Oil States Announces Fourth Quarter 2017 Results

HOUSTON, Feb. 14, 2018 (GLOBE NEWSWIRE) -- Oil States International, Inc. (NYSE:OIS) reported a net loss for the fourth quarter 2017 of $37.9 million, or $0.76 per diluted share, which included a pre-tax charge of $1.4 million ($0.9 million after-tax, or $0.02 per diluted share) of transaction-related costs and a one-time, non-cash income tax charge of $28.2 million (or $0.56 per diluted share), resulting from the recently enacted Tax Cuts and Jobs Act and the corresponding tax reform legislation in the United States. These results compare to a reported net loss for the fourth quarter of 2016 of $10.6 million, or $0.21 per diluted share, which included pre-tax charges of $0.6 million ($0.4 million after-tax, or $0.01 per diluted share) of severance and other downsizing charges.

During the fourth quarter of 2017, the Company generated revenues of $183.7 million and Adjusted Consolidated EBITDA (Note B) of $12.9 million (excluding $1.4 million of transaction-related costs). These results compare to revenues of $169.9 million and Adjusted Consolidated EBITDA of $13.7 million reported in the fourth quarter of 2016 (excluding $0.6 million of severance and downsizing charges).

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, "Our results for the fourth quarter continued to benefit from improved completions activity across the U.S. shale plays as our customers focus on unconventional completions to grow their production. Low levels of deepwater spending continued to affect our Offshore/Manufactured Products segment with limited industry award activity during the fourth quarter. However, we were able to maintain a quarterly book-to-bill ratio of 0.79x, yielding 0.95x for the full year.

"Subsequent to year end, we closed the acquisition of GEODynamics, Inc. We believe that GEODynamics is a unique and transformational acquisition for Oil States, offering meaningful growth potential that combines advanced technology with downhole consumable completion solutions. Their offerings, which help our customers enhance their well productivity, are ideal for the current operating environment which is characterized by longer lateral lengths, increased frac stages and a growing number of perforation clusters. GEODynamics' products are complementary to our Completion Services offerings, creating additional revenue opportunities and the ability to service an expanded customer base.”

For the year ended December 31, 2017, the Company reported revenues of $670.6 million and Adjusted Consolidated EBITDA of $38.0 million (excluding $3.4 million of severance, downsizing, and transaction-related costs). The net loss for the year ended December 31, 2017 totaled $84.9 million and included $2.0 million ($1.5 million after-tax, or $0.03 per diluted share) of severance and downsizing charges, $1.4 million ($0.9 million after-tax, or $0.02 per diluted share) of transaction-related costs, $28.2 million of additional tax expense ($0.56 per diluted share) due to a one-time, non-cash income tax charge resulting from the recently enacted tax reform legislation in the United States and $1.0 million ($0.02 per diluted share) from the decision to carryback 2016 net operating losses against taxable income reported in 2014. For the year ended December 31, 2016, the Company reported revenues of $694.4 million and Adjusted Consolidated EBITDA of $55.5 million (excluding $5.2 million of severance and downsizing charges). The net loss for the year ended December 31, 2016 totaled $46.4 million and included $5.2 million ($3.3 million after-tax, or $0.06 per diluted share) of severance and downsizing charges.

BUSINESS SEGMENT RESULTS
(See Segment Data Tables)

Well Site Services
Well Site Services generated revenues of $82.0 million and Segment EBITDA of $10.7 million in the fourth quarter of 2017 compared to revenues and Segment EBITDA of $54.9 million and $1.1 million, respectively, in the fourth quarter of 2016. Well Site Services revenues and Segment EBITDA increased 49% and 895%, respectively, due to a 36% year-over-year increase in the number of Completion Services job tickets coupled with a 6% year-over-year increase in revenue per Completion Services job. These increases were driven by significantly increased completion-related activity levels in the U.S. and a more favorable job mix. Adjusted Segment EBITDA margins (Note A) averaged 13% in the fourth quarter of 2017 compared to 2% in the fourth quarter of 2016 after excluding severance and downsizing charges. Improved utilization in the land drilling business, which averaged 31% in the fourth quarter of 2017 compared to only 18% in the fourth quarter of 2016, also positively impacted the segment’s results.

Offshore/Manufactured Products
Offshore/Manufactured Products generated revenues and Segment EBITDA of $101.7 million and $16.3 million, respectively, in the fourth quarter of 2017 compared to revenues of $115.0 million and Segment EBITDA of $25.4 million in the fourth quarter of 2016. Revenues and Segment EBITDA decreased 12% and 36% year-over-year, respectively, due to lower contributions across most of the segment’s product and service lines, particularly those tied to major deepwater project sanctions. Lower project-driven revenues were partially offset by a 45% improvement in sales of our shorter-cycle products (elastomer and valve products), which continued to benefit from expanded U.S. land-based activity. Segment EBITDA margin was 16% in the fourth quarter of 2017 compared to a margin of 22% realized in the fourth quarter of 2016. Fourth quarter 2016 margins benefited from the larger number of major projects in process or nearing completion during the period. Backlog totaled $168 million at December 31, 2017 compared to $198 million at September 30, 2017 and $199 million reported at December 31, 2016.

