Q1 2021 Oil States International Inc Earnings Call
Good morning, and welcome to the oil States International Inc. First quarter 2021 earnings Conference. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you be don't star. One if you ask a question I will now turn the call over to Ellen <unk>.
Ellen you may begin.
Thanks, Brandon Good morning, and welcome to oil States first quarter 2021 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor and Lloyd hijacked oil States' executive Vice President and Chief Financial Officer before we begin we would like to caution listeners regarding regarding forward look.
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 be on any such remarks should be weighed in the contact.
Two 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 one and a half hours. After the completion of this call and well be available for one month I will now turn the.
Call over to Cindy. Thank you al and good morning to each of you and thank you for joining us today to participate in our first quarter 2021 earnings conference call first quarter operating results in each of our segments benefited from increased U S land base completion activity, resulting from.
On the improved commodity price environment.
Impact of higher activity levels was partially offset by the severe winter weather event that occurred in February.
Particularly affecting operations in Texas, Oklahoma and surrounding states, coupled with continuing impacts from the COVID-19 pandemic.
While our facilities did not sustain meaningful damage and our operations and services were restored following the weather event on our February results of operations were adversely impacted due to the temporary cessation of work at well sites facility closures by us and our customers annualize in the.
Shipment of goods to our customers as well as the light receipts from our vendors revenues on our downhole technologies and well site services segment increased 10% and 2% sequentially. Despite the severe winter weather conditions experienced due to a strong activity recovery in March.
Revenues in our offshore manufactured products segment decreased 20% sequentially, but we did achieve a 122 basis point increase in adjusted EBITDA margins, resulting from cost reductions our first quarter bookings improved sequentially to totaled $70 million.
Which included one notable project award exceeding $10 million, yielding a book to Bill ratio of 1.2 times for the quarter of the 70 million in bookings, 17% related to non oil and gas projects, we strengthened our long term liquidity position.
<unk> during the quarter by entering into a new $125 million asset based revolving credit facility that matures in 2025.
Issuing 135 million of convertible notes due in 2026, and purchasing 125 million principal amount of our existing convertible notes, which come due in 2023 each of our operating segments reported positive EBITDA for a second consecutive quarter.
Adjusted EBITDA was $6 million, excluding $3 million on severance and restructuring charges Lloyd.
Lloyd will now review, our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segments.
Thanks, Cindy and good morning, everyone.
During the first quarter, we generated revenues of $126 million, while reporting a net loss of $16 million or 26 cents per share.
Our adjusted EBITDA improved due to higher activity levels driving increased revenues in our U S businesses.
Well on February 10th we completed a new 125 million dollar asset base revolving credit agreement with a group of our key commercial relationship banks.
Our existing revolving credit facility was terminated upon entering into the new asset based facility.
Borrowing availability under the new revolving credit facility is based on a monthly barring base cash.
<unk> based on eligible U S customer accounts receivable and inventory.
On the maturity date of the revolving credit facility as of February 10th 2025.
Borrowings outstanding under the new revolving credit facility bear interest at LIBOR, plus a margin of 275% to $3 two 5% based on our calculated availability under the facility.
On March 19th we you should issued $135 million aggregate principal amount of convertible senior notes.
Net proceeds from the notes offering after deducting issuance cost totaled $130 million.
The convertible senior notes mature in April 2026, and bear interest in an annual rate of 475%.
Which is payable semi annually on April one and October one.
We used $120 million on cash proceeds from the offering.
Purchased $125 million principal amount or 96 per cent a par value.
Of our existing 1.5% convertible senior notes.
With the balance of the proceeds added to cash on hand.
As of March 31, 30.
$32 million on principal amount and was outstanding related to the one 5% notes, which mature in February 2023.
As of March 31, $7 million was outstanding under our revolving credit facility compared to 19 million outstanding at December 31, 2020.
Cash on hand totaled $55 million as of March 31, compared to $72 million at the end of the prior year.
As of March 31, the total amount available to be drawn under the revolving credit facility was $41 million.
And together with cash on hand, our liquidity totaled approximately $95 million.
At March 31, our net debt to book capitalization ratio was 15% and our net debt totaled $133 million.
For the first quarter 2021, our net interest expense totaled $2 million of which 1 million was noncash amortization of debt issuance costs.
