Oil States International(OIS) - 2019 Q1 - Quarterly Report

Part I -- FINANCIAL INFORMATION This section covers financial statements, management's analysis, market risk, and internal control effectiveness Item 1. Financial Statements Q1 2019 saw a net loss of $14.6 million, total assets of $2.02 billion, and positive operating cash flow Unaudited Consolidated Statements of Operations The statements detail a slight revenue decrease to $250.6 million and a widened net loss of $14.6 million for Q1 2019 Consolidated Statements of Operations (Q1 2019 vs Q1 2018) | Financial Metric | Three Months Ended March 31, 2019 (In Thousands) | Three Months Ended March 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Total Revenues | $250,611 | $253,576 | | Operating Loss | $(10,840) | $(914) | | Loss Before Income Taxes | $(14,925) | $(4,721) | | Net Loss | $(14,648) | $(3,492) | | Diluted Net Loss Per Share | $(0.25) | $(0.06) | - Total revenues slightly decreased to $250.6 million in Q1 2019 from $253.6 million in Q1 2018, primarily due to a decline in product revenues from $128.8 million to $116.3 million, while service revenues increased from $124.8 million to $134.3 million[10] Consolidated Balance Sheets The balance sheet shows total assets of $2.02 billion and total stockholders' equity of $1.43 billion as of March 31, 2019 Consolidated Balance Sheet Highlights | Account | March 31, 2019 (In Thousands) | December 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Total Current Assets | $508,825 | $534,031 | | Total Assets | $2,017,227 | $2,003,821 | | Total Current Liabilities | $179,627 | $181,034 | | Total Liabilities | $589,583 | $564,053 | | Total Stockholders' Equity | $1,427,644 | $1,439,768 | - The company adopted new lease guidance on January 1, 2019, recognizing $49.2 million in operating lease assets and corresponding current ($8.7 million) and long-term ($40.3 million) operating lease liabilities on the balance sheet as of March 31, 2019[14][15][26] Unaudited Consolidated Statements of Cash Flows The statements show a positive operating cash flow of $34.3 million, a significant improvement from the prior year's usage Consolidated Statements of Cash Flows (Q1 2019 vs Q1 2018) | Cash Flow Activity | Three Months Ended March 31, 2019 (In Thousands) | Three Months Ended March 31, 2018 (In Thousands) | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $34,292 | $(12,251) | | Net Cash Used In Investing Activities | $(17,858) | $(393,663) | | Net Cash Provided By (Used In) Financing Activities | $(20,409) | $377,217 | | Net Change in Cash and Cash Equivalents | $(4,007) | $(28,314) | - The significant decrease in cash used for investing activities in Q1 2019 compared to Q1 2018 is due to the absence of major acquisitions, as Q1 2018 included $379.7 million for business acquisitions (GEODynamics and Falcon)[20][156] - Cash from financing activities in Q1 2018 was high due to the issuance of $200 million in convertible senior notes and net borrowings of $188 million on the revolving credit facility to fund acquisitions[20][160] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide details on significant business acquisitions, long-term debt, segment operating performance, and contingent liabilities - Business Acquisitions (2018): In Q1 2018, the company acquired GEODynamics for $615.3 million and Falcon Flowback Services for $84.2 million, significantly impacting year-over-year comparability[29][30] - Long-Term Debt: As of March 31, 2019, total debt was $317.6 million, primarily consisting of $118.4 million under the revolving credit facility and $168.9 million (net carrying amount) of 1.50% convertible senior notes[45] - Segment Performance: For Q1 2019, Well Site Services reported an operating loss of $8.1 million, Downhole Technologies reported operating income of $4.1 million, and Offshore/Manufactured Products reported operating income of $5.3 million[83] - Contingencies: The company is reviewing potential anti-dumping and countervailing duties on steel products imported by the acquired GEODynamics business, but is indemnified by the seller and can set-off payments against a $25 million promissory note[88] Cautionary Statement Regarding Forward-Looking Statements This statement warns that forward-looking information is subject to risks, including commodity price volatility, industry cyclicality, and global economic conditions - The report contains forward-looking statements identified by words like "may," "will," "believe," "expect," etc., which are subject to risks and uncertainties[95] - Key risk factors include the supply and demand for oil and gas, commodity price fluctuations, the cyclical nature of the industry, customer capital spending, and the impact of tariffs and duties[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 performance, attributing it to a volatile macroeconomic environment, widened operating loss, and sufficient liquidity Overview and Macroeconomic Environment The energy sector