Income Taxes
The Company recognized an effective tax rate provision of 156.9% in the fourth quarter of 2017 and an overall effective tax rate provision of 9.6% for 2017. This compares to an effective tax rate benefit of 37.8% in the fourth quarter of 2016 and an overall effective tax rate benefit of 36.7% for 2016. The higher effective tax rate provision in the fourth quarter of 2017 was primarily attributable to the recently enacted U.S. tax reform legislation which resulted in a non-cash income tax charge of $28.2 million in the fourth quarter of 2017. This charge related primarily to the U.S. transition tax recorded on its unremitted foreign earnings coupled with reserves booked against its foreign tax credits which were recorded as assets prior to U.S. tax reform. Additionally, the Company was required to revalue its other U.S. deferred tax assets and liabilities to reflect the lower U.S. corporate income tax rate which has been reduced from 35% to 21%.

Financial Condition
As of December 31, 2017, the Company’s revolving credit facility was undrawn and cash on hand totaled $53.5 million. Total availability under the revolving credit facility as of December 31, 2017 was $159.3 million (net of standby letters of credit totaling $21.2 million).

Subsequent Events
On January 12, 2018, the Company completed its acquisition of GEODynamics, Inc. The acquisition was funded with a combination of $295 million of cash (net of estimated cash acquired and funded by borrowings under the Company's revolving credit facility), the issuance of 8.66 million shares of the Company's common stock (valued at approximately $295 million based on the Company's share price at closing) and the issuance of a $25 million unsecured promissory note payable to the sellers, bearing interest at 2.5% per annum maturing in July 2019, for total consideration of approximately $615 million at closing.

On January 30, 2018, the Company completed an offering of $200 million principal amount of 1.50% convertible senior notes due 2023. The net proceeds from the offering were used to repay a portion of the borrowings outstanding under the Company's revolving credit facility, which were drawn in January 2018 to fund the cash portion of the GEODynamics acquisition. In conjunction with the issuance of the convertible senior notes, the Company's revolving credit facility was further amended and the maturity date extended. Lender commitments under the amended revolving credit facility total $350 million. The amended revolving credit facility can be increased up to an incremental $150 million, subject to additional lender commitments, and the maturity date of the amended credit agreement was extended to January 30, 2022. The amended credit agreement contains customary financial covenants and restrictions, such as a senior leverage ratio, a total net leverage ratio and an interest coverage ratio.

Conference Call Information
The call is scheduled for Thursday, February 15, 2018 at 10:00 am CT, 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) 446-1671 in the United States or by dialing +1 847 413 3362 internationally and using the passcode 46421627. 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 46421627.

About Oil States
Oil States International, Inc. is a global oilfield products and services company serving the drilling, completion, subsea, production and infrastructure sectors of the oil and gas industry. The Company’s manufactured products include highly engineered capital equipment as well as products consumed in the drilling, well construction and production of oil and gas. The Company is also a leading provider of completion services to the industry. Through its recent acquisition of GEODynamics, Inc., the Company is also a leading researcher, developer and manufacturer of engineered solutions to connect the wellbore with the formation in oil and gas well completions. Oil States is headquartered in Houston, Texas with manufacturing and service facilities strategically located across the globe. 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 herein are based on 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, the general nature of the energy service industry; and other factors discussed in the “Business” and “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and the subsequently filed Quarterly Reports on Form 10-Q and Periodic Reports on Form 8-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and, except as required by law, the Company undertakes no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited)
Revenues:
Products$80,533 $92,608 $303,802 $416,174
Service103,177 77,326 366,825 278,270
183,710 169,934 670,627 694,444
Costs and expenses:
Product costs59,214 60,415 219,466 288,270
Service costs81,592 65,375 301,289 238,500
Selling, general and administrative expenses30,761 33,179 114,816 124,033
Depreciation and amortization expense25,115 29,054 107,667 118,720
Other operating (income) expense, net887 (1,698) 1,261 (5,796)
197,569 186,325 744,499 763,727
Operating loss(13,859) (16,391) (73,872) (69,283)
Interest expense(1,304) (1,219) (4,674) (5,343)
Interest income116 78 359 399
Other income298 440 775 902
Loss from continuing operations before income taxes(14,749) (17,092) (77,412) (73,325)
Income tax (provision) benefit(23,146) 6,465 (7,438) 26,939
Net loss from continuing operations(37,895) (10,627) (84,850) (46,386)
Net loss from discontinued operations, net of tax (4)
Net loss attributable to Oil States$(37,895) $(10,627) $(84,850) $(46,390)
Basic net loss per share attributable to Oil States from:
Continuing operations$(0.76) $(0.21) $(1.69) $(0.92)
Discontinued operations
Net loss$(0.76) $(0.21) $(1.69) $(0.92)
Diluted net loss per share attributable to Oil States from:
Continuing operations$(0.76) $(0.21) $(1.69) $(0.92)
Discontinued operations
Net loss$(0.76) $(0.21) $(1.69) $(0.92)
Weighted average number of common shares outstanding:
Basic49,987 50,224 50,139 50,174
Diluted49,987 50,224 50,139 50,174

