Q2 2021 Oil States International Inc Earnings Call

Good morning, and welcome to the oil States International second quarter 'twenty, 1 earnings Conference call. My name is the naira and I'll be the operator for today's call. At this time all participants are in a listen only mode.

Later, well conduct a question and answer session. During the question and answer session. If you have a question.

Press Star then 1 on your Touchtone phone I will now turn the call over to MS. Ellen Pennington Ellen you may begin.

Thank you the Neera and good morning, and welcomed the oil States second quarter 2021 earnings conference call. Our call today will be led by our president and CEO Cindy Taylor.

And Lloyd <unk> 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're relying on the safe harbor protections afforded by federal law.

<unk> no 1 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 web.

Website, a replay of the conference call will be available 1 and a half hours. After the completion of this call and well be available for 1 month I will now turn the call over to Cindy.

Thank you al and good morning, and thank you for joining our conference call today regarding our second quarter 2021 earnings.

Quarter operating result.

And each of our segments benefited from the improved commodity price environment.

Sequentially, our consolidated revenues and adjusted consolidated EBITDA increased 16% and 64% respectively.

Revenues and our offshore manufacturer product segment led the way.

With a 27% sequential increase while revenues and our downhole technologies and well site services segments increased 5% and 6% respectively.

We also achieved a 202 basis point increase and adjusted consolidated EBITDA margin.

Arjun, resulting from revenue growth coupled with the benefit of cost reductions each of our operating segments reported positive EBITDA for the third consecutive quarter adjusted consolidated EBITDA for the quarter totaled $10 million, excluding 3 million of restructuring charges.

Carly associated with our exit of certain leased facilities.

Cash flow from operations totaled $22.4 million per the quarter, allowing us to fully pay off our revolver and repurchase a portion of our 1.5% convertible senior notes. We also were very.

And pardon pleased to receive a 2021 spotlight on New Technology Award from the offshore Technology conference for our Marlin Deep Sea mineral riser system.

Lloyd will now review, our consolidated results of operations and financial position and more detail.

Very poor I go into a discussion of each of our segments.

Thank you Cynthia and good morning, everyone.

During the second quarter, we generated revenues of $146 million, while reporting a net loss of $15 million or 25 per share.

The quarterly results included non cash lease asset and <unk>.

Before orders of $2.8 million.

Along with $2.6 million of restructuring charges as described in our press release.

Our adjusted consolidated EBITDA totaled $10.1 million.

Improving significantly from the first quarter due to higher activity levels, which drove increased revenues.

Parents, and our offshore manufactured products segment, and and our other U S land centric businesses.

And as Cindy mentioned, we repaid all outstanding borrowings under our asset based revolving credit facility during the quarter.

And also bought back $6.4 million principal amount of our 1.5% convertible.

You know, it's at a discount to par value.

As of June 30, $26 million and principal amount remained outstanding related to the 1.5% convertible senior notes.

Mature in February 2023.

Cash on hand totaled $63 million as of June 30.

Senior.

Compared to $55 million at the end of the first quarter.

As of June 30 of the total amount available to be drawn under our revolving credit facility was $50 million, which together with cash on hand yielded available liquidity of $113 million.

And increase of 8.

$30 million from the end of the first quarter.

At June 30, our net debt totaled $116 million yield.

Yielding a net debt to total net capitalization ratio of 14%.

For the second quarter 2021, our net interest expense total.

$2.7 million.

Of which 5 million was noncash amortization of debt issuance costs.

Our cash interest expense as a percentage of total debt outstanding was approximately 5% and the second quarter.

In terms of our third quarter 2021 console.

Consolidated guidance, we expect depreciation and amortization expense to total $20 million.

Net interest expense of totaled $2.7 million.

And our corporate expenses are projected to total $8.5 million.

We spent $3.2 million and capex during the second quarter.

And expect to invest approximately $15 million and total capex during the full year 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.

Thanks Lloyd.

Sure manufactured products segment reported revenues of 70.

Millions of dollars and adjusted segment EBITDA of $10 million and the second quarter of 2021 compared to revenues of $61 million and adjusted segment EBITDA of $7 million reported and the first quarter 2021 revenues increased 27% sequential.

Secondly, driven primarily by sales of our connector products and production equipment, but with noticeable improvement also coming from sales of our fixed platform short cycle and military products adjusted segment EBITDA margin and the second quarter of 2021 was 13, 4%.

