UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number: 001-16337
OIL STATES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | 76-0476605 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
| |
Three Allen Center, 333 Clay Street | |
Suite 4620 | 77002 |
Houston, | Texas | (Zip Code) |
(Address of principal executive offices) | |
(713) 652-0582
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | OIS | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of April 22, 2022,21, 2023, the number of shares of common stock outstanding was 61,890,985.64,254,578.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Part I – FINANCIAL INFORMATION | Part I – FINANCIAL INFORMATION | | | Part I – FINANCIAL INFORMATION | |
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Item 1. Financial Statements: | Item 1. Financial Statements: | | | Item 1. Financial Statements: | |
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Condensed Consolidated Financial Statements | Condensed Consolidated Financial Statements | | | Condensed Consolidated Financial Statements | |
Unaudited Consolidated Statements of Operations | Unaudited Consolidated Statements of Operations | | Unaudited Consolidated Statements of Operations | |
Unaudited Consolidated Statements of Comprehensive Loss | | |
Unaudited Consolidated Statements of Comprehensive Income (Loss) | | Unaudited Consolidated Statements of Comprehensive Income (Loss) | |
Consolidated Balance Sheets | Consolidated Balance Sheets | | Consolidated Balance Sheets | |
Unaudited Consolidated Statements of Stockholders' Equity | Unaudited Consolidated Statements of Stockholders' Equity | | Unaudited Consolidated Statements of Stockholders' Equity | |
Unaudited Consolidated Statements of Cash Flows | Unaudited Consolidated Statements of Cash Flows | | Unaudited Consolidated Statements of Cash Flows | |
Notes to Unaudited Condensed Consolidated Financial Statements | Notes to Unaudited Condensed Consolidated Financial Statements | | – | 18 | Notes to Unaudited Condensed Consolidated Financial Statements | | – | 16 |
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Cautionary Statement Regarding Forward-Looking Statements | Cautionary Statement Regarding Forward-Looking Statements | | – | | Cautionary Statement Regarding Forward-Looking Statements | | – | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | – | | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | – | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | Item 3. Quantitative and Qualitative Disclosures About Market Risk | | Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | Item 4. Controls and Procedures | | Item 4. Controls and Procedures | |
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Part II – OTHER INFORMATION | Part II – OTHER INFORMATION | | | Part II – OTHER INFORMATION | |
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Item 1. Legal Proceedings | Item 1. Legal Proceedings | | Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | Item 1A. Risk Factors | | Item 1A. Risk Factors | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 3. Defaults Upon Senior Securities | Item 3. Defaults Upon Senior Securities | | Item 3. Defaults Upon Senior Securities | |
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Item 4. Mine Safety Disclosures | Item 4. Mine Safety Disclosures | | Item 4. Mine Safety Disclosures | |
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Item 5. Other Information | Item 5. Other Information | | Item 5. Other Information | |
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Item 6. Exhibits | Item 6. Exhibits | | Item 6. Exhibits | |
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Signature Page | Signature Page | | Signature Page | |
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | | | 2023 | | 2022 | |
Revenues: | Revenues: | | | | | | Revenues: | | | | | |
Products | Products | | $ | 85,761 | | | $ | 61,445 | | | Products | | $ | 99,840 | | | $ | 85,761 | | |
Services | Services | | 78,283 | | | 64,144 | | | Services | | 96,359 | | | 78,283 | | |
| | | 164,044 | | | 125,589 | | | | | 196,199 | | | 164,044 | | |
| Costs and expenses: | Costs and expenses: | | | | Costs and expenses: | | | |
Product costs | Product costs | | 64,801 | | | 49,463 | | | Product costs | | 78,677 | | | 64,801 | | |
Service costs | Service costs | | 61,803 | | | 52,847 | | | Service costs | | 72,058 | | | 61,803 | | |
Cost of revenues (exclusive of depreciation and amortization expense presented below) | Cost of revenues (exclusive of depreciation and amortization expense presented below) | | 126,604 | | | 102,310 | | | Cost of revenues (exclusive of depreciation and amortization expense presented below) | | 150,735 | | | 126,604 | | |
Selling, general and administrative expense | Selling, general and administrative expense | | 23,833 | | | 21,225 | | | Selling, general and administrative expense | | 24,016 | | | 23,833 | | |
Depreciation and amortization expense | Depreciation and amortization expense | | 17,817 | | | 21,520 | | | Depreciation and amortization expense | | 15,256 | | | 17,817 | | |
| Impairments of fixed assets | | — | | | 650 | | | |
Other operating (income) expense, net | | 126 | | | (354) | | | |
| | | 168,380 | | | 145,351 | | | |
Operating loss | | (4,336) | | | (19,762) | | | |
Other operating expense, net | | Other operating expense, net | | 317 | | | 126 | | |
| | | | 190,324 | | | 168,380 | | |
Operating income (loss) | | Operating income (loss) | | 5,875 | | | (4,336) | | |
| | Interest expense, net | Interest expense, net | | (2,672) | | | (2,325) | | | Interest expense, net | | (2,391) | | | (2,672) | | |
Other income, net | Other income, net | | 1,025 | | | 3,960 | | | Other income, net | | 276 | | | 1,025 | | |
Loss before income taxes | | (5,983) | | | (18,127) | | | |
Income tax (provision) benefit | | (3,441) | | | 2,317 | | | |
Net loss | | $ | (9,424) | | | $ | (15,810) | | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | 3,760 | | | (5,983) | | |
Income tax provision | | Income tax provision | | (1,602) | | | (3,441) | | |
Net income (loss) | | Net income (loss) | | $ | 2,158 | | | $ | (9,424) | | |
| Net loss per share: | | | | |
Net income (loss) per share: | | Net income (loss) per share: | | | |
Basic | Basic | | $ | (0.16) | | | $ | (0.26) | | | Basic | | $ | 0.03 | | | $ | (0.16) | | |
Diluted | Diluted | | (0.16) | | | (0.26) | | | Diluted | | 0.03 | | | (0.16) | | |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | | | | Weighted average number of common shares outstanding: | | | |
Basic | Basic | | 60,498 | | | 60,098 | | | Basic | | 62,825 | | | 60,498 | | |
Diluted | Diluted | | 60,498 | | | 60,098 | | | Diluted | | 63,072 | | | 60,498 | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In Thousands)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | |
Net loss | | | | | $ | (9,424) | | | $ | (15,810) | | | |
| | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | |
| | | | | | | | | |
Currency translation adjustments | | | | | 861 | | | (1,529) | | | |
| | | | | | | | | |
| | | | | | | | | |
Comprehensive loss | | | | | $ | (8,563) | | | $ | (17,339) | | | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 | | |
Net income (loss) | | | | | $ | 2,158 | | | $ | (9,424) | | | |
| | | | | | | | | |
Other comprehensive income: | | | | | | | | | |
Currency translation adjustments | | | | | 4,149 | | | 861 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Comprehensive income (loss) | | | | | $ | 6,307 | | | $ | (8,563) | | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
| Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 39,158 | | | $ | 52,852 | | Cash and cash equivalents | $ | 15,807 | | | $ | 42,018 | |
Accounts receivable, net | Accounts receivable, net | 194,257 | | | 186,080 | | Accounts receivable, net | 220,202 | | | 218,769 | |
Inventories, net | Inventories, net | 180,886 | | | 168,573 | | Inventories, net | 196,278 | | | 182,658 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 20,238 | | | 19,222 | | Prepaid expenses and other current assets | 18,130 | | | 19,317 | |
Total current assets | Total current assets | 434,539 | | | 426,727 | | Total current assets | 450,417 | | | 462,762 | |
| Property, plant, and equipment, net | Property, plant, and equipment, net | 330,118 | | | 338,583 | | Property, plant, and equipment, net | 306,134 | | | 303,835 | |
Operating lease assets, net | Operating lease assets, net | 26,202 | | | 25,388 | | Operating lease assets, net | 23,828 | | | 23,028 | |
Goodwill, net | Goodwill, net | 76,179 | | | 76,412 | | Goodwill, net | 79,579 | | | 79,282 | |
Other intangible assets, net | Other intangible assets, net | 180,639 | | | 185,749 | | Other intangible assets, net | 165,673 | | | 169,798 | |
Other noncurrent assets | Other noncurrent assets | 30,288 | | | 32,889 | | Other noncurrent assets | 24,506 | | | 25,687 | |
Total assets | Total assets | $ | 1,077,965 | | | $ | 1,085,748 | | Total assets | $ | 1,050,137 | | | $ | 1,064,392 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
Current portion of long-term debt | Current portion of long-term debt | $ | 44,047 | | | $ | 18,262 | | Current portion of long-term debt | $ | 527 | | | $ | 17,831 | |
Accounts payable | Accounts payable | 60,650 | | | 63,343 | | Accounts payable | 73,478 | | | 73,251 | |
Accrued liabilities | Accrued liabilities | 41,541 | | | 43,401 | | Accrued liabilities | 35,414 | | | 49,057 | |
Current operating lease liabilities | Current operating lease liabilities | 6,143 | | | 6,481 | | Current operating lease liabilities | 6,528 | | | 6,142 | |
Income taxes payable | Income taxes payable | 4,857 | | | 2,564 | | Income taxes payable | 3,719 | | | 2,605 | |
Deferred revenue | Deferred revenue | 47,560 | | | 43,236 | | Deferred revenue | 48,969 | | | 44,790 | |
Total current liabilities | Total current liabilities | 204,798 | | | 177,287 | | Total current liabilities | 168,635 | | | 193,676 | |
| Long-term debt | Long-term debt | 134,790 | | | 160,488 | | Long-term debt | 138,484 | | | 135,066 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 24,169 | | | 23,452 | | Long-term operating lease liabilities | 20,912 | | | 20,658 | |
Deferred income taxes | Deferred income taxes | 2,897 | | | 3,637 | | Deferred income taxes | 7,143 | | | 6,652 | |
Other noncurrent liabilities | Other noncurrent liabilities | 23,203 | | | 25,058 | | Other noncurrent liabilities | 19,445 | | | 18,782 | |
Total liabilities | Total liabilities | 389,857 | | | 389,922 | | Total liabilities | 354,619 | | | 374,834 | |
| Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
Common stock, $.01 par value, 200,000,000 shares authorized, 74,573,660 shares and 73,900,160 shares issued, respectively | 746 | | | 739 | | |
Common stock, $.01 par value, 200,000,000 shares authorized, 77,143,220 shares and 76,587,920 shares issued, respectively | | Common stock, $.01 par value, 200,000,000 shares authorized, 77,143,220 shares and 76,587,920 shares issued, respectively | 771 | | | 766 | |
