Q1 2022 Oil States International Inc Earnings Call
Welcome to the oil States International first quarter 2021, 2022 earnings call. My name is John and I'll. Your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you do have a COO.
<unk>.
Zero then one on your Touchtone phone, if you wish to be removed from the queue Press zero then too.
Please note that this conference is being recorded.
And I will now turn the call over to Ellen Pennington, how long you may begin.
Thank you John Good morning, and welcome to oil States' first quarter 2022 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 forward looking.
Shipments 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 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 one and a half hours. After the completion of this call and will be available we will continue to be available for one month.
I will now turn the call over to Cindy.
Thank you Ellen and good morning, and thank you for joining our conference call, where we will discuss our first quarter 2022 results and provide our thoughts on the market outlook. During the first quarter of 2022, the company generated revenues of $164 million in consolidated EBITDA.
A $14 5 million, representing sequential increases of 2% and 8% respectively, driven by the improved commodity price environment driving strong activity in the United States, along with a favorable sales mix in our offshore manufactured products segment.
Our results were tempered somewhat by ongoing challenges associated with the COVID-19, pandemic, including labor tightness in supply chain disruptions.
Key highlight in the first quarter was a 14% sequential increase in our offshore manufactured products segment EBITDA, coupled with another quarter of strong orders booked into backlog, yielding a one one times book to bill ratio for the period.
Spanning global economic activity and increasing backlog level support a stronger outlook for this segment going forward during the first quarter of 2022, the industry experienced a 2% sequential quarterly increase in the average U S frac spread count compared to the same.
Period in 2021, the average U S frac spread count has increased over 70%.
Increases in U S completion activity favorably impacted all of our segments.
Increased completion activity in the United States and international Perforating product sales led to a 23% sequential increase in our downhole technologies segment revenues and our well site services segment revenues increased 11% sequentially due primarily to higher <unk>.
Customer activity in our U S mid continent, and Gulf Coast regions tightness in oil and gas markets led to strong demand for our products and services, particularly in March, causing us to exit the quarter strong completion activity in the United States Shell basins continues to increase.
And the outlook for the balance of 2022 looks very constructive for continued growth.
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 $164 million consolidated EBITDA of $14 5 million and a net loss of $9 4 million or <unk> 16 per share.
We achieved our highest quarterly revenues in consolidated EBITDA since the first quarter of 2020, which coincided with the onset of the COVID-19 pandemic.
Our first quarter loss was impacted by $3 $4 million of tax expense, resulting from valuation allowances recorded against our U S deferred tax assets as.
As well as certain non deductible and discrete items.
We ended the first quarter was $39 million of cash on hand.
<unk> to $53 million at the end of the fourth quarter.
The quarterly decrease in cash was attributable to a $21 million build in working capital.
Associated with the growth in activity levels.
As of March 31, no borrowings were outstanding under our asset based revolving credit facility.
And amounts available to be drawn totaled $51 million.
Which together with cash on hand.
Resulted in available liquidity of $90 million.
At March 31, our net debt totaled $140 million.
Yielding a net debt to total capitalization ratio of 17%.
We invested $3 million in capital expenditures during the first quarter.
Which was partially offset by proceeds received from the sale of assets totaling $1 million.
In 2022, we expect to invest approximately 25 million to support the expected market expansion.
Separately on April 14th our offshore manufactured products segment acquired E flow control Holdings Ltd, or <unk> flow for $8 6 million, which was funded with cash on hand.
He flows a U K based global provider of fully integrated handling control monitoring and instrumentation solutions.
For the first quarter, our net interest expense totaled $2 7 million.
Of which 5 million was noncash amortization of debt issuance costs.
Our cash interest expense as a percentage of average total debt outstanding was approximately 5% in the first quarter.
In terms of our second quarter 2022 consolidated guidance, we expect depreciation and amortization expense to totaled $17 3 million.
Net interest expense totaled $2 8 million.
And our corporate expenses are projected to totaled $9 5 million.
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.
Our offshore manufacturer product segment generated revenues of $84 million and segment EBITDA of $15 6 million in the first quarter of 2022 compared to revenues of 92 million and adjusted segment EBITDA of $13 7 million reported in the fourth quarter of 2002.
<unk> one segment revenues decreased 9% sequentially, driven primarily by 22% decrease in project driven revenues due to the timing of the underlying project schedules.
Our EBITDA margin improved in the first quarter of 2022% to 19% compared to 15% realized in the fourth quarter of 2021 due to product and service mix. During the first quarter of 2022. The segment recorded bad debt expense of 800000.
