Oil States International, Inc. (NYSE:OIS) Q3 2023 Earnings Call Transcript October 27, 2023
Oil States International, Inc. beats earnings expectations. Reported EPS is $0.06679, expectations were $0.04.
Operator: Good day, everyone, and welcome to the Oil States Third Quarter 2023 Earnings Call. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Ellen Pennington. Please go ahead, ma'am.
Ellen Pennington : Thank you, Lisa. Good morning, and welcome to Oil States third quarter 2023 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business including those risks disclosed in our Form 10-K along with other SEC filings.
This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available for 2 hours after the completion of this call and will continue to be available for 12 months. I'll now turn the call over to Cindy.
Cindy Taylor: Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our third quarter 2023 results and provide our thoughts on market trends in addition to discussing our company-specific outlook comments. Our third quarter results benefited from growth in offshore and international spending with significant sequential and year-over-year increases in offshore project activity and backlog conversion. However, our quarterly performance was tempered by an industry-wide decline in U.S. well completions, which has been ongoing since the first quarter of 2023. We believe U.S. activity declines were triggered by weaker commodity prices in effect earlier this year. Our third quarter consolidated revenues and adjusted EBITDA increased sequentially by 6% and 23%, respectively, driven by higher offshore and international activity.
Year-over-year consolidated revenues and adjusted EBITDA grew by 3% and 7%, respectively. The sequential and year-over-year improvements reflect significant project-driven growth within our Offshore/Manufactured Products segment, where revenues increased 18% sequentially and 16% year-over-year, totaling $111 million in the third quarter, the segment's highest revenue level since the fourth quarter of 2016. Segment backlog increased for a fifth consecutive quarter totaling $348 million as of September 30. We are benefiting from our customers' increased investments in traditional and alternative energy offshore projects outside the United States. We received two notable project awards in the third quarter, including a production facility equipment order destined for Brazil and a contract for our Merlin Deepsea Mineral Riser System designed for use in harvesting seabed minerals at extreme water depths.
The segment's bookings totaled $129 million, yielding a quarterly book-to-bill ratio of 1.2x. Our continued investments in technology and innovation were recognized earlier this month by Gulf Energy with our Active Seat Gate Valve receiving the 2023 Gulf Energy Information Excellence Award for best production technology. This proprietary valve technology provides operators with exception sealing performance while substantially reducing the amount of heavy grease used during valve operations and personnel involved in intervention at the wellhead. We generated cash flow from operations of $14 million in the third quarter, invested $2 million in net capital equipment and have no short-term debt outstanding. With cash on hand totaling $53 million at September 30, and no significant debt maturities before 2026, our financial position remains very strong.
We expect to further enhance our liquidity position in future quarters. We remain encouraged by the continued expansion in offshore activity, coupled with future benefits to be gained from our new product introductions, including our managed pressure drilling system, our Merlin Deep Sea mineral riser system and our active seat gate valve technology, among others. This international offshore focused investment cycle is expected to extend years. As it relates to U.S. land-based activity with currently improved commodity pricing, we expect U.S. activity to recover in 2024 from current levels. Lloyd will now review our results of operations and financial position in more detail.
Lloyd Hajdik : Thanks, Cindy, and good morning, everyone. During the third quarter, we generated revenues of $194 million, adjusted consolidated EBITDA of $23 million and net income of $4 million or $0.07 per share. Reported third quarter net income included facility consolidation charges of $1.6 million, which were incurred as we prepare selected facilities for sale. This represents our fifth consecutive quarter of positive net income. Our Offshore/Manufactured Products segment generated revenues of $111 million, adjusted segment EBITDA of $24 million and operating income of $18 million in the third quarter. Revenues reported in the third quarter are at the highest level since the fourth quarter of 2016. During the third quarter, we recorded charges of $1.6 million associated with our ongoing consolidation and relocation of certain manufacturing and service locations in an effort to gain operational efficiencies and reduce future costs.
Adjusted segment EBITDA margin in the third quarter was 22% compared to 17% in the second quarter. Regarding our facility planning, we consolidated certain facilities in Houston and are in the process of strategically relocating our Asian manufacturing and service operations from Singapore to Batam Indonesia. Accordingly, we have reclassified 2 facilities as held-for-sale assets at September 30. Given these plans, our capital expenditure investments for 2023 are now expected to total approximately $35 million as a result of our plans to purchase land and begin construction on a new facility in Batam. Proceeds from the sales of our facilities in Singapore and Houston, which are expected to close in late 2023 or early 2024 are expected to range between $35 million and $40 million, exceeding the costs associated with the new facility in Batam.
