Oil States Announces Third Quarter 2015 Adjusted Earnings Per Share of $0.11

Third Quarter Highlights:

  • Reports adjusted earnings per diluted share of $0.11
  • Offshore products EBITDA margins averaged 22.5%
  • 50% sequential increase in offshore products orders
  • Offshore products book-to-bill ratio totaled 0.98x
  • Repurchased over 480,000 shares of common stock

HOUSTON, Oct. 29, 2015 (GLOBE NEWSWIRE) — Oil States International, Inc. (NYSE:OIS) reported net income for the third quarter ended September 30, 2015 of $1.7 million, or $0.03 per diluted share, which included the following significant items:

  • Higher effective tax rate (69.9%) due to a $3.2 million, or $0.06 per diluted share, tax valuation allowance recorded against certain of the Company’s deferred tax assets
  • Pre-tax charges of $0.7 million, or $0.01 per diluted share after-tax, for severance related costs

Excluding the higher effective tax rate associated with the valuation allowance and severance related costs, net income for the third quarter of 2015 would have totaled $5.6 million, or $0.11 per diluted share. These results compare to net income from continuing operations of $58.4 million, or $1.07 per diluted share, reported in the third quarter of 2014.

During the third quarter of 2015, the Company generated revenues of $258.9 million and Adjusted EBITDA (A) of $39.5 million (excluding $0.7 million for severance related costs). These results compare to revenues of $471.0 million and EBITDA (A) of $122.9 million in the third quarter of 2014, representing year-over-year declines of 45% and 68%, respectively. The persistently low commodity price environment continued to negatively impact activity levels through further reductions in the U.S. land drilling rig count, proportionately higher than normal inventory of drilled but uncompleted wells, reduced pricing for completion service offerings, and a reduction in drilling related product sales and short-cycle revenues in the offshore products segment.

Oil States’ President and Chief Executive Officer, Cindy B. Taylor, stated, “Oil States’ third quarter results continued to be negatively impacted by low commodity prices and the ensuing dramatic decline in U.S. land drilling and completion-related activity. Despite operating in an extremely challenging market environment, our results for the third quarter benefitted from cost reduction measures implemented earlier this year and strong offshore products segment performance. Activity declines have been particularly severe in our well site services segment where the U.S. rig count is now down 59% from peak levels in 2014. Our offshore products segment reported strong EBITDA margins and solid order bookings notwithstanding the current low commodity price environment. We achieved a book-to-bill ratio in the offshore products segment of 0.98x for the third quarter, bringing the ratio to 0.87x year-to-date. We continue to assess opportunities to invest in our company for the long-term, while prudently managing our balance sheet and monitoring our financial position.”

For the first nine months of 2015, the Company reported revenues of $865.5 million and Adjusted EBITDA of $151.6 million (excluding $4.5 million of severance and downsizing related charges). For the first nine months of 2014, the Company reported revenues of $1.3 billion and Adjusted EBITDA of $325.0 million (excluding $11.0 million of charges primarily associated with the May 30, 2014 spin-off of the accommodations segment into a stand-alone, publicly traded corporation, Civeo Corporation or Civeo). Excluding the severance and downsizing related charges in the nine months ended September 30, 2015 and the spin-off related charges in the nine months ended September 30, 2014, Adjusted EBITDA would have decreased 53% year-over-year.

Net income for the first nine months of 2015 included a total of $9.1 million, or $0.18 per diluted share after-tax, from the following significant items:

  • Severance and other downsizing initiatives ($4.5 million pre-tax, or $3.3 million after-tax)
  • Higher effective tax rate driven by a $2.3 million deferred tax adjustment recorded in the first quarter of 2015 for certain non-deductible items
  • $3.5 million tax valuation allowance recorded against certain of the Company’s deferred tax assets ($3.2 million of which was recorded in the third quarter of 2015)

The results for the first nine months of 2014 included $111.4 million, or $1.34 per diluted share after-tax, of losses on debt extinguishment and Civeo spin-off related charges.

BUSINESS SEGMENT RESULTS

(Unless otherwise noted, the following discussion compares the quarterly results from continuing operations for the third quarters of 2015 and 2014, respectively. The historical results of operations of the accommodations segment through the spin-off date have been reported as discontinued operations for all periods reported herein.)