Additional paid-in capital | Additional paid-in capital | 1,106,963 | | | 1,105,135 | | Additional paid-in capital | 1,123,876 | | | 1,122,292 | |
Retained earnings | Retained earnings | 272,143 | | | 281,567 | | Retained earnings | 274,185 | | | 272,027 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (65,170) | | | (66,031) | | Accumulated other comprehensive loss | (74,792) | | | (78,941) | |
Treasury stock, at cost, 12,682,668 and 12,521,834 shares, respectively | (626,574) | | | (625,584) | | |
Treasury stock, at cost, 12,888,342 and 12,684,101 shares, respectively | | Treasury stock, at cost, 12,888,342 and 12,684,101 shares, respectively | (628,522) | | | (626,586) | |
Total stockholders' equity | Total stockholders' equity | 688,108 | | | 695,826 | | Total stockholders' equity | 695,518 | | | 689,558 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,077,965 | | | $ | 1,085,748 | | Total liabilities and stockholders' equity | $ | 1,050,137 | | | $ | 1,064,392 | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2021 | $ | 739 | | | $ | 1,105,135 | | | $ | 281,567 | | | $ | (66,031) | | | $ | (625,584) | | | $ | 695,826 | |
Net loss | — | | | — | | | (9,424) | | | — | | | — | | | (9,424) | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | (3,580) | | | — | | | (3,580) | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 4,441 | | | — | | | 4,441 | |
Stock-based compensation expense: | | | | | | | | | | | |
Restricted stock | 7 | | | 1,828 | | | — | | | — | | | — | | | 1,835 | |
Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (990) | | | (990) | |
Balance, March 31, 2022 | $ | 746 | | | $ | 1,106,963 | | | $ | 272,143 | | | $ | (65,170) | | | $ | (626,574) | | | $ | 688,108 | |
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Three Months Ended March 31, 2023 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2022 | $ | 766 | | | $ | 1,122,292 | | | $ | 272,027 | | | $ | (78,941) | | | $ | (626,586) | | | $ | 689,558 | |
Net income | — | | | — | | | 2,158 | | | — | | | — | | | 2,158 | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | 3,494 | | | — | | | 3,494 | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 655 | | | — | | | 655 | |
Stock-based compensation expense | 5 | | | 1,584 | | | — | | | — | | | — | | | 1,589 | |
Surrender of stock to settle taxes on stock awards | — | | | — | | | — | | | — | | | (1,936) | | | (1,936) | |
Balance, March 31, 2023 | $ | 771 | | | $ | 1,123,876 | | | $ | 274,185 | | | $ | (74,792) | | | $ | (628,522) | | | $ | 695,518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2020 | $ | 733 | | | $ | 1,122,945 | | | $ | 329,327 | | | $ | (71,385) | | | $ | (623,989) | | | $ | 757,631 | |
Net loss | — | | | — | | | (15,810) | | | — | | | — | | | (15,810) | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | 1,068 | | | — | | | 1,068 | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | (2,597) | | | — | | | (2,597) | |
Stock-based compensation expense: | | | | | | | | | | | |
Restricted stock | 5 | | | 2,815 | | | — | | | — | | | — | | | 2,820 | |
Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (1,500) | | | (1,500) | |
Adoption of ASU 2020-06 | — | | | (25,683) | | | 16,233 | | | — | | | — | | | (9,450) | |
Balance, March 31, 2021 | $ | 738 | | | $ | 1,100,077 | | | $ | 329,750 | | | $ | (72,914) | | | $ | (625,489) | | | $ | 732,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2021 | $ | 739 | | | $ | 1,105,135 | | | $ | 281,567 | | | $ | (66,031) | | | $ | (625,584) | | | $ | 695,826 | |
Net loss | — | | | — | | | (9,424) | | | — | | | — | | | (9,424) | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | (3,580) | | | — | | | (3,580) | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 4,441 | | | — | | | 4,441 | |
Stock-based compensation expense | 7 | | | 1,828 | | | — | | | — | | | — | | | 1,835 | |
Surrender of stock to settle taxes on stock awards | — | | | — | | | — | | | — | | | (990) | | | (990) | |
Balance, March 31, 2022 | $ | 746 | | | $ | 1,106,963 | | | $ | 272,143 | | | $ | (65,170) | | | $ | (626,574) | | | $ | 688,108 | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net loss | $ | (9,424) | | | $ | (15,810) | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Net income (loss) | | Net income (loss) | $ | 2,158 | | | $ | (9,424) | | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | | Adjustments to reconcile net income (loss) to net cash used in operating activities: | | |
Depreciation and amortization expense | Depreciation and amortization expense | 17,817 | | | 21,520 | | | Depreciation and amortization expense | 15,256 | | | 17,817 | | |
| Impairments of fixed assets | — | | | 650 | | | |
| Stock-based compensation expense | Stock-based compensation expense | 1,835 | | | 2,820 | | | Stock-based compensation expense | 1,589 | | | 1,835 | | |
Amortization of debt discount and deferred financing costs | 469 | | | 895 | | | |
Deferred income tax benefit | (174) | | | (2,710) | | | |
Amortization of deferred financing costs | | Amortization of deferred financing costs | 449 | | | 469 | | |
Deferred income tax provision (benefit) | | Deferred income tax provision (benefit) | 396 | | | (174) | | |
| Gains on extinguishment of 1.50% convertible senior notes | — | | | (3,637) | | | |
| Gains on disposals of assets | Gains on disposals of assets | (543) | | | (307) | | | Gains on disposals of assets | (210) | | | (543) | | |
Other, net | Other, net | 550 | | | 285 | | | Other, net | 17 | | | 550 | | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | | |
Accounts receivable | Accounts receivable | (9,086) | | | (10,701) | | | Accounts receivable | (745) | | | (9,086) | | |
Inventories | Inventories | (13,090) | | | (3,890) | | | Inventories | (12,802) | | | (13,090) | | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | (4,555) | | | 1,648 | | | Accounts payable and accrued liabilities | (18,329) | | | (4,555) | | |
| Deferred revenue | Deferred revenue | 4,324 | | | (206) | | | Deferred revenue | 4,179 | | | 4,324 | | |
Other operating assets and liabilities, net | Other operating assets and liabilities, net | 1,142 | | | 1,026 | | | Other operating assets and liabilities, net | 2,124 | | | 1,142 | | |
Net cash flows used in operating activities | Net cash flows used in operating activities | (10,735) | | | (8,417) | | | Net cash flows used in operating activities | (5,918) | | | (10,735) | | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | Cash flows from investing activities: | | |
Capital expenditures | Capital expenditures | (2,858) | | | (4,120) | | | Capital expenditures | (6,568) | | | (2,858) | | |
Proceeds from disposition of property and equipment | Proceeds from disposition of property and equipment | 869 | | | 1,851 | | | Proceeds from disposition of property and equipment | 223 | | | 869 | | |
| Other, net | Other, net | (67) | | | (95) | | | Other, net | (48) | | | (67) | | |
Net cash flows used in investing activities | Net cash flows used in investing activities | (2,056) | | | (2,364) | | | Net cash flows used in investing activities | (6,393) | | | (2,056) | | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | Cash flows from financing activities: | | |
Revolving credit facility borrowings | Revolving credit facility borrowings | 367 | | | 12,220 | | | Revolving credit facility borrowings | 27,865 | | | 367 | | |
Revolving credit facility repayments | Revolving credit facility repayments | (367) | | | (24,220) | | | Revolving credit facility repayments | (22,865) | | | (367) | | |
Issuance of 4.75% convertible senior notes | — | | | 135,000 | | | |
Purchases of 1.50% convertible senior notes | — | | | (120,000) | | | |
| Repayment of 1.50% convertible senior notes | | Repayment of 1.50% convertible senior notes | (17,315) | | | — | | |
Other debt and finance lease repayments, net | Other debt and finance lease repayments, net | (165) | | | (145) | | | Other debt and finance lease repayments, net | (106) | | | (165) | | |
Payment of financing costs | Payment of financing costs | (68) | | | (7,961) | | | Payment of financing costs | (21) | | | (68) | | |
Shares added to treasury stock as a result of net share settlements due to vesting of stock awards | Shares added to treasury stock as a result of net share settlements due to vesting of stock awards | (990) | | | (1,500) | | | Shares added to treasury stock as a result of net share settlements due to vesting of stock awards | (1,936) | | | (990) | | |
Net cash flows used in financing activities | Net cash flows used in financing activities | (1,223) | | | (6,606) | | | Net cash flows used in financing activities | (14,378) | | | (1,223) | | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | 320 | | | (111) | | | Effect of exchange rate changes on cash and cash equivalents | 478 | | | 320 | | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (13,694) | | | (17,498) | | | Net change in cash and cash equivalents | (26,211) | | | (13,694) | | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 52,852 | | | 72,011 | | | Cash and cash equivalents, beginning of period | 42,018 | | | 52,852 | | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 39,158 | | | $ | 54,513 | | | Cash and cash equivalents, end of period | $ | 15,807 | | | $ | 39,158 | | |
| Cash paid for: | | | |
Cash paid (received) for: | | Cash paid (received) for: | | |
Interest | Interest | $ | 522 | | | $ | 1,842 | | | Interest | $ | 485 | | | $ | 522 | | |
Income taxes, net | Income taxes, net | 119 | | | 577 | | | Income taxes, net | (2,465) | | | 119 | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. Certain information in footnote disclosures normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair statement of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year.
As further discussed in Note 11, "Commitments and Contingencies," the impact of the Coronavirus Disease 2019 ("COVID-19") pandemic and the related economic, business and market disruptions continue to evolve and their future effects remain uncertain. The actual impact of these developments on the Company will depend on numerous factors, many of which are beyond management's control and knowledge. It is therefore difficult for management to assess or predict with precision the broad future effect of this health crisis on the global economy, the energy industry or the Company. During 2020 and 2021, the Company recorded asset impairments, severance and restructuring charges in response to these developments as further discussed in Note 2, "Asset Impairments and Other Restructuring Items." As additional information becomes available, events or circumstances change and strategic operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows.
The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, reserves on inventory, allowances for doubtful accounts, settlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by the Company as of the specified effective date. Management believes that recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.
The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.2022.