Backlog increased sequentially for a fifth consecutive quarter totaling $348 million at September 30, an increase of 35% from September 30, 2022. The current quarter end backlog is at its highest level since the fourth quarter of 2015. Third quarter bookings totaled $129 million, yielding a third quarter and year-to-date book-to-bill ratio of 1.2x. In our Well Site Services segment, we generated revenues of $60 million, operating income of $3 million and adjusted segment EBITDA of $10 million in the third quarter. Adjusted segment EBITDA margin was 16% in the third quarter compared to 18% in the second quarter. In our Downhole Technologies segment, we reported revenues of $23 million, an operating loss of $4 million, while adjusted segment EBITDA was essentially breakeven for the quarter.
Lower revenues and margins in the quarter were driven by reduced customer demand for completion products and lower manufacturing volumes, driven by the continued reduction in frac spreads coupled with competitive market conditions experienced during the third quarter. During the third quarter, we generated cash flows from operations of $14 million and invested $2 million in net CapEx to support future growth. As of September 30, no borrowings were outstanding under our revolving credit facility and amounts available to be drawn totaled $85 million, which, together with cash on hand, resulted in available liquidity of $137 million. Now Cindy will offer some market outlook and concluding comments.
Cindy Taylor: Thanks, Lloyd. The tight commodity markets of 2022 took a turn in early 2023. Softening global demand and resultant elevated inventories caused oil prices to drop during the first quarter of 2023. This was followed by a strong reaction by the OPEC+ countries with announced production cuts, which has resulted in significantly improved commodity pricing with Brent and WTI averaging $87 per barrel and $82 per barrel, respectively, in the third quarter. However, U.S. land-based activity has thus far lagged the commodity price improvement. Global oil and gas inventories are normalizing and are now below their 5-year seasonal average for crude oil, but remain above the 5-year average for natural gas leading to lower natural gas prices year-over-year, thereby tempering expectations for growth in drilling and completion spending on U.S. land activity for the balance of 2023.
We are executing well given the current market environment and our growing revenues, adjusted EBITDA and free cash flow on the strength at our offshore and international operations. Revenues in our Offshore/Manufactured Products segment are expected to continue to grow as a result of strong order flow, increased levels of backlog and execution of major project milestones. We expect our Well Site Services and Downhole Technologies segments to continue to perform in line with market activity indicators which has softened for U.S. land activities in the second half of 2023, and but do appear to be bottoming with expected improvements in 2024 as support is gained from a strong commodity price environment. We remain focused on optimizing our operations and pursuing profitable activity in support of our global customer base.
as market opportunities unfold, both in the U.S. and in international and offshore markets. We will continue to focus on core areas of expertise with the deployment of our recently enhanced equipment to further differentiate our product and service offerings. Now I would like to offer some concluding comments. Initially, the industry responded to higher commodity prices with accelerated shorter-cycle investments in the United States which the industry clearly benefited from in 2022. In 2023, we are experiencing an increase in investments in long lead time projects in international markets and deepwater basins around the world based upon the longer-range outlook for commodity prices. Strong macro fundamentals are pointing to a multiyear up cycle, which should drive growth in revenues, earnings and free cash flow generation.
Our core competencies are well entrenched in the markets we serve, and we continue to bid on potential opportunities supporting our traditional subsea, floating and fixed production systems, drilling and military customers while also bidding to support multiple new customers and projects involved in developments such as deep-sea minerals gathering, fixed and floating offshore wind developments, carbon capture and storage, geothermal applications and other renewable and clean tech energy opportunities. These new energy transition opportunities create strong potential for us to expand our product and service offerings and our revenue base. Oil States will continue to conduct safe operations and will remain focused on providing technology leadership in our various product and service offerings with value-added products and services available to meet customer demand globally.
Market-leading technologies will extend the runway for a sustainable competitive advantage. That completes our prepared comments. Lisa, would you open up the call for questions and answers at this time?
To continue reading the Q&A session, please click here.