experienced volatility with a Q4 2018 oil price decline impacting customer spending and rig counts - The energy sector has been volatile, with crude oil prices declining approximately 40% in Q4 2018, moderating customer spending in U.S. shale plays and causing the average U.S. rig count to decrease 3% in Q1 2019 compared to Q4 2018[109][110] - Deepwater project award potential appears to be improving, with the Offshore/Manufactured Products segment backlog increasing by $55 million during Q1 2019 to $234 million, its highest level since Q2 2016[126] Results of Operations This section details segment-specific revenues and operating income or loss, highlighting varied performance across business units Segment Revenues and Operating Income (Loss) (Q1 2019 vs Q1 2018) | Segment | Revenues Q1 2019 (In Thousands) | Revenues Q1 2018 (In Thousands) | Operating Income (Loss) Q1 2019 (In Thousands) | Operating Income (Loss) Q1 2018 (In Thousands) | | :--- | :--- | :--- | :--- | :--- | | Well Site Services | $108,392 | $100,399 | $(8,053) | $(6,782) | | Downhole Technologies | $54,290 | $45,781 | $4,054 | $8,054 | | Offshore/Manufactured Products | $87,929 | $107,396 | $5,259 | $12,452 | | Corporate | N/A | N/A | $(12,100) | $(14,638) | | Total | $250,611 | $253,576 | $(10,840) | $(914) | - Well Site Services revenue increased 8% due to the full-quarter impact of the Falcon acquisition, but its operating loss widened by 19% due to a significant reduction in demand for Drilling Services[144][145] - Downhole Technologies operating income declined 50% despite a 19% revenue increase, attributed to competitive pricing pressures, higher unabsorbed manufacturing costs, and expansion of field support[146][147] - Offshore/Manufactured Products revenue decreased 18% and operating income fell 58% due to lower sales of project-driven and short-cycle products, coupled with higher unabsorbed manufacturing costs[148][149] Liquidity and Capital Resources The company generated $34.3 million in operating cash flow, with $133.1 million available under its revolving credit facility - The company generated $34.3 million in cash from operations in Q1 2019, a significant improvement from the $12.3 million used in Q1 2018, primarily due to a $13.3 million decrease in net working capital[154] - Capital expenditures were $17.9 million in Q1 2019, with an expectation to spend a total of $65 million to $70 million for the full year 2019[158][159] - As of March 31, 2019, the company had $120.2 million of borrowings outstanding under its Revolving Credit Facility, with $133.1 million available to be drawn[164] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risks include interest rate exposure on floating-rate debt and foreign currency fluctuations, notably with the British pound - The company is exposed to interest rate risk on its floating-rate obligations under the Revolving Credit Facility, which totaled $120.2 million as of March 31, 2019[175] - A hypothetical 1% increase in floating interest rates would result in an approximate $1.2 million annual increase in interest expense[175] - Foreign currency exchange risk primarily affects the translation of international operations' financial statements into U.S. dollars, with the British pound being a key currency, leading to a $2.5 million gain in other comprehensive income for Q1 2019[177] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, incorporating the GEODynamics acquisition - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[179] - Effective January 1, 2019, the company integrated the internal controls of GEODynamics (acquired in January 2018) into its overall assessment of disclosure controls and procedures[180] Part II -- OTHER INFORMATION This section addresses legal proceedings, updates on risk factors, equity security transactions, and a list of filed exhibits Item 1. Legal Proceedings The company is involved in various legal claims but does not anticipate a material adverse effect on its financial position - The company is party to various pending claims and lawsuits in the ordinary course of business but does not believe the ultimate liability will have a material adverse effect[90][184] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2018 Form 10-K - No material changes have occurred to the risk factors disclosed in the company's 2018 Form 10-K[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 51 thousand shares for $0.8 million under its share repurchase program, with $119.8 million remaining available Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Jan 2019 | 40,321 | $16.49 | — | $120,544,560 | | Feb 2019 | 163,381 | $18.02 | — | $120,544,560 | | Mar 2019 | 50,915 | $14.87 | 50,800 | $119,788,435 | - The company repurchased 50,800 shares under its public repurchase program in March 2019, and acquired an additional 203,817 shares from employees to settle tax obligations related to vested restricted stock[186] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files[191]