2. Asset Impairments and Other Restructuring Items
In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. As demand for most of the Company's products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, these conditions caused rapid reductions to most of the Company's customers' drilling, completion and production activities and their related spending on the Company's products and services, particularly those supporting activities in the U.S. shale play regions, until the supply/demand imbalances eased. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives, which continued into 2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In this regard, during the first quarter of 2021, the Company continued its restructuring efforts, closed additional facilities in the United States and continued to assess the carrying value of its assets based on management actions and the industry outlook regarding demand for and pricing of its products and services, and recorded the following charges (in thousands):
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| Offshore/ Manufactured Products | | Well Site Services | | Downhole Technologies | | Corporate | | Pre-tax Total | | Tax | | After-tax Total |
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Impairments of fixed assets (Note 3) | $ | — | | | $ | 650 | | | $ | — | | | $ | — | | | $ | 650 | | | $ | 137 | | | $ | 513 | |
Severance and restructuring costs | 282 | | | 1,306 | | | 275 | | | 1,555 | | | 3,418 | | | 717 | | | 2,701 | |
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Additionally, during the first quarter of 2021, the Company recognized $4.8 million in aggregate reductions to payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program.
Should, among other events and circumstances, the ongoing war between Russia and Ukraine escalate or spread, global economic and industry conditions deteriorate, the COVID-19 pandemic business, supply chain and market disruptions worsen, the outlook for future operating results and cash flow for any of the Company's segments decline, income tax rates increase or regulations change, climate and environmental regulations or rules change, costs of equity or debt capital increase, valuation for comparable public companies or comparable acquisition valuations decrease, or management implements strategic decisions based on industry conditions, the Company may need to recognize additional impairment losses and/or other costs in future periods.
3. Details of Selected Balance Sheet Accounts
Additional information regarding selected balance sheet accounts as of March 31, 20222023 and December 31, 20212022 is presented below (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Accounts receivable, net: | Accounts receivable, net: | | | | Accounts receivable, net: | | | |
Trade | Trade | $ | 124,692 | | | $ | 116,434 | | Trade | $ | 163,360 | | | $ | 145,540 | |
Unbilled revenue | Unbilled revenue | 24,368 | | | 24,389 | | Unbilled revenue | 27,849 | | | 29,679 | |
Contract assets | Contract assets | 39,937 | | | 39,755 | | Contract assets | 27,731 | | | 42,599 | |
Other | Other | 10,039 | | | 9,973 | | Other | 6,621 | | | 6,177 | |
Total accounts receivable | Total accounts receivable | 199,036 | | | 190,551 | | Total accounts receivable | 225,561 | | | 223,995 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | (4,779) | | | (4,471) | | Allowance for doubtful accounts | (5,359) | | | (5,226) | |
| | $ | 194,257 | | | $ | 186,080 | | | $ | 220,202 | | | $ | 218,769 | |
| Allowance for doubtful accounts as a percentage of total accounts receivable | Allowance for doubtful accounts as a percentage of total accounts receivable | 2 | % | | 2 | % | Allowance for doubtful accounts as a percentage of total accounts receivable | 2 | % | | 2 | % |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Deferred revenue (contract liabilities) | $ | 47,560 | | | $43,236 |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Deferred revenue (contract liabilities) | $ | 48,969 | | | $ | 44,790 | |
As of March 31, 2022,2023, accounts receivable, net in the United States and the United Kingdom represented 78%75% and 12%, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of March 31, 2022.2023.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For the three months ended March 31, 2022,2023, the $0.2$14.9 million net increasedecrease in contract assets was attributable to $15.3$27.8 million in revenue recognizedtransferred to accounts receivable during the period, which was substantiallypartially offset by $15.1$12.9 million transferred to accounts receivable.in revenue recognized. Deferred revenue (contract liabilities) increased by $4.3$4.2 million in the first three months of 2022,2023, reflecting $10.9$13.2 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $6.6$9.0 million of revenue that was deferred at the beginning of the period.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following provides a summary of activity in the allowance for doubtful accounts for the three months ended March 31, 20222023 and 20212022 (in thousands):
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Allowance for doubtful accounts – January 1 | Allowance for doubtful accounts – January 1 | $ | 4,471 | | | $ | 8,304 | | Allowance for doubtful accounts – January 1 | $ | 5,226 | | | $ | 4,471 | |
Provisions | Provisions | 943 | | | 214 | | Provisions | 133 | | | 943 | |
Write-offs | Write-offs | (635) | | | (116) | | Write-offs | (21) | | | (635) | |
Other | Other | — | | | 143 | | Other | 21 | | | — | |
Allowance for doubtful accounts – March 31 | Allowance for doubtful accounts – March 31 | $ | 4,779 | | | $ | 8,545 | | Allowance for doubtful accounts – March 31 | $ | 5,359 | | | $ | 4,779 | |
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Inventories, net: | Inventories, net: | | | | Inventories, net: | | | |
Finished goods and purchased products | Finished goods and purchased products | $ | 91,215 | | | $ | 87,934 | | Finished goods and purchased products | $ | 95,094 | | | $ | 90,443 | |
Work in process | Work in process | 30,706 | | | 24,722 | | Work in process | 31,632 | | | 32,079 | |
Raw materials | Raw materials | 98,285 | | | 96,357 | | Raw materials | 108,058 | | | 97,817 | |
Total inventories | Total inventories | 220,206 | | | 209,013 | | Total inventories | 234,784 | | | 220,339 | |
Allowance for excess or obsolete inventory | Allowance for excess or obsolete inventory | (39,320) | | | (40,440) | | Allowance for excess or obsolete inventory | (38,506) | | | (37,681) | |
| | $ | 180,886 | | | $ | 168,573 | | | $ | 196,278 | | | $ | 182,658 | |
| | | | | March 31, 2022 | | December 31, 2021 | | | March 31, 2023 | | December 31, 2022 |
Property, plant and equipment, net: | Property, plant and equipment, net: | | | | | | Property, plant and equipment, net: | | | | |
| | | Property, plant and equipment | Property, plant and equipment | | $ | 1,140,743 | | | $ | 1,151,533 | | Property, plant and equipment | | $ | 1,139,138 | | | $ | 1,128,834 | |
Accumulated depreciation | Accumulated depreciation | | (810,625) | | | (812,950) | | Accumulated depreciation | | (833,004) | | | (824,999) | |
| | | | $ | 330,118 | | | $ | 338,583 | | | | $ | 306,134 | | | $ | 303,835 | |
For the three months ended March 31, 20222023 and 2021,2022, depreciation expense was $12.7$11.0 million and $16.4$12.7 million, respectively.
During the first quarter of 2021, the Well Site Services segment recognized non-cash impairment charges of $0.7 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value.
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Other intangible assets: | Other intangible assets: | | | | | | | | | | | | Other intangible assets: | | | | | | | | | | | |
Customer relationships | Customer relationships | $ | 168,276 | | | $ | 69,509 | | | $ | 98,767 | | | $ | 168,284 | | | $ | 66,734 | | | $ | 101,550 | | Customer relationships | $ | 141,259 | | | $ | 49,851 | | | $ | 91,408 | | | $ | 141,179 | | | $ | 47,629 | | | $ | 93,550 | |
Patents/Technology/Know-how | Patents/Technology/Know-how | 78,815 | | | 34,679 | | | 44,136 | | | 78,821 | | | 33,151 | | | 45,670 | | Patents/Technology/Know-how | 69,925 | | | 30,537 | | | 39,388 | | | 69,830 | | | 29,214 | | | 40,616 | |
Tradenames and other | Tradenames and other | 53,682 | | | 15,946 | | | 37,736 | | | 53,708 | | | 15,179 | | | 38,529 | | Tradenames and other | 52,497 | | | 17,620 | | | 34,877 | | | 52,488 | | | 16,856 | | | 35,632 | |
| | $ | 301,299 | | | $ | 120,660 | | | $ | 180,639 | | | $ | 300,813 | | | $ | 115,064 | | | $ | 185,749 | | | $ | 263,681 | | | $ | 98,008 | | | $ | 165,673 | | | $ | 263,497 | | | $ | 93,699 | | | $ | 169,798 | |
For the three months ended March 31, 20222023 and 2021,2022, amortization expense was $5.2$4.3 million and $5.2 million, respectively.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Other noncurrent assets: | Other noncurrent assets: | | | | Other noncurrent assets: | | | |
Deferred compensation plan | Deferred compensation plan | $ | 21,607 | | | $ | 23,348 | | Deferred compensation plan | $ | 18,349 | | | $ | 17,551 | |
Deferred financing costs(1) | Deferred financing costs(1) | 2,525 | | | 2,674 | | Deferred financing costs(1) | — | | | 1,893 | |
Deferred income taxes | Deferred income taxes | 1,341 | | | 1,878 | | Deferred income taxes | 1,518 | | | 1,517 | |
Other | Other | 4,815 | | | 4,989 | | Other | 4,639 | | | 4,726 | |
| | $ | 30,288 | | | $ | 32,889 | | | $ | 24,506 | | | $ | 25,687 | |
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| March 31, 2022 | | December 31, 2021 |
Accrued liabilities: | | | |
Accrued compensation | $ | 16,586 | | | $ | 20,904 | |
Accrued taxes, other than income taxes | 6,758 | | | 5,130 | |
Insurance liabilities | 5,231 | | | 6,361 | |
Accrued interest | 5,337 | | | 3,629 | |
Accrued commissions | 2,502 | | | 2,194 | |
Other | 5,127 | | | 5,183 | |
| $ | 41,541 | | | $ | 43,401 | |
____________________(1)Unamortized deferred financing costs are presented as an offset to outstanding borrowing under the ABL Facility as of March 31, 2023.