Well Site Services

Well site services generated revenues of $83.2 million and EBITDA of $10.9 million in the third quarter of 2015 compared to revenues and EBITDA of $224.4 million and $77.2 million, respectively, in the third quarter of 2014. Segmental revenues and EBITDA decreased 63% and 86% year-over-year, respectively, primarily due to a 48% year-over-year decrease in the number of completion services jobs performed and a 26% year-over-year decrease in revenue per completion service job, resulting from competitive pressures and lower activity levels in the U.S. shale basins. Lower utilization in the land drilling business, which averaged 33% during the third quarter of 2015 compared with 90% in the third quarter of 2014, also negatively impacted the segmental results. Segmental EBITDA margins were 13.1% in the third quarter of 2015 compared to 12.9% in the second quarter of 2015, but were below the 34.4% reported in the third quarter of 2014.

Offshore Products

Offshore products generated revenues and EBITDA of $175.7 million and $39.5 million, respectively, in the third quarter of 2015 compared to revenues of $246.6 million and EBITDA of $60.6 million in the third quarter of 2014. Segmental revenues decreased 29% and EBITDA decreased 35% year-over-year, due to lower contributions across all of the Company’s product lines, weighted primarily to drilling products and shorter cycle businesses such as elastomer products, coupled with a lower level of service activities and a backlog position that has trended lower during 2015. EBITDA margins remained strong at 22.5% in the third quarter of 2015 compared to 22.3% realized in the second quarter of 2015, but were below the 24.6% reported in the third quarter of 2014. Backlog declined 4% sequentially, totaling $394 million at September 30, 2015 compared to $409 million reported at June 30, 2015 and $543 million reported at September 30, 2014. Major backlog additions during the third quarter included orders for U.S. military products and pipeline repair products.

Income Taxes

The Company recognized an effective tax rate of 69.9% in the third quarter of 2015 compared to an effective tax rate of 35.4% in the third quarter of 2014. The higher effective tax rate in the third quarter of 2015 was due to a $3.2 million tax valuation allowance recorded against certain of the Company’s deferred tax assets.

Financial Condition

The Company invested $23.6 million in capital expenditures during the third quarter of 2015. Capital expenditures related to ongoing facility expansions in the offshore products segment, primarily in the U.K., along with the addition of completion services equipment deployed to service the U.S. shale plays.

During the third quarter of 2015, the Company repurchased 482,564 shares under its authorized share repurchase program at an average price of $27.30 per share. A total of $136.8 million remains available under the current share repurchase authorization, which is scheduled to expire on July 29, 2016.

As of September 30, 2015, there was $153.8 million outstanding under the Company’s revolving credit facility. Total availability under the facility as of September 30, 2015 was $406.7 million (net of standby letters of credit totaling $39.5 million).

Conference Call Information

The call is scheduled for Friday, October 30, 2015 at 11:00 am ET, 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 (800) 446-2782 in the United States or by dialing +1 847 413 3235 internationally and using the passcode of 40977241. 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 of 40977241.

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, 2014 filed by Oil States with the Securities and Exchange Commission on February 23, 2015.

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
         
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
         
  THREE MONTHS ENDED NINE MONTHS ENDED
  SEPTEMBER 30, SEPTEMBER 30,
  2015 2014 2015 2014
         
Revenues $258,886 $471,032 $865,503 $1,335,876
         
Costs and expenses:        
Cost of sales and services 188,590 306,497 620,976 886,777
Selling, general and administrative expenses 33,126 43,734 100,732 128,181
Depreciation and amortization expense 31,730 31,076 96,742 92,970
Other operating expense (income) (1,206) (1,887) (2,077) 9,524
  252,240 379,420 816,373 1,117,452
Operating income 6,646 91,612 49,130 218,424
         
Interest expense (1,541) (1,602) (4,876) (15,500)
Interest income 153 150 428 411
Loss on extinguishment of debt 30 (100,380)
Other income 401 235 1,221 2,571
Income from continuing operations before income taxes 5,659 90,425 45,903 105,526
Income tax provision (3,953) (32,048) (18,646) (36,545)
Net income from continuing operations 1,706 58,377 27,257 68,981
Net income (loss) from discontinued operations, net of tax 23 (1,467) 224 51,571
Net income 1,729 56,910 27,481 120,552
Less: Net income (loss) attributable to noncontrolling interest (10) 8
Net income attributable to Oil States International, Inc. $1,729 $56,920 $27,481 $120,544
         
         
Net income (loss) attributable to Oil States International, Inc.:        
Continuing operations $1,706 $58,387 $27,257 $68,973
Discontinued operations 23 (1,467) 224 51,571
Net income attributable to Oil States International, Inc. $1,729 $56,920 $27,481 $120,544
         