In dollars on receivables from Russia based customers as of March 31, we had no material balance sheet exposure to Russia.
Backlog totaled $265 million as of quarter end at 2% sequential increase culminating in our highest backlog level achieved since the first quarter of 2021st quarter 2022 bookings totaled $93 million, yielding a quarterly book to bill ratio of one <unk>.
One time we.
We have achieved a quarterly book to bill ratio in excess of one times and four of the last five quarters. Our first quarter bookings were broad based across many product lines and regions approximately 13% up our first quarter bookings were tied to non oil and gas projects for nearly.
80 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 environments as the world expanse investment and alternative energy sources, we will.
Be working diligently to translate our core competencies into the renewable and clean Tech energy 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 military customers, while experience an increase in bidding to support multiple new customers actively involved in subsea minerals offshore wind developments in other renewable and clean Tech energy systems globally.
In our well site services segment, we generated revenues of $48 million and segment EBITDA of $5 5 million in the first quarter of 2022 compared to revenues of $43 million and adjusted segment EBITDA of $6 2 million reported in the fourth quarter of 2021.
Segment EBITDA margin in the first quarter of 2022 decreased to 11% compared to the adjusted segment EBITA margin at 14% recorded in the fourth quarter of 2021.
Revenue mix seasonal events and inflationary pressures tempered overall first quarter segment EBITDA margins given the strong exit right out of the first quarter, we expect our second quarter 2022, EBITDA margins to exceed 15% given increased personnel and it.
Equipment utilization.
During 2021, we made strategic decisions to exit certain nonperforming service offerings. Within this segment first quarter revenues were tempered by our exit of these underperforming service offerings, which resulted in a $3 9 million reduction in revenues compared to the fourth quarter of 2000.
'twenty, one considering all well site services lines that were exited both domestically and internationally, we have streamlined our operations and we'll allocate capital going forward to our strongest equipment and service offerings. These service lines and region exits will temper our revenues going forward, but are.
It to improve segment margins over time, we remain focused on optimizing our operations and pursuing profitable activity in support of our global customer base as market expansion opportunities continue to unfold in 2022, we will continue to focus on core areas of experts.
<unk> in this segment and are actively developing improved equipment offerings to differentiate our completions service offerings.
In our downhole technologies segment, we reported revenues of $32 million and segment EBITDA of $2 9 million in the first quarter of 2022 compared to revenues of 26 million and adjusted segment EBITDA at 100000 reported in the fourth quarter of 2021.
Driven by higher demand internationally for our perforating products, along with improved U S sales of our completion products, including Frac plugs and taobao.
I meant EBITDA margin in the first quarter of 2022 was 9% compared to an adjusted segment EBITDA margin of 1% in the fourth quarter of 2021.
COVID-19, disruptions and supply chain challenges have hampered activity in domestic and international markets for two years now, but these disruptions appear to be easing global oil and gas inventories are now well below their pre pandemic five year seasonal averages leading to higher commodity prices.
And expectations of continued increases in U S customer spending throughout 2022. We are also seeing an improved outlook in international and offshore markets, which should help support our product and service offerings.
Given improvements in the Frac spread count over the last several quarters, we expect our well site services and downhole technologies segments to continue their growth in 2022 with increasing EBITDA contributions.
Revenues in our offshore manufactured products segment are also expected to improve given increased levels of backlog along with improved short cycle product demand.
Our outlook for the full year 2020 to suggest that our consolidated revenues will increase by 25 plus percent. Accordingly, we are increasing our 2022 full year consolidated EBITDA guidance to a range of 65 to 75.
Millions of dollars.
Now I'd like to offer some concluding comments.
Following the unprecedented demand destruction caused by the global response to the COVID-19 pandemic.
Crude oil and natural gas inventories have now drawn down considerably with expanding economic activity as of April 22nd U S. Crude oil inventory was 414 million barrels, which was about 16% below the five year average Nat.
Natural gas in storage for the same period was 1.5 trillion cubic feet, which was about 17% below the five year average crude oil and natural gas prices have responded to these inventory draws with spot WTS crude oil above a $106 per barrel and natural.
Gas at $7 per M N V to us setting up a very favorable activity outlook for 2022.
Initially the industry responds to higher commodity prices with accelerated shorter cycle investments in the United States, which we are seeing although longer term in nature. We expect these investments to pick up for long lead time projects as well, including those in deep water areas.
Is oil states will continue to conduct safe operations and will remain focused on providing technology leadership and our various product and service offerings with value added products and services available to meet customer demands globally. In addition, we will continue our product development effort.