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| March 31, 2023 | | December 31, 2022 |
Accrued liabilities: | | | |
Accrued compensation | $ | 15,882 | | | $ | 33,659 | |
Accrued taxes, other than income taxes | 3,175 | | | 1,865 | |
Insurance liabilities | 4,976 | | | 4,640 | |
Accrued interest | 3,324 | | | 1,784 | |
Accrued commissions | 2,432 | | | 2,302 | |
Other | 5,625 | | | 4,807 | |
| $ | 35,414 | | | $ | 49,057 | |
4.3. Long-term Debt
As of March 31, 20222023 and December 31, 2021,2022, long-term debt consisted of the following (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Revolving credit facilities(1) | $ | — | | | $ | — | | |
Revolving credit facility(1) | | Revolving credit facility(1) | $ | 3,305 | | | $ | — | |
2026 Notes(2) | 2026 Notes(2) | 131,506 | | | 131,291 | | 2026 Notes(2) | 132,379 | | | 132,164 | |
2023 Notes(3) | 2023 Notes(3) | 25,839 | | | 25,802 | | 2023 Notes(3) | — | | | 17,303 | |
Promissory note | 17,534 | | | 17,534 | | |
Other debt and finance lease obligations | Other debt and finance lease obligations | 3,958 | | | 4,123 | | Other debt and finance lease obligations | 3,327 | | | 3,430 | |
Total debt | Total debt | 178,837 | | | 178,750 | | Total debt | 139,011 | | | 152,897 | |
Less: Current portion | Less: Current portion | (44,047) | | | (18,262) | | Less: Current portion | (527) | | | (17,831) | |
Total long-term debt | Total long-term debt | $ | 134,790 | | | $ | 160,488 | | Total long-term debt | $ | 138,484 | | | $ | 135,066 | |
____________________
(1)Outstanding borrowings under the revolving credit facility are presented net of $1.7 million of unamortized deferred financing costs as of March 31, 2023. Unamortized deferred financing costs of $2.5 million and $2.7$1.9 million as of MarchDecember 31, 2022 and December 31, 2021, respectively, are presented in other noncurrent assets.
(2)The outstanding principal amount of the 2026 Notes was $135.0 million as of March 31, 20222023 and December 31, 2021.
(3)The outstanding principal amount of the 2023 Notes was $26.0 million as of March 31, 2022 and December 31, 2021.2022.
Revolving Credit Facilities
ABL Facility
On February 10, 2021, the Company entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into this facility, the Company's former senior secured revolving credit facility was terminated. On March 16, 2021, the Company entered into an amendment to the ABL Facility that permitted the Company to incur the indebtedness represented by the 2026 Notes discussed below.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note discussed below).million.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of letters of credit. Borrowings under the ABL Agreement are secured by a pledge of substantially all of the Company's domestic assets (other than real property) and the stock of certain foreign subsidiaries.
BorrowingsSince December 13, 2022, borrowings under the ABL Agreement bear interest at a rate equal to the London Interbank OfferedSecured Overnight Financing Rate ("LIBOR"SOFR") rate (subject to a floor rate of 0%) plus a margin of 2.75% to 3.25% and subject to a LIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. Quarterly, the Company must also pay a commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement.
The ABL Agreement places restrictions on the Company's ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2023 Notes and the 2026 Notes discussed below), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of repayment of all amounts then outstanding. The ABL Agreement also requires the Company to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time:(i) in the event that availability under the ABL Agreement is less than the greater of (a) 15% of the borrowing base and (b) $14.1 million; (ii) to complete certain specified transactions; or (iii) if an event of default has occurred and is continuing.
As of March 31, 2022,2023, the Company had $19.6$5.0 million of outstanding ABL Facility borrowings and $15.9 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement.credit. The total amount available to be drawn as of March 31, 20222023 was $51.0$92.8 million, calculated based on the current borrowing base less outstanding borrowings if any, and letters of credit. As of March 31, 2022,2023, the Company was in compliance with its debt covenants under the ABL Agreement.
2026 Notes
On March 19, 2021, theThe Company issued $135.0 million aggregate principal amount of its 4.75% convertible senior convertible notes due 2026 (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022.successor trustee. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. The Company used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes (as defined below) at a discount, with the balance added to cash on-hand.
The 2026 Notes bear interest at a rate of 4.75% per year and will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest and special interest may accrue on the 2026 Notes under certain circumstances as described in the 2026 Indenture. The initial conversion rate is 95.3516 shares of the Company's common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of approximately $10.49 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2026 Indenture. The Company's intent is to repay the principal amount of the 2026 Notes in cash and settle the conversion feature (if any) in shares of the Company's common stock. As of March 31, 2022,2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2023 Notes
On January 30, 2018,February 15, 2023, the Company issued $200.0 million aggregate principal amount of itsCompany's 1.50% convertible senior convertible notes due 2023 (the "2023 Notes") pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), betweenmatured and the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. The 2023 Notes bear interest at a rate of 1.50% per year and will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of the 2023 Notes (equivalent to an initial conversion price of approximately $44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2023 Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature, if any, in shares of the Company's common stock. As of March 31, 2022, $26.0outstanding $17.3 million principal amount of the 2023 Notes remained outstanding.
The following table provides a summary of the Company's purchases of outstanding 2023 Notes during the three months ended March 31, 2021, with non-cash gains reported within other income, net (in thousands):
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| Principal Amount | | Carrying Value of Liability | | Cash Paid | | Non-cash Gains Recognized |
Three Months Ended March 31, | | | | | | | |
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2021 | $ | 125,000 | | | $ | 123,637 | | | $ | 120,000 | | | $ | 3,637 | |
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Promissory Note
In connection with the 2018 acquisition of GEODynamics, Inc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), the Company issued a $25.0 million promissory note that bears interest at 2.50% per annum (subject to adjustment) and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to the GEODynamics Acquisition. The Company has provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. The Company has incurred settlement costs and expenses of $7.5 million related to such indemnification claims, and believes that the maturity date of such note is extended until the resolution of such indemnity claims and that it is permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $17.5 million as of March 31, 2022, which is its current best estimate of what is owed after set-off for such indemnification matters. See Note 11, "Commitments and Contingencies."full.
5.4. Fair Value Measurements
The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the 2023 Notes and 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2023 Notes as of March 31, 2022 was $24.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $26.0 million. The estimated fair value of the 2026 Notes as of March 31, 20222023 was $146.7$151.1 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $135.0 million.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.5. Stockholders' Equity
Common and Preferred Stock
The following table provides details with respect to the changes to the number of shares of common stock, $0.01 par value, outstanding during the first three months of 20222023 (in thousands):
| | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Shares of common stock outstanding – December 31, 20212022 | | | | | 61,37863,904 | |
Restricted stock awards, net of forfeitures | | | | | 674555 | |
Shares withheld for taxes on vesting of stock awards | | | | | (161)(204) | |
Shares of common stock outstanding – March 31, 20222023 | | | | | 61,89164,255 | |
As of March 31, 20222023 and December 31, 2021,2022, the Company had 25,000,000 shares of preferred stock, $0.01 par value, authorized, with no shares issued or outstanding.
On February 16, 2023, the Company's Board of Directors authorized $25.0 million for the repurchases of the Company's common stock, par value $0.01 per share, through February 2025. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate. As of March 31, 2023, no repurchases were made under this authorization.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, reported as a component of stockholders' equity, primarily relates to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain of the international operations of the Company's operating segments. Accumulated other comprehensive loss decreased from $66.0$78.9 million at December 31, 20212022 to $65.2$74.8 million at March 31, 2022.2023. For the three months ended March 31, 20222023 and 2021,2022, currency translation adjustments recognized as a component of other comprehensive loss due to exchange rate movementsincome were primarily attributable to the United Kingdom and Brazil.
During the three months ended March 31, 2023, the exchange rates for the British pound and the Brazilian real strengthened by 3% and 2%, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $4.1 million. During the three months ended March 31, 2022, the exchange rate for the British pound weakened by 3% compared to the U.S. dollar andwhile the Brazilian real strengthened by 17% compared to the U.S. dollar, contributing to other comprehensive income of $0.9 million. During
6. Income Taxes
The income tax expense for the three months ended March 31, 2021,2023 was calculated using a discrete approach. This methodology was used because changes in the exchange rate forCompany's results of operations and non-deductible expenses can materially impact the British pound strengthened by 1% compared to the U.S. dollar while the Brazilian real weakened by 8% compared to the U.S. dollar, contributing to other comprehensive loss of $1.5 million.
7. Income Taxes
estimated annual effective tax rate. For the three months ended March 31, 2022,2023, the Company's income tax expense was $3.4$1.6 million on a pre-tax lossincome of $6.0 million. Income tax expense in the first quarter of 2022$3.8 million, which included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses and discrete tax items. This compares to an income tax benefitexpense of $2.3$3.4 million on a pre-tax loss of $18.1$6.0 million, which included the impact of valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items, for the three months ended March 31, 2021.2022.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.7. Net LossIncome (Loss) Per Share
The table below provides a reconciliation of the numerators and denominators of basic and diluted net lossincome (loss) per share for the three months ended March 31, 20222023 and 20212022 (in thousands, except per share amounts):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | | | 2023 | | 2022 | |
Numerators: | Numerators: | | | | | | Numerators: | | | | | |
Net loss | | $ | (9,424) | | | $ | (15,810) | | | |
Net income (loss) | | Net income (loss) | | $ | 2,158 | | | $ | (9,424) | | |
Less: Income attributable to unvested restricted stock awards | Less: Income attributable to unvested restricted stock awards | | — | | | — | | | Less: Income attributable to unvested restricted stock awards | | (42) | | | — | | |
Numerator for basic net loss per share | | (9,424) | | | (15,810) | | | |
Numerator for basic net income (loss) per share | | Numerator for basic net income (loss) per share | | 2,116 | | | (9,424) | | |
Effect of dilutive securities: | Effect of dilutive securities: | | | | | | Effect of dilutive securities: | | | | | |
Unvested restricted stock awards | Unvested restricted stock awards | | — | | | — | | | Unvested restricted stock awards | | — | | | — | | |
Numerator for diluted net loss per share | | $ | (9,424) | | | $ | (15,810) | | | |
Numerator for diluted net income (loss) per share | | Numerator for diluted net income (loss) per share | | $ | 2,116 | | | $ | (9,424) | | |
| Denominators: | Denominators: | | | | Denominators: | | | |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | | 61,627 | | | 61,169 | | | Weighted average number of common shares outstanding | | 64,068 | | | 61,627 | | |
Less: Weighted average number of unvested restricted stock awards outstanding | Less: Weighted average number of unvested restricted stock awards outstanding | | (1,129) | | | (1,071) | | | Less: Weighted average number of unvested restricted stock awards outstanding | | (1,243) | | | (1,129) | | |
Denominator for basic net income (loss) per share | | Denominator for basic net income (loss) per share | | 62,825 | | | 60,498 | | |
Effect of dilutive securities: | | Effect of dilutive securities: | | | | | |
Unvested restricted stock awards | | Unvested restricted stock awards | | — | | | — | | |
Unvested performance share units | | Unvested performance share units | | 247 | | | — | | |
| Denominator for diluted net income (loss) per share | | Denominator for diluted net income (loss) per share | | 63,072 | | | 60,498 | | |
| Denominator for basic and diluted net loss per share | | 60,498 | | | 60,098 | | | |
| Net loss per share: | | | | |
Net income (loss) per share: | | Net income (loss) per share: | | | |
Basic | Basic | | $ | (0.16) | | | $ | (0.26) | | | Basic | | $ | 0.03 | | | $ | (0.16) | | |
Diluted | Diluted | | (0.16) | | | (0.26) | | | Diluted | | 0.03 | | | (0.16) | | |
The calculation of diluted net lossearnings per share for the three months ended March 31, 2023 and 2022 and 2021 excluded 298209 thousand shares and 500298 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of both the 2023 Notes and the 2026 NotesCompany's convertible senior notes were excluded from each period due to, among other factors, their antidilutive effect.the Company's share price.