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

December 31,
2017
December 31,
2016
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$53,459 $68,800
Accounts receivable, net216,139 234,513
Inventories, net168,285 175,490
Prepaid expenses and other current assets18,054 11,174
Total current assets455,937 489,977
Property, plant, and equipment, net498,890 553,402
Goodwill, net268,009 263,369
Other intangible assets, net50,265 52,746
Other noncurrent assets28,410 24,404
Total assets$1,301,511 $1,383,898
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capitalized leases$411 $538
Accounts payable49,089 34,207
Accrued liabilities45,889 45,333
Income taxes payable1,647 5,839
Deferred revenue18,234 21,315
Total current liabilities115,270 107,232
Long-term debt and capitalized leases4,870 45,388
Deferred income taxes24,718 5,036
Other noncurrent liabilities23,940 21,935
Total liabilities168,798 179,591
Stockholders’ equity:
Common stock627 623
Additional paid-in capital754,607 731,562
Retained earnings1,048,623 1,133,473
Accumulated other comprehensive loss(58,493) (70,300)
Treasury stock(612,651) (591,051)
Total stockholders’ equity1,132,713 1,204,307
Total liabilities and stockholders’ equity$1,301,511 $1,383,898

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Year Ended December 31,
2017 2016
(Unaudited)
Cash flows from operating activities:
Net loss$(84,850) $(46,390)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss from discontinued operations 4
Depreciation and amortization107,667 118,720
Stock-based compensation expense23,049 21,322
Deferred income tax provision (benefit)16,342 (37,606)
Amortization of deferred financing costs1,158 785
Gain on disposals of assets(700) (802)
Other, net288 2,923
Changes in operating assets and liabilities, net of effect from acquired businesses:
Accounts receivable21,128 85,503
Inventories11,339 32,158
Accounts payable and accrued liabilities14,048 (27,716)
Income taxes payable(4,126) (1,930)
Other operating assets and liabilities, net(9,961) 2,286
Net cash flows provided by operating activities95,382 149,257
Cash flows from investing activities:
Capital expenditures(35,171) (29,689)
Acquisitions of businesses(12,859)
Proceeds from disposition of property, plant and equipment2,134 1,532
Other, net(1,719) (1,135)
Net cash flows used in investing activities(47,615) (29,292)
Cash flows from financing activities:
Revolving credit facility repayments, net(42,184) (80,674)
Debt and capital lease repayments(517) (534)
Payment of financing costs(759) (72)
Purchase of treasury stock(16,283)
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock(5,317) (3,962)
Issuance of common stock from stock-based payment arrangements 367
Net cash flows used in financing activities(65,060) (84,875)
Effect of exchange rate changes on cash and cash equivalents1,952 (2,263)
Net change in cash and cash equivalents(15,341) 32,827
Cash and cash equivalents, beginning of year68,800 35,973
Cash and cash equivalents, end of year$53,459 $68,800

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

SEGMENT DATA
(In Thousands)
(unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Revenues:
Well Site Services -
Completion Services$66,675 $46,312 $234,252 $163,060
Drilling Services15,342 8,578 54,462 22,594
Total Well Site Services82,017 54,890 288,714 185,654
Offshore/Manufactured Products -
Project-driven products37,345 61,928 126,960 296,368
Short-cycle products36,591 25,258 147,463 88,291
Other products and services27,757 27,858 107,490 124,131
Total Offshore/Manufactured Products101,693 115,044 381,913 508,790
Total revenues$183,710 $169,934 $670,627 $694,444
Operating income (loss):
Well Site Services -
Completion Services (1,2)$(6,209) $(17,385) $(45,169) $(83,636)
Drilling Services (2)(2,670) (4,542) (13,909) (24,239)
Total Well Site Services(8,879) (21,927) (59,078) (107,875)
Offshore/Manufactured Products (1,2)10,695 19,230 38,155 87,084
Corporate (1)(15,675) (13,694) (52,949) (48,492)
Total operating loss$(13,859) $(16,391) $(73,872) $(69,283)

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION – SEGMENT
EBITDA AND ADJUSTED SEGMENT EBITDA (A)