In support of a margin renewable and clean Tech energy investment opportunities.
That completes our prepared comments John would you open up the call for questions and answers at this time.
Thank you we will now begin the question and answer session. If you do have a question for zero then one on your Touchtone phone.
We should be removed from the queue, Chris into its using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you do have a question considerable then one on your Touchtone phone.
Yeah.
And our first question is from Ian Macpherson from Piper Sandler.
Thank you good morning, Cindy and Lloyd.
And good morning.
So.
With everything improving it seems like products and well site are getting.
Getting back towards.
Reasonable mid cycle margins and downhole has is still tracking at margins that are at a bigger deficit to historical.
Yeah, Hi, it's that you've had before and it just seems like most of the completion services complex has tightened up in a hurry.
Some parts of that complex pricing and margins are going vertical what do you think the opportunity is for an upside surprise with downhole technologies.
And a cycle here with.
With some duration and continue tightness through this year and into next year.
Yes, Ian Thats just a.
Fabulous observation and question and there is no question that the significant decline in activity, we witnessed during 2020 led to.
A more commoditization, if you will of the.
Hull service space and in this case pricing was.
Acute pricing losses were acute during this period. There was also excess inventories, which let everyone to kind of sell at fire sale pricing almost and I always say the one thing that is really challenging to recover is pricing, but we are beginning to see that as the market is tightening.
Up a bit in excess inventories are going out the door and I'll say also for us that mix of domestic product coupled with some international sales it tend to be kind of lumpy quarter to quarter, but if we can get that mix. It's a favorable outcome for us with some of the international sales.
Coming along we are as I said in my commentary projecting improved margins as we progress through.
Through 2022, and it's kind of predicated on all of those factors, but as you know a lot of this comes down to fundamental supply demand and we have been a bit challenged on particularly in our charge production, but hiring labor you hear about it everywhere. There is certain volume based improvements that we can.
Experience if we can.
To get a more consistent stream of labor in our facility. So it's always it's multifaceted, but I always tried initially the Si let's get the topline up you get better absorption and improved margins from that and then we work on pricing, but that's going to be a factor of the competitive landscape, but again we are.
Seeing improvements.
Okay. That's really helpful. Thanks, and then just on the.
The opportunity.
For orders for products.
It seems like we have probably an improving more.
Our opportunity set for.
Our floating production units in Brazil in Guiana.
<unk> continued to grow.
And I would suspect that there is more offshore.
Green shoots.
Other markets as well how do those stack up against your short cycle business in terms of.
The inbound acceleration this year, which do you think could be more of a.
A positive beneficiary to a warmer cycle this year.
You know in our offshore manufactured products segment out there or is it a little bit of international opportunities there, but most of the drivers for short cycle products is still U S. Land are we continue to penetrate international markets, but thank you S land as a driver and therefore youll continue to see.
Improvements in the short cycle piece globally, you hit on a lot of the key developmental programs going on globally and will participate in those I would say that over the last several years not just currently we're much more weighted to.
New development programs that are underway, particularly in Brazil in Guyana as you mention along with kind of the production services side of it.
I hope, we see more on the kind of exploratory or green shoot side.
But I think that's going to be longer term incoming as opposed to the large development programs that are out there and I do think that the first for us beneficiaries of that will be a little bit about an offshore rig reactivation, particularly around riser equipment and MPD equipment, which we've.
<unk> made some significant R&D investments over the last five years.
MPD equipment and of.
Of course, the riser work that we have done also has.
Carryover benefit into alternative energy opportunities and in fact.
We had some of those are opportunities on the offshore metals recovery side contributing to our 13% mix of kind of non oil and gas.
Opportunities in bookings this quarter, so everything is progressing pretty well.
But short cycle I don't it's hard to say its in the bag, but it's certainly to cut to something that had strong tailwind behind it being U S land based activity and then the.
Fact that we are very present and active in both Brazil, and Guyana and these big development programs is another plus.
Super Thanks Cindy.
Thank you Ian.
And once again, if you do have a question press zero and one on your Touchtone phone.
Our next question is from Steven Chin Girl from Stifel.
Oh, Thanks, good morning.
Thanks Steven.
So I guess two things for me the first public pretty simple and you talked a little bit about this but when you. When you think about the the uptick in your in your revenue guide for the year and an EBITDA expectation.
Yeah.
What are the main drivers and is it in.
I imagine part of it is just a higher level of confidence that activity has been moving higher but just curious if you could sort of highlight.
Highlight the main changes on the upside to your forecast.
Yeah for sure.