9.8. Long-Term Incentive Compensation
The following table presents a summary of activity for stock options, service-based restricted stock and stock unit awards, and performance-based stock unit awards for the three months ended March 31, 20222023 (in thousands):
| | | Stock Options | | Service-based Restricted Stock | | Performance-based Stock Units | | Stock Options | | Service-based Restricted Stock | | Performance- and Service-based Stock Units |
Outstanding – December 31, 2021 | 388 | | | 993 | | | 358 | | |
Outstanding – December 31, 2022 | | Outstanding – December 31, 2022 | 245 | | | 1,222 | | | 494 | |
Granted | Granted | — | | | 686 | | | 233 | | Granted | — | | | 555 | | | 168 | |
Vested | Vested | — | | | (403) | | | — | | Vested | — | | | (513) | | | — | |
Forfeited | Forfeited | (122) | | | (12) | | | — | | Forfeited | (82) | | | — | | | — | |
Outstanding – March 31, 2022 | 266 | | | 1,264 | | | 591 | | |
Weighted average grant date fair value (2022 awards) | $ | — | | | $ | 6.53 | | | $ | 6.53 | | |
Outstanding – March 31, 2023 | | Outstanding – March 31, 2023 | 163 | | | 1,264 | | | 662 | |
Weighted average grant date fair value (2023 awards) | | Weighted average grant date fair value (2023 awards) | | | $ | 9.11 | | | $ | 9.11 | |
The restricted stock program consists of a combination of service-based restricted stock and stock units, as well as performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over a term of three years. Service-based stock unit awards (39 thousand units outstanding as of March 31, 2023) vest over one-year, with the underlying shares issued at a specified future date. Performance-based stock unit awards generally vest at the end of a three-year period, with the number of shares ultimately issued under the program dependent upon achievement of predefined specific performance objectives. The performance objective for performance-based awards granted in 2022 and 2021 isobjectives based on the Company's cumulative EBITDA over a three-year period. The performance objective for outstanding awards granted in 2020 is the Company's EBITDA growth rate over a three-year period.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200% of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During the first quarters of 2022 and 2021, theThe Company issued conditional long-term cash incentive awards ("Cash Awards") of $1.5 million in the first quarters of 2023 and $1.5 million, respectively, with the ultimate dollar amount to be awarded ranging from zero to a maximum of $3.1 million for both the 2022 and 2021 Cash Awards.2022. The performance measure for each of these Cash Awards is relative total stockholder return compared to a peer group of companies measured over a three-year period. The ultimate dollar amount to be awarded for the 2022 and 2021 Cash Awards iseach annual grant may range from zero to a maximum of $3.1 million, limited to their targeted award value ($1.5 million) if the Company's total stockholder return iswere to be negative over the performance period. The obligations, if any,Obligations related to the Cash Awards are classified as liabilities and recognized over thetheir respective vesting period.periods.
Stock-based compensation expense recognized during the three months ended March 31, 2023 and 2022 and 2021 totaled $1.8$1.6 million and $2.8$1.8 million, respectively. As of March 31, 2022,2023, there was $11.0$11.4 million of pre-tax compensation costs related to service-based and performance-based stock awards, which will be recognized in future periods as vesting conditions are satisfied.
10.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Segments and Related Information
The Company operates through 3three operating segments: Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Financial information by operating segment for the three months ended March 31, 20222023 and 20212022 is summarized in the following tables (in thousands).
| | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three Months Ended March 31, 2022 | | | | | | | | | | |
Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | | | | | | | | |
Offshore/Manufactured Products | Offshore/Manufactured Products | $ | 84,112 | | | $ | 5,330 | | | $ | 10,196 | | | $ | 902 | | | $ | 559,877 | | Offshore/Manufactured Products | $ | 98,199 | | | $ | 4,668 | | | $ | 11,090 | | | $ | 535 | | | $ | 548,439 | |
Well Site Services | Well Site Services | 48,172 | | | 7,932 | | | (3,395) | | | 1,548 | | | 197,077 | | Well Site Services | 67,058 | | | 6,146 | | | 6,966 | | | 5,772 | | | 212,415 | |
Downhole Technologies | Downhole Technologies | 31,760 | | | 4,384 | | | (1,505) | | | 317 | | | 265,958 | | Downhole Technologies | 30,942 | | | 4,275 | | | (1,519) | | | 249 | | | 256,095 | |
Corporate | Corporate | — | | | 171 | | | (9,632) | | | 91 | | | 55,053 | | Corporate | — | | | 167 | | | (10,662) | | | 12 | | | 33,188 | |
Total | Total | $ | 164,044 | | | $ | 17,817 | | | $ | (4,336) | | | $ | 2,858 | | | $ | 1,077,965 | | Total | $ | 196,199 | | | $ | 15,256 | | | $ | 5,875 | | | $ | 6,568 | | | $ | 1,050,137 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three Months Ended March 31, 2021 | | | | | | | | | |
Offshore/Manufactured Products | $ | 60,609 | | | $ | 5,469 | | | $ | 1,071 | | | $ | 463 | | | $ | 534,819 | |
Well Site Services(1) | 39,550 | | | 11,468 | | | (9,853) | | | 3,330 | | | 229,968 | |
Downhole Technologies | 25,430 | | | 4,389 | | | (1,615) | | | 83 | | | 280,320 | |
Corporate | — | | | 194 | | | (9,365) | | | 244 | | | 79,312 | |
Total | $ | 125,589 | | | $ | 21,520 | | | $ | (19,762) | | | $ | 4,120 | | | $ | 1,124,419 | |
________________
(1)Operating loss included a non-cash fixed asset impairment charge of $0.7 million.
See Note 2, "Asset Impairments and Other Restructuring Items," and Note 3, "Details of Selected Balance Sheet Accounts," for further discussion of these and other charges and benefits recognized in first three months of 2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three Months Ended March 31, 2022 | | | | | | | | | |
Offshore/Manufactured Products | $ | 84,112 | | | $ | 5,330 | | | $ | 10,196 | | | $ | 902 | | | $ | 559,877 | |
Well Site Services | 48,172 | | | 7,932 | | | (3,395) | | | 1,548 | | | 197,077 | |
Downhole Technologies | 31,760 | | | 4,384 | | | (1,505) | | | 317 | | | 265,958 | |
Corporate | — | | | 171 | | | (9,632) | | | 91 | | | 55,053 | |
Total | $ | 164,044 | | | $ | 17,817 | | | $ | (4,336) | | | $ | 2,858 | | | $ | 1,077,965 | |
The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 20222023 and 20212022 (in thousands):
| | | Offshore/Manufactured Products | | Well Site Services | | Downhole Technologies | | Total | | Offshore/Manufactured Products | | Well Site Services | | Downhole Technologies | | Total |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Three Months Ended March 31 | Three Months Ended March 31 | | | | | | | | | | | | | | | | Three Months Ended March 31 | | | | | | | | | | | | | | | |
Major revenue categories - | Major revenue categories - | | Major revenue categories - | |
Project-driven products | Project-driven products | $ | 33,844 | | | $ | 21,374 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33,844 | | | $ | 21,374 | | Project-driven products | $ | 39,132 | | | $ | 33,844 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 39,132 | | | $ | 33,844 | |
Short-cycle: | Short-cycle: | | Short-cycle: | |
Completion products and services | Completion products and services | 13,580 | | | 8,114 | | | 45,166 | | | 38,799 | | | 31,760 | | | 25,430 | | | 90,506 | | | 72,343 | | Completion products and services | 17,955 | | | 13,580 | | | 65,406 | | | 45,166 | | | 30,942 | | | 31,760 | | | 114,303 | | | 90,506 | |
Drilling services | Drilling services | — | | | — | | | 3,006 | | | 751 | | | — | | | — | | | 3,006 | | | 751 | | Drilling services | — | | | — | | | 1,652 | | | 3,006 | | | — | | | — | | | 1,652 | | | 3,006 | |
Other products | Other products | 7,044 | | | 4,136 | | | — | | | — | | | — | | | — | | | 7,044 | | | 4,136 | | Other products | 9,485 | | | 7,044 | | | — | | | — | | | — | | | — | | | 9,485 | | | 7,044 | |
Total short-cycle | Total short-cycle | 20,624 | | | 12,250 | | | 48,172 | | | 39,550 | | | 31,760 | | | 25,430 | | | 100,556 | | | 77,230 | | Total short-cycle | 27,440 | | | 20,624 | | | 67,058 | | | 48,172 | | | 30,942 | | | 31,760 | | | 125,440 | | | 100,556 | |
Other products and services | Other products and services | 29,644 | | | 26,985 | | | — | | | — | | | — | | | — | | | 29,644 | | | 26,985 | | Other products and services | 31,627 | | | 29,644 | | | — | | | — | | | — | | | — | | | 31,627 | | | 29,644 | |
| | $ | 84,112 | | | $ | 60,609 | | | $ | 48,172 | | | $ | 39,550 | | | $ | 31,760 | | | $ | 25,430 | | | $ | 164,044 | | | $ | 125,589 | | | $ | 98,199 | | | $ | 84,112 | | | $ | 67,058 | | | $ | 48,172 | | | $ | 30,942 | | | $ | 31,760 | | | $ | 196,199 | | | $ | 164,044 | |
Revenues from products and services transferred to customers over time accounted for approximately 62%66% and 62% of consolidated revenues for the three months ended March 31, 20222023 and 2021,2022, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of March 31, 2022,2023, the Company had $152.0$209.9 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 35% of this remaining backlog is expected to be recognized as revenue over the remaining nine months of 2022,2023, with an additional 35%46% recognized in 20232024 and the balance thereafter.