Sequentially compared to 11, 2% achieved and the first quarter of 2021.

Backlog totaled $214 million at June 30 of 2021, a decrease of 5% sequentially, yielding a book to bill ratio of non times for the quarter.

And for over 75.

Percentage of 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 environments as the world expanse investment and alternative energy sources, we will be.

The 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.

<unk> subsea floating and fixed production systems drilling and military clients, while experiencing an increase and bidding to support multiple new clients actively involved and subsea minerals offshore wind development and other renewable and clean Tech energy systems globally.

Intimately, 6% of our second quarter bookings were tied to non oil and gas projects, bringing the year to date non oil and gas bookings to 12%.

And our downhole technologies segment, we reported revenues of $27 million and adjusted segment EBITDA of 2 million and the second quarter.

A proxy of <unk> thousand 21, compared to revenues of 25 million and adjusted segment EBITDA of $3 million reported and the first quarter of 2021 our.

Our perforating product line revenues increased 7% sequentially driven by an increase in completions activity and the United States.

<unk> and our EBITDA margins suffered a bit in the quarter due to the facility under absorption, resulting from weather induced work stoppages.

And our well site services segment, we generated revenues of $42 million, while adjusted segment EBITDA increased sequentially to $5.7 million.

The 6% sequential revenue increase was driven by improved U S land and Gulf of Mexico activity levels, while our international revenues remain flat with the previous quarter as customers continued to address the ongoing effects of the COVID-19 pandemic we remain.

Just on streamlining our operations and pursuing profitable activity and support of our global customer base. We will continue to focus on core areas of expertise in this segment and are actively developing improved service offerings to differentiate oil states completions business.

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COVID-19 disruptions continue to hamper activity and domestic and international markets, but these disruptions continue to ease global oil inventories are beginning to return to their pre pandemic levels, while improved pricing is spring and increase.

And folk glass customer spending the second quarter of 2021 U S rig count average was 450 rigs, which was up 15% compared to the average for the first quarter of 2021.

Similarly, the industry experienced a 42% sequential quarterly.

Orderly increase and the average U S frac spread count, which favorably impacted all of our segments. As we are now a month into the third quarter of 2021, we are continuing to see favorable trends and the U S with the frac spread count increasing by 22 spreads of roughly 10.

10% compared to the second quarter average as the increase gives us optimism that the third quarter is trending favorably, which should support our U S shale driven product and service offerings.

Given improvements in the Frac spread count, we expect our well site services and downhole technologies segment.

To continue their trend of sequential growth and the third quarter of 2021 with expanding EBITDA contributions.

Revenues and our offshore manufacturer product segment are expected to grow modestly given expected strong short cycle product sales and increased service and repair.

For the DS.

On a consolidated basis, we expect revenues to grow 4% to 5% sequentially and the third quarter of 2021 from a bookings perspective, we expect our offshore manufactured products segment to achieve a book to bill ratio greater than 1 times and the third quarter of 2020.

And 21.

We are raising our full year guidance given the increased levels of U S completions activity. Accordingly, we believe that our adjusted consolidated EBITDA will range from 40 to 44 million for the full year 2021 now.

Now I'd like to offer some concluding comments.

And our active evolution of the pandemic remains uncertain given the COVID-19 Delta variant and worsening trends around new cases, and hospitalizations. This uncertainty has negatively impacted energy equities during the month of July due to concerns around growth prospects and the potential negative impact.

And on demand. However, you U S crude oil inventories drew considerably during the second quarter, leaving the U S. At 4 and a 36 million barrels in inventory as of July 23rd which is about 7% below the 5 year range of crude oil prices.

And prior to a stabilized in the 68 to $73 per barrel range. Following the supply agreement ultimately reach by OPEC plus earlier this month.

Oil states will continue to conduct safe operations, and well remain focused on providing technology leadership.

And our various product and service offerings with value added products and services to meet customer demands globally as we recover from the harsh effects of the COVID-19 pandemic and.

In addition, we will continue our product development efforts to support and margin renewable and.

And clean Tech energy investment.

Opportunities.

That completes our prepared comments the naira would you open the call up for questions and answers at this time.

And.

Absolutely. Thank you we will now begin the question and answer session.

If you have a question. Please press Star then 1 on your Touchtone phone, if you're using the speaker phone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then 1 on your Touchtone phone.

Waiting on standby for any questions.

Okay.

And our first question comes from Stephen <unk> from Stifel. Please go ahead. Your line is open.