Our cash interest expense as a percentage of total debt outstanding was approximately 3% in the first quarter.
In terms of our second quarter 2021 consolidated guidance, we expect depreciation and amortization expense to total $21 million net.
Net interest expense to total $2 8 million of which approximately $500000 is noncash.
And our corporate expenses are projected to total $8 9 million.
In the current environment, we expect to invest approximately $15 million to $20 million in total capex during 2021.
And at this time I'd like to turn the call back over to Cindy who will take you through the operating results for each of our business segments. Thank you Lloyd I'll lead off with our offshore manufactured products segment. In this segment, we reported revenues of $61 million and adjusted segment EBITDA of $7 million in the first quarter of 2021.
Compared to revenues of 76 million and adjusted segment EBITDA of $7 million reported in the fourth quarter of 2020.
Revenues decreased 20% sequentially due primarily to a reduction in our major project revenues and service activities, partially offset by higher short cycle products sales segment adjusted EBITDA margin in the first quarter of 2021 was 11% compared to 10 per cent.
In the fourth quarter of 2020 backlog totaled 226 million at March 31, 2021, an increase of 3% sequentially as I mentioned earlier. The segment received one notable project award over $10 million during the quarter with bookings totaling 70.
Dollars, yielding a book to Bill ratio was 1.2 times for over 75 years, our offshore manufactured products segment has endeavored to develop leading edge technologies, while cultivating the specific expertise required for working in highly technical deepwater and offshore environment.
As we embark on the global energy transition, we will be working diligently to expand our core competencies into the renewable and clean tech space.
Recent product developments should help us leverage our capabilities and support a more diverse base of customers going forward.
We continue to bid on potential award opportunities supporting our traditional subsea floating and fixed production systems drilling and military clients, while experiencing an increase in bidding to support multiple new clients actively involved in subsea mining offshore wind development and other.
Other renewable and clean Tech energy systems globally, as I mentioned earlier in my leading comment 17% of our first quarter bookings were tied to non oil and gas projects.
In our downhole technologies segment, we reported revenues of $25 million and adjusted segment EBITDA of $3 million in the first quarter of 2021 compared to revenues of $23 million and adjusted segment EBITDA 2 million reported in the fourth quarter of 2020 sales.
Sales trends for our strategy integrated gun systems, and addressable switches continue to gain improved customer acceptance with our perforating product line revenues, increasing 14% sequentially driven by an increase in completion activity in the United States, partially offset by a transitory decline.
On an international sales international volumes are expected to recover in the second quarter.
In our well site services segment, we generated $40 million of revenues with sequentially increased adjusted segment EBITDA. The 2% sequential revenue increase was driven by an 11% increase in U S land revenue, but was tempered by severe winter weather conditions in February.
He along with reduced customer activity in the Gulf of Mexico further our international revenues decreased from the fourth quarter of 2020, due primarily to delays in customer projects in the middle East we remain focused on streamlining our operations and pursuing profitable activity in <unk>.
Support of our global customer base, we will continue to focus on core areas of expertise in this segment and are actively developing new service offerings to differentiate oil states completions business.
COVID-19 disruptions continue to hamper activity and domestic and international markets, but these disruptions are beginning to ease global oil inventories are beginning to return to their pre pandemic levels with improved.
Price things barring an increase in U S customer spending the first quarter 2021 U S rig count average was 393 rigs, which was up 26 per cent compared to the average for the fourth quarter of 2020.
Similarly, the industry experienced an 18% sequential quarter increase in the average U S frac spread count, which favorably impacted all of our segments with short cycle U S. Shelter of an exposure as we are now a month into the second quarter of 2021.
Frac spread count has increased by about 61 spreads are roughly 39 per cent compared to the first quarter average. This increase gives us optimism that the second quarter is setting up more favorably for our U S shell driven product and service offerings.
Given improvements in the Frac spread count, we expect our well site services and downhole technologies segments to continue to grow sequentially in the second quarter at 2021 with expanding EBITDA contributions revenues in our offshore manufactured products segment are also expected.
It to increase in the second quarter with an improving backlog of project driven product opportunities, coupled with increasing short cycle products sales.