         
Basic net income (loss) per share attributable to Oil States International, Inc. common stockholders from:        
Continuing operations $0.03 $1.08 $0.53 $1.28
Discontinued operations (0.03) 0.95
Net income $0.03 $1.05 $0.53 $2.23
         
Diluted net income (loss) per share attributable to Oil States International, Inc. common stockholders from:        
Continuing operations $0.03 $1.07 $0.53 $1.27
Discontinued operations (0.02) 0.95
Net income $0.03 $1.05 $0.53 $2.22
         
Weighted average number of common shares outstanding:        
Basic 50,011 52,979 50,422 53,119
Diluted 50,050 53,294 50,500 53,422
 
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
     
CONSOLIDATED BALANCE SHEETS
(In Thousands)
     
     
  SEPTEMBER 30, DECEMBER 31,
ASSETS 2015 2014
  (UNAUDITED)  
   
Current assets:    
Cash and cash equivalents $85,715 $53,263
Accounts receivable, net 304,574 497,124
Inventories, net 226,394 232,490
Prepaid expenses and other current assets 31,325 43,789
Total current assets 648,008 826,666
     
Property, plant, and equipment, net 648,330 649,846
Goodwill, net 264,308 252,201
Other intangible assets, net 60,558 52,935
Other noncurrent assets 27,134 27,964
Total assets $1,648,338 $1,809,612
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
     
Current liabilities:    
Accounts payable $72,345 $108,949
Accrued liabilities 61,434 96,130
Income taxes 9,056 9,195
Current portion of long-term debt and capitalized leases 515 530
Deferred revenue 28,820 48,948
Deferred tax liabilities 12,562 7,431
Other current liabilities 213 229
Total current liabilities 184,945 271,412
     
Long-term debt and capitalized leases (1) 159,611 146,835
Deferred income taxes 30,151 33,913
Other noncurrent liabilities 18,988 16,795
Total liabilities 393,695 468,955
     
Stockholders’ equity:    
Oil States International, Inc. stockholders’ equity:  
Common stock, $.01 par value, 200,000,000 shares authorized, 61,564,018 shares and 60,940,734 shares issued, respectively, and 50,805,727 shares and 53,017,359 shares outstanding, respectively 616 610
Additional paid-in capital 704,402 685,232
Retained earnings 1,178,747 1,151,266
Accumulated other comprehensive loss (42,072) (22,100)
Common stock held in treasury at cost, 10,758,291 and 7,923,375 shares, respectively (587,050) (474,351)
Total Oil States International, Inc. stockholders’ equity 1,254,643 1,340,657
Noncontrolling interest
Total stockholders’ equity 1,254,643 1,340,657
Total liabilities and stockholders’ equity $1,648,338 $1,809,612
     
(1) As of September 30, 2015, the Company had approximately $406.7 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,
  2015 2014
     
Cash flows from operating activities:    
Net income $27,481 $120,552
Adjustments to reconcile net income to net cash provided by operating activities:    
Income from discontinued operations (224) (51,571)
Depreciation and amortization 96,742 92,970
Deferred income tax benefit (2,862) (20,144)
Tax impact of share-based payment arrangements (550) (4,585)
Provision for bad debt (99) 3,767
Gain on disposals of assets (907) (1,761)
Non-cash compensation charge 16,245 19,284
Amortization of deferred financing costs 585 1,625
Loss on extinguishment of debt 100,380
Other, net (182)
Changes in operating assets and liabilities, net of effect from acquired businesses:    
Accounts receivable 189,882 (71,442)
Inventories 5,207 (11,534)
Accounts payable and accrued liabilities (71,848) (20,257)
Taxes payable 5,784 (38,990)
Other operating assets and liabilities, net (12,959) 23,238
Net cash flows provided by continuing operating activities 252,477 141,350
Net cash flows provided by discontinued operating activities 350 161,130
Net cash flows provided by operating activities 252,827 302,480
     
Cash flows from investing activities:    
Capital expenditures (92,314) (142,549)
Acquisitions of businesses, net of cash acquired (33,427) 193
Proceeds from disposition of property, plant and equipment 1,911 3,069
Other, net (491) (1,463)
Net cash flows used in continuing investing activities (124,321) (140,750)
Net cash flows used in discontinued investing activities (119,061)
Net cash flows used in investing activities (124,321) (259,811)
     