Thanks, Good morning.

Good morning, Steven.

So 2 things if you don't mind the first.

You talked.

And the about the under absorption and downhole and the quarter and I was just curious if you could talk about kind of from these levels of the sort of incrementals, we might be looking at and if theres any any positive pricing trends that youre seeing and that business yet.

Sure.

The market.

You're right margins and our downhole technologies.

Segment were negatively impacted by called out weather events, either lightning strikes and out of shaped charge manufacturing facilities, we had a lot of shut down and so there's inefficiencies.

And in the quarter, but I would add to that that there's a general.

The lack of pricing power and the perforating product line, coupled with the bit of inflation and so and our outlook right now it's kind of very modestly and parade of sequential margins in Q3 with a little more upside in Q4, as we kind of manage through.

That was the facts.

Great. Thank you and when and when you and you referenced in the remarks, and then and on your and your press release as far as sort of focusing in on the the the growth businesses with the best sort of long term return profiles and do you envision this as just sort of a strategy of of how you allocate growth capital.

Going forward or would you envision any sort of strategic divestitures or anything of that nature.

We are and if you.

Can see throughout the first 6 months, we're really focusing both on product line and region and doing our very best that kind of the sub product line to allocate.

<unk> capital, where we're confident we're going to get good returns and we are assessing and.

And kind of marginal operations and trying to trim out our indirect cost and <unk>.

And as an example, there are there are very few adjustments to reported EBITDA, but most of this of virtually all of it is.

See I did with exiting a leased facility.

Facilities that we believe have no no longer benefit our utility so again, eliminating those costs prospectively help the individual product lines and report a stronger margins overall and so to say that there's a big egg.

The sale of a business the answer is no.

And we've trimmed out businesses that are not making all of our don't look like they will make positive EBITDA contributions and so I think the good news for the company and the employees as a lot of this is behind US now and we are going to allocate capital to the higher return we.

Set of fats and thresholds and I think what this industry has done wrong for many years at least the lack of last decade is allocate too much capital to equipment, therefore, destroying market share and pricing and I don't think I'm alone in saying, we're gonna be controlled about that gross cash flow.

Going forward.

Thank you and then if I could throw in more and more.

We're hearing more and I'm curious your thoughts on this that day.

2020, 2 sort of of 15% ish or more.

Our growth rate and upstream Capex and the North American markets.

And looking.

And likely or at least pretty possible.

And that environment.

How should we think about the growth rates of your businesses relative to.

And even if it's not 15% just relative to the market in general.

So you know I guess my comment there is 1 I I generally agree with.

And I think it's supported by a couple of things number 1 you've seen and inquiries and active activity driven by private and thus far typically those private don't manage a lot of hedging activity and the portfolio and outside of their generally investing based on economic decision makings and at these current.

Current levels of W. T I pricing I think it's beneficial for them to do that and based on indications from our customers even as early as the second half of this year and much less 2022, we do see continued improvement as I mentioned in my notes and I would add to that again, we track a lot of.

That a public kind of larger public companies as well and many are hedged at much lower than current current pricing level. So as those hedges roll off it certainly seems to support well port your thesis that the 15% overall growth right and the industry Capex, So I would say that.

Of the kind of number 1 for US you know if you look at our product line of Incrementals completion services. As an example, they were very very strong and I think all of the activities. We've got youre going to get the revenue leverage utilization leverage coupled with benefit of these costs.

Cost initiatives, there and rationalization plans that we've put in place. So I do think those incrementals and both completion services and downhole should be strong going forward are we had a good quarter and our offshore products business I think our outlook is continuing to improve but I mentioned that by the ex.

Ah patients that we go north of a 1.

Times book to Bill and Q3 going forward and there's quite a lot of large projects and the pipeline that bodes fairly well for 2022. So at this point my expectation is that every single product line and praise and.

In 2022, and well bring forward and pretty strong incrementals because of the initiatives that have been put in place really over the last 6 quarters as we've gone through this COVID-19 induced challenge.

Great that's great color. Thank you.

Thank you Steven Thanks.

Steven.

Thank you and we have no further questions at this time I'd like to turn the call back over to Alan.

And this is Cindy I just want to thank all of you for joining our call. The day, we deeply appreciate your interest and oil states and your continued dedication and support of.

And the industry I do wish you. Good luck as you continue through the remainder of the earnings season, and I wish you all of the beds. Thank you.

Thank you and thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

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