(In Thousands)
(unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Well Site Services:
Completion Services:
Operating loss$(6,209) $(17,385) $(45,169) $(83,636)
Depreciation and amortization expense15,128 17,242 63,528 70,031
Other income171 409 583 1,027
EBITDA9,090 266 18,942 (12,578)
Severance, downsizing and other charges 165 1,077 1,998
Adjusted EBITDA$9,090 $431 $20,019 $(10,580)
Drilling Services:
Operating loss$(2,670) $(4,542) $(13,909) $(24,239)
Depreciation and amortization expense4,230 5,313 18,513 23,366
Other income46 38 95 39
EBITDA1,606 809 4,699 (834)
Severance, downsizing and other charges
88 248
Adjusted EBITDA$1,606 $897 $4,699 $(586)
Total Well Site Services:
Operating loss$(8,879) $(21,927) $(59,078) $(107,875)
Depreciation and amortization expense19,358 22,555 82,041 93,397
Other income217 447 678 1,066
Segment EBITDA10,696 1,075 23,641 (13,412)
Severance, downsizing and other charges
253 1,077 2,246
Adjusted Segment EBITDA$10,696 $1,328 $24,718 $(11,166)
Offshore/Manufactured Products:
Operating income$10,695 $19,230 $38,155 $87,084
Depreciation and amortization expense5,505 6,228 24,596 24,205
Other income (expense)81 (76) 97 (233)
Segment EBITDA16,281 25,382 62,848 111,056
Severance, downsizing and other charges
103 317 1,049 2,952
Adjusted Segment EBITDA$16,384 $25,699 $63,897 $114,008
Corporate:
Operating loss$(15,675) $(13,694) $(52,949) $(48,492)
Depreciation and amortization expense252 271 1,030 1,118
Other income (expense) 69 69
EBITDA(15,423) (13,354) (51,919) (47,305)
Severance, downsizing and other charges
1,289 (5) 1,289
Adjusted EBITDA$(14,134) $(13,359) $(50,630) $(47,305)

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In Thousands)
(unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Net loss from continuing operations$(37,895) $(10,627) $(84,850) $(46,386)
Income tax provision (benefit)23,146 (6,465) 7,438 (26,939)
Depreciation and amortization expense25,115 29,054 107,667 118,720
Interest income(116) (78) (359) (399)
Interest expense1,304 1,219 4,674 5,343
Consolidated EBITDA (B)11,554 13,103 34,570 50,339
Adjustments to Consolidated EBITDA (1,2):
Severance, downsizing and other charges
1,392 565 3,415 5,198
Adjusted Consolidated EBITDA (B)$12,946 $13,668 $37,985 $55,537

(1) Operating income (loss) and Segment and Consolidated EBITDA for the three months ended December 31, 2017 included other charges of $0.1 million related to the Offshore/Manufactured Products segment and $1.3 million related to Corporate. Operating income (loss) and Segment and Consolidated EBITDA for the twelve months ended December 31, 2017 included severance, downsizing and other charges of $1.1 million related to the Completion Services business, $1.0 million related to the Offshore/Manufactured Products segment and $1.3 million related to Corporate.

(2) Operating income (loss) and Segment and Consolidated EBITDA for the three months ended December 31, 2016 included severance and downsizing charges of $0.2 million related to the Completion Services business, $0.1 million related to the Drilling Services business and $0.3 million related to the Offshore/Manufactured Products segment. Operating income (loss) and Segment and Consolidated EBITDA for the twelve months ended December 31, 2016 included severance and downsizing charges of $2.0 million related to the Completion Services business, $0.2 million related to the Drilling Services business and $3.0 million related to the Offshore/Manufactured Products segment.

(A) The terms EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA consist of operating income (loss) plus depreciation and amortization expense, and certain other items. EBITDA, Adjusted EBITDA, 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 income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA as a supplemental disclosure because its management believes that EBITDA, Adjusted EBITDA, 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 EBITDA, Adjusted EBITDA, 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 EBITDA, Adjusted EBITDA, Segment EBITDA and Adjusted Segment EBITDA to operating income (loss), which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles.

(B) The terms Consolidated EBITDA and Adjusted Consolidated EBITDA consist of net loss from continuing operations 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 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 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 December 31,
2017 2016
Supplemental operating data:
Offshore/Manufactured Products backlog ($ in millions)$168.0 $199.3
Completion Services job tickets5,301 3,899
Average revenue per ticket ($ in thousands)$12.6 $11.9
Land drilling operating statistics:
Average rigs available34 34
Utilization31.4% 18.2%
Implied day rate ($ in thousands per day)$15.6 $15.1
Implied daily cash margin ($ in thousands per day)$2.1 $2.0

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.
Director, Investor Relations
713-470-4860

SOURCE: Oil States International, Inc.

Source:Oil States International, Inc.