11.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Commitments and Contingencies
During 2021 and the first quarter of 2022, the distribution of COVID-19 vaccines progressed and many government-imposed restrictions were relaxed or rescinded. However, the effects of the COVID-19 pandemic and related economic, business and market disruptions continue and the macro outlook remains uncertain. The most direct impacts that the Company continues to experience are decreased pricing for its products and services due to the timing and rate of activity increases, market pressures driving increased capital discipline by its customers, supply chain disruptions, labor market constraints and inflation in wages, materials, parts, equipment and other costs. While the prices of and demand for crude oil have recovered from the lows seen in the initial stages of the pandemic, further outbreaks or the emergence of new strains of the COVID-19 virus could result in the reimposition of domestic and international regulations directing individuals to stay at home, limiting travel, requiring facility closures and imposing quarantines. Widespread implementation of these or similar restrictions could result in commodity price volatility, reduced demand for the Company's products and services, as well as delays in or inability of the Company to fulfill its contractual obligations to customers, logistic constraints, increases in the Company's costs and workforce and raw material shortages. The Company continues to monitor the effect of the COVID-19 pandemic on its employees, customers, critical suppliers and other stakeholders. The ultimate duration of the COVID-19 pandemic, along with resulting governmental restrictions and related impacts on the prices of and demand for crude oil, the global economy and capital markets remains uncertain.
The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Following the GEODynamics Acquisition in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process were potentially subject to anti-dumping and countervailing duties. Following an internal review, the Company voluntarily disclosed this matter to U.S. Customs and Border Protection ("CBP") and, in December 2020, reached an agreement with CBP to settle this matter for $7.3 million. The Company believes that the Seller is required to indemnify and hold the Company harmless against the amount of this and other settlements and related costs of $7.5 million, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company believes that its agreements with the Seller allow it to set-off such amounts against payments due under the $25.0 million promissory note and that, because the Company has asserted indemnification claims, the maturity date of such note is extended until the resolution of such claims. Accordingly, the Company reduced the carrying amount of such note in its consolidated balance sheet to $17.5 million as of March 31, 2022, which is the Company's current best estimate of what is owed after set-off for such indemnification matters, but without considering the outcome of the counterclaim described below.
In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries in federal court alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. Additionally, the Seller alleged that it was entitled to approximately $19.0 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, following the federal magistrate's report and recommendation that the federal district court dismiss the Seller's lawsuit for lack of federal jurisdiction, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, the state court denied the Seller's motion for partial summary judgement. In December 2021, the Company filed a counterclaim against the Seller alleging material misrepresentations and breaches of warranties by the Seller with respect to GEODynamics' liability for anti-dumping and countervailing duties. The Company denies the validity of the breach of contract claims asserted by the Seller and is vigorously defending against this lawsuit.
12. Subsequent Events
On April 14, 2022, the Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other statements we make contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in our 20212022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 22, 2022.17, 2023, as well as to "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q.
You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances.
While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, us:
•the ongoingimpact of disruptions in the bank and capital markets, including the two U.S. bank failures which occurred in March 2023;
•the impact of the Coronavirus Disease 2019 ("COVID-19") pandemic;ongoing military action between Russia and Ukraine, that began in February 2022, including, but not limited to, energy market disruptions, supply chain disruptions and increased costs, government sanctions, and delays or potential cancellation of planned customer projects;
•the ability and willingness of the Organization of Petroleum Exporting Countries ("OPEC") and other producing nations to set and maintain oil production levels and pricing;
•the level of supply of and demand for oil and natural gas, which has been impacted by the ongoing war between Russia and Ukraine that began in February 2022;gas;
•fluctuations in the current and future prices of oil and natural gas;
•the level of exploration, drilling and completion activity;
•the cyclical nature of the oil and natural gas industry;
•the level of offshore oil and natural gas developmental activities;
•the financial health of our customers;
•the impact of environmental matters, including executive actions and regulatory or legislative efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced oil and natural gas production or demand globally;
•proposed new rules by the SEC relating to the disclosure of a range of climate-related information and risks;
•political, economic and litigation efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change;
•the availability of and access to attractive oil and natural gas field prospects, which may be affected by governmental actions or actions of other parties restricting drilling and completion activities;
•general global economic conditions;
•global weather conditions and natural disasters;disasters, including hurricanes in the Gulf of Mexico;
•changes in tax laws and regulations;
•supply chain disruptions;
•the impact of tariffs and duties on imported materials and exported finished goods;
•our ability to timely obtain and maintain critical permits for operating facilities;
•our ability to attract and retain skilled personnel;
•negative outcome of litigation, threatened litigation or government proceedings;
•our ability to develop new competitive technologies and products;
•inflation, including our ability to increase prices to our customers as our costs increase;
•fluctuations in currency exchange rates;
•physical, digital, cyber, internal and external security breaches and other incidents affecting information security and data privacy;
•our ability to access and the cost of capital in the bank and capital markets;markets and our ability to access them;
•our ability to protect and enforce our intellectual property rights;
•our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and
•the other factors identified in "Part I, Item 1A. Risk Factors" in our 20212022 Annual Report on Form 10-K.10-K, as well as in "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q.
Should one or more of these risks or uncertainties materialize, or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.
In addition, in certain places in this Quarterly Report on Form 10-Q, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in better understanding the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 20212022 Annual Report on Form 10-K in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact comparability from period to period.
We provide a broad range of manufactured products and services to customers in the energy, industrial and military sectors through our Offshore/Manufactured Products, Well Site Services and Downhole Technologies segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, making demand for our products and services sensitive to expectations regarding future crude oil and natural gas prices, as well as economic growth, commodity demand and estimates of resource production and regulatory pressures related to environmental, social and governance ("ESG") considerations.
Recent Developments
The spot price of Brent crude oil price averaged $101 per barrel during the first quarter of 2022, an increase of 27% from the fourth quarter 2021 average and the highest quarterly average level observed since the second quarter of 2014. The higher commodity price environment was driven by crude oil supply reductions resulting from the Russian invasion of Ukraine on February 24, 2022, increased demand as the global effects of the COVID-19 pandemic have moderated and slower crude oil production growth due to reduced investments by operators globally.
Brent and West Texas Intermediate ("WTI") crude oil and natural gas pricing trends were as follows:
| | | Average Price(1) for quarter ended | | Average Price(1) for year ended December 31 | | Average Price(1) for quarter ended | | Average Price(1) for year ended December 31 |
Year | Year | | March 31 | | June 30 | | September 30 | | December 31 | | Year | | March 31 | | June 30 | | September 30 | | December 31 | |
Brent Crude (per bbl) | Brent Crude (per bbl) | | | | | | | | | Brent Crude (per bbl) | | | | | | | | |
2023 | | 2023 | | $ | 81.01 | | |
2022 | 2022 | | $ | 100.87 | | | $ | — | | | $ | — | | | $ | — | | | $ | 100.87 | | 2022 | | 100.87 | | | $ | 113.84 | | | $ | 100.71 | | | $ | 88.77 | | | $ | 100.99 | |
2021 | | 61.04 | | | 68.98 | | | 73.51 | | | 79.61 | | | 70.86 | | |
WTI Crude (per bbl) | WTI Crude (per bbl) | | WTI Crude (per bbl) | |
2023 | | 2023 | | $ | 75.91 | | |
2022 | 2022 | | $ | 95.18 | | | $ | — | | | $ | — | | | $ | — | | | $ | 95.18 | | 2022 | | 95.18 | | | $ | 108.83 | | | $ | 93.06 | | | $ | 82.79 | | | $ | 94.90 | |
2021 | | 58.09 | | | 66.19 | | | 70.58 | | | 77.33 | | | 68.14 | | |
Henry Hub Natural Gas (per MMBtu) | Henry Hub Natural Gas (per MMBtu) | | Henry Hub Natural Gas (per MMBtu) | |
2023 | | 2023 | | $ | 2.64 | | |
2022 | 2022 | | $ | 4.67 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4.67 | | 2022 | | 4.67 | | | $ | 7.50 | | | $ | 8.03 | | | $ | 5.55 | | | $ | 6.45 | |
2021 | | 3.50 | | | 2.95 | | | 4.35 | | | 4.75 | | | 3.90 | | |
________________
(1)Source: U.S. Energy Information Administration (spot prices).
On April 22, 2022,21, 2023, Brent crude oil, WTI crude oil and natural gas spot prices closed at $105.15$83.36 per barrel, $102.86$77.86 per barrel and $6.59$2.20 per MMBtu, respectively. Additionally, as presented in more detail below, the U.S. drilling rig count reported on April 22, 202221, 2023 was 695753 rigs 10% above– comparable to the first quarter 20212023 average.
In JanuaryFebruary 2023, we repaid the $17.3 million principal amount, plus accrued interest, of 2022, we completedoutstanding 2023 Notes (as defined below). Additionally, our Board of Directors authorized a $25.0 million stock repurchase plan, which extends through February 2025. No repurchases have been made under the previously announced exit of certain non-performing service offerings within our Well Site Services segment. These service offerings generated revenues of $4.4 million in the first quarter of 2021.
During the first quarter of 2022, we recorded bad debt expense of $0.8 million related to receivables from Russia-based customers of the Offshore/Manufactured Products segment. Asplan as of March 31, 2022, we had no remaining material balance sheet exposure related to Russia.
On April 14, 2022, our Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand.2023.
Overview
Current and expected future pricing for WTI crude oil and inflationary costs increases, along with expectations regarding the regulatory environment in the regions in which we operate, are factors that will continue to influence our customers' willingness to invest capital in U.S. shale play developments as they allocate capital and strive for financial discipline and spending levels that are within their capital budgets and cash flows.businesses. Expectations for the longer-term price for Brent crude oil will continue to influence our customers' spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment.
Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, includingincluding: global uncertainties related to disruptions in the banking sector, geopolitical conflicts (such as the direction and outcome of Russia's invasion of Ukraine), unrest and international tensions; sanctions; the perceived risk of a global uncertainties related to the COVID-19 pandemic;economic recession; domestic or international crude oil production; changes in governmental rules and regulations; the willingness of operators to invest capital in the exploration for and development of resources; use of alternative fuels; improved vehicle fuel efficiency; a more sustained movement to electric vehicles; and the potential for ongoing supply/demand imbalances. Capital investment by our customers recently reached a 15-year lowtemporarily declined due to negative developments with respectthese factors and the desire to many of these factors.generate sustainable cash flows.
Customer spending in the natural gas shale plays has been limited due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in the United States.
U.S. drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of our U.S. operations.
Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities globally, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry. Additionally, we are investing in research and product development related to, and have been awarded select contracts and are bidding on additional projects that facilitate, the development of alternative energy sources, including offshore wind and deepsea mineral gathering opportunities. This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 40% of Offshore/Manufactured Products segment sales in the first quarterthree months of 20222023 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-intie-
in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies and state-run national oil companies) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to change based on short-term fluctuations in the price of crude oil and natural gas.
Backlog reported by our Offshore/Manufactured Products segment increased to $326 million as of March 31, 2023 from $308 million as of December 31, 2022 and $265 million as of March 31, 2022 from $226 million as of March 31, 2021.2022. Bookings totaled $93$118 million in the first quarter of 2022,2023, yielding a book-to-bill ratio of 1.1x.1.2x. The following table sets forth backlog as of the dates indicated (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Backlog as of |
Year | | March 31 | | June 30 | | September 30 | | December 31 |
2022 | | $ | 265 | | | $ | — | | | $ | — | | | $ | — | |
2021 | | 226 | | | 214 | | | 249 | | | 260 | |
2020 | | 267 | | | 235 | | | 227 | | | 219 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Backlog as of |
Year | | March 31 | | June 30 | | September 30 | | December 31 |
2023 | | $ | 326 | | | | | | | |
2022 | | 265 | | | $ | 241 | | | $ | 258 | | | $ | 308 | |
2021 | | 226 | | | 214 | | | 249 | | | 260 | |
Our Well Site Services segment provides completion services and, to a much lesser extent, land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. We primarily supply equipment and service personnel utilized in the completion of and initial production from new and recompleted wells in our U.S. operations, which are dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity have increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells.
Our Downhole Technologies segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary frac plug and toe valve products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments.
Demand for our completion-related products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the U.S. and international drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated.
| | | | Average for the | | As of April 21, 2023 | | | Average for the |
| | As of April 22, 2022 | | | Three Months Ended March 31, | | As of April 21, 2023 | | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
United States Rig Count: | United States Rig Count: | | | | | | | United States Rig Count: | | | | | | |
Land – Oil | Land – Oil | 537 | | | 493 | | 286 | Land – Oil | 571 | | | 579 | | 493 |
Land – Natural gas and other | Land – Natural gas and other | 145 | | | 123 | | 91 | Land – Natural gas and other | 161 | | | 155 | | 123 |
Offshore | Offshore | 13 | | | 17 | | 16 | Offshore | 21 | | | 19 | | 17 |
| | 695 | | | 633 | | 393 | | 753 | | | 753 | | 633 |
International Rig Count: | International Rig Count: | | | | | | | International Rig Count: | | | | | | |
Land | Land | | | 828 | | 667 | Land | | | 897 | | 828 |
Offshore | Offshore | | | 193 | | 169 | Offshore | | | 226 | | 193 |
| | | 1,021 | | 836 | | | 1,123 | | 1,021 |
| | | 1,654 | | 1,229 | | | 1,876 | | 1,654 |
The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of March 31, 2022,2023, oil-directed drilling accounted for 79%78% of the total U.S. rig count – with the balance largely natural gas related. Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining from 790 rigs as of February 29, 2020 to a trough of 244 rigs as of August 14, 2020. From this trough, the U.S. rig count has increased to 670 rigs as of March 31, 2022. As can be derived from the table above, the average U.S. rig count for the first three months of 20222023 increased by 240120 rigs, or 61%19%, compared to the average for the first three months of 2021.2022.
We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. In addition, in response to Russia's invasion of Ukraine, governments in the European Union, the United States, the United Kingdom, Switzerland and other countries have enacted sanctions against Russia and Russian interests. The effect of these sanctions and tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 11, "Commitments and Contingencies."
Other factors that can affect our business and financial results include but are not limited to: the general global economic environment;environment (including disruptions in the banking sector); competitive pricing pressures; public health crises; natural disasters; labor market constraints; supply chain disruptions; inflation in wages, materials, parts, equipment and other costs; climate-related and other regulatory changes; geopolitical tensions; and changes in tax laws in the United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business.
Human Capital
For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1. Business – Human Capital" in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Selected Financial Data
This selected financial data should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related Notesnotes included in "Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 20212022 in order to understand factors such as charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data.
Unaudited Consolidated Results of Operations
The following summarizes our consolidated results of operations for the three months ended March 31, 20222023 and 20212022 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2022 | | 2021 | | Variance |
Revenues: | | | | | | | | | | | |
Products | | | | | | | $ | 85,761 | | | $ | 61,445 | | | $ | 24,316 | |
Services | | | | | | | 78,283 | | | 64,144 | | | 14,139 | |
| | | | | | | 164,044 | | | 125,589 | | | 38,455 | |
Costs and expenses: | | | | | | | | | | | |
Product costs | | | | | | | 64,801 | | | 49,463 | | | 15,338 | |
Service costs | | | | | | | 61,803 | | | 52,847 | | | 8,956 | |
Cost of revenues (exclusive of depreciation and amortization expense presented below) | | | | | | | 126,604 | | | 102,310 | | | 24,294 | |
Selling, general and administrative expenses | | | | | | | 23,833 | | | 21,225 | | | 2,608 | |
Depreciation and amortization expense | | | | | | | 17,817 | | | 21,520 | | | (3,703) | |
Impairments of goodwill | | | | | | | — | | | — | | | — | |
| | | | | | | | | | | |
Impairments of fixed assets(1) | | | | | | | — | | | 650 | | | (650) | |
Other operating (income) expense, net | | | | | | | 126 | | | (354) | | | 480 | |
| | | | | | | 168,380 | | | 145,351 | | | 23,029 | |
Operating loss | | | | | | | (4,336) | | | (19,762) | | | 15,426 | |
| | | | | | | | | | | |
Interest expense, net | | | | | | | (2,672) | | | (2,325) | | | (347) | |
Other income, net(2) | | | | | | | 1,025 | | | 3,960 | | | (2,935) | |
Loss before income taxes | | | | | | | (5,983) | | | (18,127) | | | 12,144 | |
Income tax benefit | | | | | | | (3,441) | | | 2,317 | | | (5,758) | |
Net loss | | | | | | | $ | (9,424) | | | $ | (15,810) | | | $ | 6,386 | |
| | | | | | | | | | | |
Net loss per share: |
Basic | | | | | | | $ | (0.16) | | | $ | (0.26) | | | |
Diluted | | | | | | | (0.16) | | | (0.26) | | | |
| | | | | | | | | | | |
Weighted average number of common shares outstanding: |
Basic | | | | | | | 60,498 | | 60,098 | | |
Diluted | | | | | | | 60,498 | | 60,098 | | |
________________
(1)During the first quarter of 2021, we recognized non-cash impairment charges of $0.7 million to reduce the carrying value of certain fixed assets to their estimated realizable value.
(2)During the first quarter of 2021, we recognized non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 2023 Notes.
See Note 2, "Asset Impairments and Other Restructuring Items," Note 3, "Details of Selected Balance Sheet Accounts" and Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first three months of 2021. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2023 | | 2022 | | Variance |
Revenues: | | | | | | | | | | | |
Products | | | | | | | $ | 99,840 | | | $ | 85,761 | | | $ | 14,079 | |
Services | | | | | | | 96,359 | | | 78,283 | | | 18,076 | |
| | | | | | | 196,199 | | | 164,044 | | | 32,155 | |
Costs and expenses: | | | | | | | | | | | |
Product costs | | | | | | | 78,677 | | | 64,801 | | | 13,876 | |
Service costs | | | | | | | 72,058 | | | 61,803 | | | 10,255 | |
Cost of revenues (exclusive of depreciation and amortization expense presented below) | | | | | | | 150,735 | | | 126,604 | | | 24,131 | |
Selling, general and administrative expenses | | | | | | | 24,016 | | | 23,833 | | | 183 | |
Depreciation and amortization expense | | | | | | | 15,256 | | | 17,817 | | | (2,561) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other operating income, net | | | | | | | 317 | | | 126 | | | 191 | |
| | | | | | | 190,324 | | | 168,380 | | | 21,944 | |
Operating income (loss) | | | | | | | 5,875 | | | (4,336) | | | 10,211 | |
| | | | | | | | | | | |
Interest expense, net | | | | | | | (2,391) | | | (2,672) | | | 281 | |
Other income, net | | | | | | | 276 | | | 1,025 | | | (749) | |
Income (loss) before income taxes | | | | | | | 3,760 | | | (5,983) | | | 9,743 | |
Income tax provision | | | | | | | (1,602) | | | (3,441) | | | 1,839 | |
Net income (loss) | | | | | | | $ | 2,158 | | | $ | (9,424) | | | $ | 11,582 | |
| | | | | | | | | | | |
Net income (loss) per share: |
Basic | | | | | | | $ | 0.03 | | | $ | (0.16) | | | |
Diluted | | | | | | | 0.03 | | | (0.16) | | | |
| | | | | | | | | | | |
Weighted average number of common shares outstanding: |
Basic | | | | | | | 62,825 | | 60,498 | | |
Diluted | | | | | | | 63,072 | | 60,498 | | |
Unaudited Segment Results of Operations
We manage and measure our business performance in three distinct operating segments: Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Supplemental financial information by operating segment for the three months ended March 31, 20222023 and 20212022 is summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2022 | | 2021 | | Variance |
Revenues | | | | | | | | | | | |
Offshore/Manufactured Products | | | | | | | | | | | |
Project-driven products | | | | | | | $ | 33,844 | | | $ | 21,374 | | | $ | 12,470 | |
Short-cycle products | | | | | | | 20,624 | | | 12,250 | | | 8,374 | |
Other products and services | | | | | | | 29,644 | | | 26,985 | | | 2,659 | |
Total Offshore/Manufactured Products | | | | | | | 84,112 | | | 60,609 | | | 23,503 | |
Well Site Services | | | | | | | 48,172 | | | 39,550 | | | 8,622 | |
Downhole Technologies | | | | | | | 31,760 | | | 25,430 | | | 6,330 | |
Total | | | | | | | $ | 164,044 | | | $ | 125,589 | | | $ | 38,455 | |
| | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | |
Offshore/Manufactured Products | | | | | | | $ | 10,196 | | | $ | 1,071 | | | $ | 9,125 | |
Well Site Services(1) | | | | | | | (3,395) | | | (9,853) | | | 6,458 | |
Downhole Technologies | | | | | | | (1,505) | | | (1,615) | | | 110 | |
Corporate | | | | | | | (9,632) | | | (9,365) | | | (267) | |
Total | | | | | | | $ | (4,336) | | | $ | (19,762) | | | $ | 15,426 | |
________________
(1)Operating loss in the first quarter of 2021 included non-cash fixed asset impairment charges of $0.7 million.