On a consolidated basis, we expect revenues to grow 15 plus percent sequentially in the second quarter of 2021.
Our outlook for the rest of 2021 suggests that our consolidated revenue will be flattish year over year, given the strong first quarter at 2020, which was pre pandemic given U S completions activity and momentum coupled with improving major project backlog.
Well, we believed that our consolidated adjusted EBITDA well inquiries from our last guidance with a range of $38 million to $43 million currently expected for the full year 2021.
Now I would like to offer some concluding comments resolution of the pandemic appears to be in site, particularly in the United States that the timing remains uncertain. We have made substantial progress globally and reducing the historic oil glut of mass during the pandemic at <unk>.
$493 1 million barrels of U S crude oil inventory, we are now only about 1% above the five year range crude oil prices appear to have stabilized in the 60 to $65 per barrel range setting up a more conducive investment landscape for our.
Customers oil states will continue to conduct safe operations, and well remain focused on providing technology leadership and our various products and service offerings with value added products and services to meet customer demands globally as we recover from the harsh effects of that.
COVID-19 pandemic.
In addition, we will continue our product development efforts to support emerging renewable and clean Tech energy investment opportunities.
That completes our prepared comments Brendan would you open up the call for questions and answers at this time.
Yes. Thank you we will now begin the question and answer session. If you have a question. Please press star one on your phone keypad, if you'd like to be removed from the queue. Please press the pound site with a history.
If you're on a speakerphone please pick up your handset first before daily well.
If you have a question at this time, please press star one on your phone keypad.
Please standby well we are simple Archie.
Yeah.
Yeah.
Yeah.
And from Stifel, We have Stephen good Carl Please go ahead.
Yeah.
Thanks.
Cindy.
Oh boy.
Well so.
So well I guess two things are you on line.
The first.
You know the first quarter I mean, obviously, when we're talking about small numbers incremental margins kind of funky.
And on very strong in some cases, you're well.
As we think about going forward do you think you start to see those normalize closer to historical levels or how should we think about either incremental margins or just general margin progression as we go forward.
Now, you're you're absolutely right and and you see some unusually strong incremental margins and if you think about it.
As we continue to cut cost and streamline operations you have a cost.
Cost reduction benefit, which is clear and then every dollar of incremental revenue in theory can comment on the early stages near 100% and so we're gonna we anticipate continuing strong incremental margins in Q2, but they are trending to normal.
Lies as those cost reduction impacts flow through the system and then the incremental revenues start carrying with it that variable cost that goes with it. So it's hard to site exactly but I'd say you kind of have probably two to three quarters of kind of unusually strong incrementals and <unk>.
Do you get to a more normal level of activity and then I would go back and say you should expect normalized margins. If we remain in a more steady state a slower growth and recovery environment than what we've seen over the last two or three quarters coming off on.
A very low bottom you know that we reached in the second and third quarter of last year that's helpful.
Yes.
Helpful. Thank you.
The second point I apologize I might have missed a little bit on this but on the on the first quarter and the weather disruptions I'm not sure if.
Where's the offshore manufactured products movements were there.
Just some deliveries and some disruptions that that weighed on the on the revenue and want to cause the margins were very good but revenue was lighter than I thought.
That's what it's related to but just wanted to quantify that and is any of that sort of spilling over to Q2.
Ah Theres nothing spilling over into Q2, but I would characterize Q1, we knew it would be a soft quarter. We just kind of how to avoid a major project backlog for a short period of time late last year again, a lot of people delight them awarding those projects as you.
Can expect in a COVID-19 induced downturn.
So it's a air pocket, we've talked over the last quarter or two about week connector products sales those are in our major projects queue and I would say, it's mostly that that dragged down revenues, but again, we do believe that's more transitory first quarter is always a little bit of a weaker quarter too as it relates to weather impact.
That would have a greater impact on our short cycle products sales. However, you know again coming off very low base in 2020 short cycle was up just not up to the degree that it would have been absent the weather impacts again net short cycle largely benefits U S shell land based.
Activity and so it's kind of a combination of the two but in my comments as I told you, we're really expecting all segments to have pretty good sequential growth with a consolidated total growing 15 plus percent sequentially, depending upon how they come in but as I have said on prior.
Calls one of the critical things to watch for are.
