDED JUNE 30,
2014 2013
Cash flows from operating activities:
Net income $ 64,209 $ 179,453
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 129,445 135,537
Deferred income tax provision 8,929 (538)
Excess tax benefits from share-based payment arrangements (4,585) (5,329)
Provision for loss on receivables 2,330 1,555
Non-cash compensation charge 15,470 13,133
Amortization of deferred financing costs 2,703 4,041
Loss on extinguishment of debt 103,865 --
Other, net 876 (687)
Changes in operating assets and liabilities, net of effect from acquired businesses and net assets of Civeo that were distributed to stockholders:
Accounts receivable (15,502) 73,965
Inventories (5,313) (2,059)
Accounts payable and accrued liabilities (20,103) (29,774)
Taxes payable (85,893) 2,618
Other operating assets and liabilities, net 12,310 (12,933)
Net cash flows provided by operating activities 208,741 358,982
Cash flows from investing activities:
Capital expenditures, including capitalized interest (203,417) (240,423)
Proceeds from disposition of property, plant and equipment 3,640 2,633
Other, net (839) (227)
Net cash flows used in investing activities (200,616) (238,017)
Cash flows from financing activities:
Revolving credit borrowings and (repayments), net 181,928 (47,901)
Term borrowings of Civeo 775,000 --
Repayment of 6 1/2% senior notes (630,307) --
Repayment of 5 1/8% senior notes (419,794) --
Term loan repayments -- (92,762)
Cash balances of Civeo in Spin-Off (298,536) --
Issuance of common stock from share-based payment arrangements 7,962 10,388
Purchase of treasury stock (143,714) (1,485)
Excess tax benefits from share-based payment arrangements 4,585 5,329
Payment of financing costs (12,525) (203)
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock (4,964) (3,722)
Other, net (261) (207)
Net cash flows used in financing activities (540,626) (130,563)
Effect of exchange rate changes on cash (1,910) (17,717)
Net change in cash and cash equivalents (534,411) (27,315)
Cash and cash equivalents, beginning of period 599,306 253,172
Cash and cash equivalents, end of period $ 64,895 $ 225,857
Oil States International, Inc.
Segment Data
(in thousands)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
Revenues
Completion services $155,655 $142,171 $302,116 $279,537
Drilling services 53,263 44,212 99,827 84,416
Well site services 208,918 186,383 401,943 363,953
Offshore products 250,689 204,406 462,901 405,696
Total revenues $459,607 $390,789 $864,844 $769,649
EBITDA (A)
Completion services (1) $51,288 $43,691 $101,411 $87,713
Drilling services 15,667 13,377 28,633 23,367
Well site services 66,955 57,068 130,044 111,080
Offshore products 56,180 41,642 99,317 77,404
Corporate and eliminations (2) (23,679) (14,387) (38,337) (26,734)
Total EBITDA $99,456 $84,323 $191,024 $161,750
Operating income / (loss)
Completion services (1) $32,472 $27,491 $63,517 $56,150
Drilling services 8,739 7,133 14,534 11,213
Well site services 41,211 34,624 78,051 67,363
Offshore products 50,261 37,329 87,609 69,465
Corporate and eliminations (2) (23,927) (14,615) (38,849) (27,195)
Total operating income $67,545 $57,338 $126,811 $109,633

(1) The EBITDA and operating income for completion services segment for the three and six months ended June 30, 2013 were negatively impacted by $3.0 million from an increase in an acquisition related contingent liability.

(2) The EBITDA and operating expense related to the Company's corporate function for the three and six months ended June 30, 2014 included transaction costs of $9.6 million and $11.0 million, respectively. These costs primarily related to activities associated with the spin-off of Civeo.

EBITDA and operating expense related to the Company's corporate function for the three and six months ended June 30, 2013 included transaction costs of $1.5 million. These costs primarily related to activities associated with the spin-off of Civeo.

Oil States International, Inc.
Reconciliation of GAAP to Non-GAAP Financial Information
(in thousands)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
Net income (loss) from continuing operations ($24,122) $28,865 $10,587 $57,464
Income tax provision (benefit) (13,646) 18,924 4,496 32,611
Depreciation and amortization 31,107 26,605 61,894 51,829
Interest income (146) (163) (261) (301)
Interest expense 5,853 10,092 13,898 20,147
Loss on extinguishment of debt 100,410 -- 100,410 --
EBITDA (A) $99,456 $84,323 $191,024 $161,750
Adjustments to EBITDA: 9,644 4,456 11,020 4,545
Adjusted EBITDA $109,100 $88,779 $202,044 $166,295

(A) The term EBITDA and Adjusted EBITDA consists of net income from continuing operations plus interest, taxes, depreciation and amortization. EBITDA and Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA and Adjusted EBITDA as a supplemental disclosure because its management believes that EBITDA and Adjusted EBITDA provides useful information regarding our 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 EBITDA and Adjusted 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 table above sets forth a reconciliation of EBITDA and Adjusted EBITDA to net income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

Oil States International, Inc.
Additional Quarterly Segment and Operating Data
(unaudited)
Three Months Ended June 30,
2014 2013
Supplemental operating data:
Offshore products backlog ($ in millions) $599.4 $561.3
Completion services job tickets 13,359 12,423
Average revenue per ticket ($ in thousands) $11.7 $11.4
Land drilling operating statistics:
Average rigs available 34 34
Utilization 90.5% 77.4%
Implied day rate ($ in thousands per day) $19.0 $18.5
Implied daily cash margin ($ in thousands per day) $5.8 $6.0

CONTACT: Company Contact: Lloyd A. Hajdik Oil States International, Inc. Senior Vice President, Chief Financial Officer and Treasurer 713-652-0582 Patricia Gil Oil States International, Inc. Investor Relations 713-470-4860

Source:Oil States International, Inc.