We've got a lot of initiatives in place in the U S and again always the case, when a market and flex up or down the U S short cycle as the initial beneficiary and what our commentary hopefully was clear that we built revenue and our EBITDA.
<unk> throughout the quarter. So we're looking at exit right March to help solidify that upside outlook going into Q3, and the balance of Q2 and the balance of 2022 and that is both well site services and our downhole technologies segment and short cycle quite frankly in our.
Offshore manufactured products segment. So you can't always reticent to say those are in the bag, but if activity continues as it should and as we expect yes.
Pretty strong confidence in our guidance, there and I've been very clear with my team that the first thing we need to do is improve personnel and equipment utilization. Our incrementals are strong they will lead to higher margins.
Over time without question and so we've been very very focused on targeting new customer activities in various basins and some of that equipment is already being quote unquote locked up and so again, a pretty high degree of confidence when I go to offshore manufactured products, we've kind of covered short cycle.
And said that that's got strong tailwind and then I'm looking at my book to Bill ratio, which is Lloyd suggested was positive in the light for the last five quarters. So that backlog is creeping up which gives us better project.
Our visibility as we move forward then that the only variables left are the level of service activity that we will see which again should ramp with ramping a major project activity as well coupled with the kind of military and alternative energy investments, we have I will acknowledge.
Not so much the military but the alternatives are very lumpy right now because they're so early stage are you might have no contribution in one quarter and then a real good order another quarter and but I think we're doing all the right things in terms of customer contact activity and importantly.
The research and development spending we're doing I think we're putting in.
Products and services that are going to be needed longer term, both in conventional areas as well as.
Alternative type investments.
Great that's helpful.
I'm not exactly sure how to ask this but when I think about like the U S pressure pumping business.
It's it's fairly easy to sort of think about supply and demand and pricing trends and we kind of have a sense for how many frac fleets are working et cetera, but I'm just curious.
On the wealth side.
Could you give us some.
Some commentary on how to think about the sort of the supply demand.
Currently and sort of the competitive landscape and pricing dynamics.
Yeah, I can now I'll acknowledge its a challenge even for us to track the various.
Nobody just reports number of units whether their frac heads, whether its isolation tools whether it's.
Flowback assets at unite drill out assets and so.
What I can tell you is that we are not alone and exiting and divesting non profitable business lines and that's on the one hand, which means those who are left in those businesses will have a tighter market going forward. There's also not a lot of capital chasing new investments in this space.
As in past years once you get to create north of 100 money would private equity money, particularly would be flooding. This industry that is not the case and so again that just lends itself to a more fundamentally tighter market and it lends itself to better utilization, which we need quiet.
Frankly in our own space and so we're being very targeted with the customers. We are seeking that habits will offer us more continuous utilization of both our people and equipment. My concern is not necessarily getting that the equipment back to work in this environment are facing a lot of new market entrants it's more.
How quickly can I wrap the people side of the business to ensure that we can grow that top line as much as we would like to and as much as our customers want us to.
Great. Thank you for the color and then just one final.
Maybe for Lloyd when we think about the cash.
The cash flow statement for the year.
Where should we think about sort of the puts and takes as far as working capital uses of cash as revenues grow and how that sort of impacts the.
The free cash flow expectations.
Yeah, you know I mentioned, we built working capital of $21 million in the first quarter, which that's kind of a typical seasonal quarter, where we use more working capital.
As operations are continuing to improve we'll probably build a little bit more in the second quarter is going to moderate for the full year kind of the back half of the year do you expect to be free cash flow positive after the $25 million of.
Capex as well as the the $8 $6 million, we used to fund the <unk> acquisition. So.
Okay.
Thanks, and then maybe just one final one.
You mentioned, how does the flow.
Fit into the to the to the mix and where does where does that sort of add to the offering.
What is really a higher tech offering that is more of a vertical integration at this point many of our products, particularly our newer higher end products on the.
The MPD equipment as an example, some of our alternative energy investments need the control system and snakes think of the smarter pieces of this equipment, which we have outsourced in the past that we are bringing that technology in house to further leverage our technical capabilities around these <unk>.
<unk>.
Great. Thank you.
Thank you Steven.
And we have no further questions at this time I will now turn the call back over to Cindy for closing remarks.
John Thank you for hosting our call today and we also appreciate those of you who have joined the call. Today. We do recognize this is a heavy earnings reporting period and appreciate your continued interest in oil states. We hope you all have a great day. Thanks, so much.
Thank you ladies and gentlemen that concludes today's conference. Thank you for participating you may now disconnect speakers standby a few debrief.
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