The offshore manufactured products segment is a rebuild of the major projects backlog again, our book to Bill was one two times this quarter and highlighting our large for US individual major project award is the kind of trend line that we want to see to support that revenue growth.
Later quarters.
Great. Thank you for the color.
Thank you Steven good talking to you. Thanks.
From Daniel Energy Partners, we have John Daniel Please go ahead.
Thanks for putting me on.
Just good morning, John.
Good morning, just a quick question on supply chain. If you guys are seeing any stress points right now on how you see that playing out over the course of the year.
Okay.
You know I haven't really seen any significant stress points I think every body.
In the U S economy broadly I'm, you know listen to the early morning News. This morning is really kind of watching the impact on potential inflation.
On hitting the industry I would just say at this point in time with our product and service offering again coming off that base of 2020, and having some inventory we think we're in a reasonably good shape.
On trucking and transportation driver shortages are hitting a certain pockets were less reliant on those types of activities given that most of our equipment is a small mobile transferable and we employ our own drivers and out on our own fleet of transportation vehicles. So.
On a I can't say that we're gonna be.
You know excused from any of these issues, but right now I think where we're managing fine.
Okay, and then just one from me on the on the Labor front I mean, we hear a lot about labor tightness can you I'm. Just curious if you would characterize that more being sort of that entry level worker or trying to bring back the experienced person.
Any thoughts on that it's more on what we're seeing some challenges is again coming off a horrible year in 2020, it's painful for our workers whether you were.
Light off temporarily whether your hours were cut and some people have chosen particularly entry level chosen to seek other employment and I think everybody at entry level has alternatives you know theres a lot of the industries that are growing and kind of heavy machinery heavy industry, even working in areas.
Supply areas like Lowe's those are the types of companies that can paid for entry level, particularly manufacturing head count coupled with high levels of unemployment benefits that are afforded people. There are some challenges, but they are more entry level at this point in time on.
But you know I.
The key for us is not.
Is managing through that but also trying to well we cut tie in 2020 per our experienced people are instead its balance thing.
Really timing of recovery of those pay and benefits with a market recovery and an ability to get a little bit of pricing to cover that that that's really the primary challenge that we face. Okay. And then I guess last one again big picture not necessarily oil states specific so I apologize, but when you look at the strip.
And where it is what it could imply for potential activity uplift call. It Q1, 2022 watts budgets reset all that good stuff.
How hard do you think it's gonna be from the industry to make that call given the well.
What you've just talked about broader.
Opportunities for people elsewhere, just seems like you could we could be in a pinch a real pinch.
I you know I do worry about it it's it's a it's a combination of the cyclical nature of our industry that is challenging.
I'd say for people that want to make a career in this industry and attract new workers for all those things I I am concerned about it.
I think for that reason you know the energy industry is more sustainable quite frankly at W. T on north of $60 a barrel, we know that and that's the way that we are attracting new workers is to have an affordable livable wage for entry level and some sense of stability.
<unk> and so I hope I can make it from today to first quarter of 2022 with W. T on north of 60, and I think that will help but I do believe that the efficiencies that we brought to the market over the years, which.
Again, some of the need for head count at the well site is gonna be essential because I do think long term, particularly with the headline every day of an energy transition people are young people are going to question. The long term viability of taking jobs in our industry. That's that's just being transparent and open.
Got it and I think we have to continue to do more.
Whether it's digital whether it's consolidating the sop simple symbol Bax. However, you say it at the well site all the thing right help us do more with fewer workers are gonna be essentials.
I appreciate you lose very much and best of luck the rest of this quarter of the year section.
Yeah.
Thanks, John Thanks, John.
And once again, if you do have a question. Please don't star one on your phone and keep it well standby for any further questions.
Well.
Yeah.
And it looks like we have no further questions at this time on city will turn it back to you for closing remarks.
Thank you Brandon we hit today with so many companies releasing earnings I think everybody is split between calls and I'm sure that well get some follow up questions, but as Ellen indicated the call is webcast and weekend you can get some follow up information there and we are very open to a dresser.
Any questions you might have after you've caught up with our conference call. We do thank all of those who attended and look forward to future calls with you have a great day.
Thank you and ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
Yeah.
Yeah.