Cash flows from financing activities:    
Revolving credit borrowings, net 13,084 171,734
Repayment of 6 1/2% Senior Notes (630,307)
Repayment of 5 1/8% Senior Notes (419,794)
Distribution received from Spin-Off of Civeo 750,000
Debt and capital lease repayments (411) (408)
Issuance of common stock from share-based payment arrangements 2,385 8,844
Purchase of treasury stock (104,596) (162,053)
Tax impact of share-based payment arrangements 550 4,585
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock (6,786) (5,048)
Payment of financing costs (2) (3,862)
Other, net 1
Net cash flows used in continuing financing activities (95,776) (286,308)
Net cash flows used in discontinued financing activities (282,204)
Net cash flows used in financing activities (95,776) (568,512)
     
Effect of exchange rate changes on cash (278) (3,663)
Net change in cash and cash equivalents 32,452 (529,506)
Cash and cash equivalents, beginning of period 53,263 599,306
     
Cash and cash equivalents, end of period $85,715 $69,800
 
Oil States International, Inc. and Subsidiaries
Segment Data
(in thousands)
(unaudited)
         
  Three Months Ended September 30, Nine Months Ended September 30,  
  2015 2014 2015 2014
         
 Revenues         
 Completion services   $ 66,734  $ 171,990  $ 254,265  $ 474,106
 Drilling services   16,506  52,416  56,888  152,243
         
 Well site services   83,240  224,406  311,153  626,349
 Offshore products   175,646  246,626  554,350  709,527
 Total revenues   $ 258,886  $ 471,032  $ 865,503  $ 1,335,876
         
 EBITDA (A)         
 Completion services (1)   $ 9,050  $ 61,901  $ 49,845  $ 163,312
 Drilling services   1,891  15,251  8,695  43,884
         
 Well site services   10,941  77,152  58,540  207,196
 Offshore products (1)   39,549  60,563  123,064  159,880
 Corporate and eliminations (2)   (11,713)  (14,782)  (34,511)  (53,119)
 Total EBITDA   $ 38,777  $ 122,933  $ 147,093  $ 313,957
         
 Operating income (loss)         
 Completion services (1)   $ (9,991)  $ 43,242  $ (8,492)  $ 106,760
 Drilling services   (4,844)  8,511  (11,725)  23,044
         
 Well site services   (14,835)  51,753  (20,217)  129,804
 Offshore products (1)   33,512  54,899  104,889  142,508
 Corporate and eliminations (2)   (12,031)  (15,040)  (35,542)  (53,888)
 Total operating income   $ 6,646  $ 91,612  $ 49,130  $ 218,424
 
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,
  2015 2014 2015 2014
         
 Net income from continuing operations  $1,706 $58,387 $27,257 $68,973
 Income tax provision   3,953  32,048  18,646  36,545
 Depreciation and amortization   31,730  31,076  96,742  92,970
 Interest income   (153)  (150)  (428)  (411)
 Interest expense   1,541  1,602  4,876  15,500
 Loss on extinguishment of debt   —   (30)  —   100,380
 EBITDA (A)  $38,777 $122,933 $147,093 $313,957
         
 Adjustments to EBITDA (1, 2):         
 Non-recurring charges  720  —  4,537 11,020
 Adjusted EBITDA (A)  $39,497 $122,933 $151,630 $324,977

(1) Adjustments to EBITDA and operating income for the three and nine months ended September 30, 2015 included severance and other related costs of $0.2 million and $2.0 million, respectively, related to the completion services business and $0.5 million and $2.5 million, respectively, related to the offshore products segment.

(2) Adjustments to EBITDA and operating income for the nine months ended September 30, 2014 included transaction costs of $11.0 million. These costs primarily related to activities associated with the spin-off of Civeo.

(A) The terms EBITDA and Adjusted EBITDA consist of net income from continuing operations plus interest, taxes, depreciation and amortization, and certain other non-recurring items. 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 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 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. and Subsidiaries
Additional Quarterly Segment and Operating Data
(unaudited)
     
  Three Months Ended September 30,
  2015 2014
     
 Supplemental operating data:     
 Offshore products backlog ($ in millions)  $394.4 $542.6
     
 Completion services job tickets   7,463  14,251
 Average revenue per ticket ($ in thousands)  $8.9 $12.1
     
 Land drilling operating statistics:     
 Average rigs available  34 34
 Utilization  33.1% 90.1%
 Implied day rate ($ in thousands per day)  $16.0 $18.6
 Implied daily cash margin ($ in thousands per day)  $2.4 $5.7
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

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