See Note 2, "Asset Impairments and Other Restructuring Items," and Note 3, "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first three months of 2021. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2023 | | 2022 | | Variance |
Revenues | | | | | | | | | | | |
Offshore/Manufactured Products | | | | | | | | | | | |
Project-driven products | | | | | | | $ | 39,132 | | | $ | 33,844 | | | $ | 5,288 | |
Short-cycle products | | | | | | | 27,440 | | | 20,624 | | | 6,816 | |
Other products and services | | | | | | | 31,627 | | | 29,644 | | | 1,983 | |
Total Offshore/Manufactured Products | | | | | | | 98,199 | | | 84,112 | | | 14,087 | |
Well Site Services | | | | | | | 67,058 | | | 48,172 | | | 18,886 | |
Downhole Technologies | | | | | | | 30,942 | | | 31,760 | | | (818) | |
Total | | | | | | | $ | 196,199 | | | $ | 164,044 | | | $ | 32,155 | |
| | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | |
Offshore/Manufactured Products | | | | | | | $ | 11,090 | | | $ | 10,196 | | | $ | 894 | |
Well Site Services | | | | | | | 6,966 | | | (3,395) | | | 10,361 | |
Downhole Technologies | | | | | | | (1,519) | | | (1,505) | | | (14) | |
Corporate | | | | | | | (10,662) | | | (9,632) | | | (1,030) | |
Total | | | | | | | $ | 5,875 | | | $ | (4,336) | | | $ | 10,211 | |
Three Months Ended March 31, 20222023 Compared to Three Months Ended March 31, 20212022
We reported net income for the three months ended March 31, 2023 of $2.2 million, or $0.03 per share. These results compare to a net loss for the three months ended March 31, 2022 of $9.4 million, or $0.16 per share. These results compare to a net loss for the three months ended March 31, 2021 of $15.8 million, or $0.26 per share, which included non-cash gains of $3.6 million ($2.9 million after-tax, or $0.05 per share) associated
Increased capital investments by our customers, together with debt extinguishment offset by $3.4 million ($2.7 million after-tax, or $0.04 per share) of severanceour internal cost control and restructuring costs.
Our reported results of operations reflect the negative impact of the global response to the COVID-19 pandemic, ongoing uncertainties related to future crude oil demandstrict capital discipline measures and supply and, to a lesser extent, supply chain disruptions. Customer-driven activity has continued to improve since the low levels of 2020, but uncertainty remains around the willingness of operators (our customers) to investother corporate actions, resulted in U.S. land-based drilling, completion and production activities given regulatory pressures around ESG considerations.
During the first quarter of 2021, we recognized an aggregate $4.8 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program.significant improvements in our recent consolidated results.
Revenues. Consolidated total revenues in the first quarterthree months of 20222023 increased $38.5$32.2 million, or 31%20%, from the first quarterthree months of 2021.2022.
Consolidated product revenues in the first quarterthree months of 20222023 increased $24.3$14.1 million, or 40%16%, from the first quarterthree months of 2021,2022, driven primarily by increased U.S. land-basedhigher customer activity and higher demand for project-related fixed platform equipment.connector, drilling and short-cycle products. Consolidated service revenues in the first quarterthree months of 20222023 increased $14.1$18.1 million, or 22%23%, from the first quarterthree months of 20212022 due primarily to higherincreased customer spending in the U.S. shale play regions and the Gulf of Mexico, partially offset by the exit of certain non-performing service offerings in January 2022.Mexico. As can be derived from the following table, 61%64% of our consolidated revenues in both the first quarterthree months of 2022 and 20212023 were derived from sales of our short-cycle product and service offerings.offerings, which compares to 61% in the prior-year period.
The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 20222023 and 20212022 (in thousands):
| | | Offshore/ Manufactured Products | | Well Site Services | | Downhole Technologies | | Total | | Offshore/ Manufactured Products | | Well Site Services | | Downhole Technologies | | Total |
Three Months Ended March 31 | Three Months Ended March 31 | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | Three Months Ended March 31 | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Major revenue categories - | Major revenue categories - | | | | | | | | | | | | | | | | Major revenue categories - | | | | | | | | | | | | | | | |
Project-driven products | Project-driven products | $ | 33,844 | | | $ | 21,374 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33,844 | | | $ | 21,374 | | Project-driven products | $ | 39,132 | | | $ | 33,844 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 39,132 | | | $ | 33,844 | |
Short-cycle: | Short-cycle: | | Short-cycle: | |
Completion products and services | Completion products and services | 13,580 | | | 8,114 | | | 45,166 | | | 38,799 | | | 31,760 | | | 25,430 | | | 90,506 | | | 72,343 | | Completion products and services | 17,955 | | | 13,580 | | | 65,406 | | | 45,166 | | | 30,942 | | | 31,760 | | | 114,303 | | | 90,506 | |
Drilling services | Drilling services | — | | | — | | | 3,006 | | | 751 | | | — | | | — | | | 3,006 | | | 751 | | Drilling services | — | | | — | | | 1,652 | | | 3,006 | | | — | | | — | | | 1,652 | | | 3,006 | |
Other products | Other products | 7,044 | | | 4,136 | | | — | | | — | | | — | | | — | | | 7,044 | | | 4,136 | | Other products | 9,485 | | | 7,044 | | | — | | | — | | | — | | | — | | | 9,485 | | | 7,044 | |
Total short-cycle | Total short-cycle | 20,624 | | | 12,250 | | | 48,172 | | | 39,550 | | | 31,760 | | | 25,430 | | | 100,556 | | | 77,230 | | Total short-cycle | 27,440 | | | 20,624 | | | 67,058 | | | 48,172 | | | 30,942 | | | 31,760 | | | 125,440 | | | 100,556 | |
Other products and services | Other products and services | 29,644 | | | 26,985 | | | — | | | — | | | — | | | — | | | 29,644 | | | 26,985 | | Other products and services | 31,627 | | | 29,644 | | | — | | | — | | | — | | | — | | | 31,627 | | | 29,644 | |
| | $ | 84,112 | | | $ | 60,609 | | | $ | 48,172 | | | $ | 39,550 | | | $ | 31,760 | | | $ | 25,430 | | | $ | 164,044 | | | $ | 125,589 | | | $ | 98,199 | | | $ | 84,112 | | | $ | 67,058 | | | $ | 48,172 | | | $ | 30,942 | | | $ | 31,760 | | | $ | 196,199 | | | $ | 164,044 | |
| Percentage of total revenue by type - | Percentage of total revenue by type - | | Percentage of total revenue by type - | |
Products | Products | 71 | % | | 65 | % | | — | % | | — | % | | 82 | % | | 86 | % | | 52 | % | | 49 | % | Products | 75 | % | | 71 | % | | — | % | | — | % | | 85 | % | | 82 | % | | 51 | % | | 52 | % |
Services | Services | 29 | % | | 35 | % | | 100 | % | | 100 | % | | 18 | % | | 14 | % | | 48 | % | | 51 | % | Services | 25 | % | | 29 | % | | 100 | % | | 100 | % | | 15 | % | | 18 | % | | 49 | % | | 48 | % |
Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $24.3$24.1 million, or 24%19%, in the first quarterthree months of 20222023 compared to the first quarterthree months of 2021.2022.
Consolidated product costs in the first quarterthree months of 20222023 increased $15.3$13.9 million, or 31%21%, compared to the first quarterthree months of 2021.2022 due to the reported revenue growth and a shift in sales mix, as well as higher material transportation, labor and other costs. Consolidated service costs in the first quarterthree months of 20222023 increased $9.0$10.3 million, or 17%, compared to the first quarterthree months of 2021.2022, due to the impact of higher revenue levels and increased labor and other costs.
Selling, General and Administrative Expense. Selling, general and administrative expense increased $2.6$0.2 million, or 12%1%, in the first quarterthree months of 20222023 from the first quarterthree months of 2021 due primarily to higher professional service, bad debt and trade show expenses.2022, despite a 20% increase in total revenues.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $3.7$2.6 million, or 17%14%, in the first quarterthree months of 20222023 compared to the prior-year period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 10,9, "Segments and Related Information," to our Unaudited Condensed Consolidated Financial Statements presents depreciation and amortization expense by segment.
Impairments of Fixed Assets. During the first quarter of 2021, our Well Site Services segment recorded non-cash impairment charges of $0.7 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value.
Operating Loss.Income (Loss). Our consolidated operating lossincome was $4.3$5.9 million in the first quarterthree months of 2022.2023. This compares to a consolidated operating loss of $19.8$4.3 million recognized in the first quarterthree months of 2021, which included the $0.7 million of non-cash fixed asset impairment charges and $3.4 million in severance and restructuring costs. Excluding these charges, our consolidated operating loss decreased $11.4 million or 72%.2022.
Interest Expense, Net. Net interest expense wastotaled $2.4 million in the first three months of 2023, which compares to $2.7 million in the first quarterthree months of 2022, which compares to $2.3 million in the first quarter of 2021.2022. Interest expense as a percentage of total debt outstanding was approximately 7% in the first three months of 2023 and 6% in the first quarterthree months of 2022 and 4% in the first quarter of 2021.2022.
Other Income, Net.
Net other income for the first quarter of 2021 included non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 1.5% convertible senior notes (the "2023 Notes") for $120.0 million in cash.
Income Tax. Income tax expense for the the first three months of 2023 was calculated using a discrete approach. This methodology was used because changes in our results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the first quarterthree months of 2022,2023, our income tax provision was $3.4$1.6 million on a pre-tax lossincome of $6.0 million. Income tax expense in the first quarter of 2022$3.8 million, which included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses and discrete tax items. This compares to an income tax benefitprovision of $2.3$3.4 million on a pre-tax loss of $18.1$6.0 million for the first quarterthree months of 2021,2022, which included the impact of valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items.
Other Comprehensive Income (Loss).Income. Reported comprehensive lossincome (loss) is the sum of reported net lossincome (loss) and other comprehensive income (loss).income. Other comprehensive income was $4.1 million in the first three months of 2023 compared to comprehensive income of $0.9 million in the first quarterthree months of 2022 compared to loss of $1.5 million in the first quarter of 2021 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our operating segments. For the first quartersthree months of 20222023 and 2021, recurring2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the first quarterthree months of 2023, the exchange rates for the British pound and the Brazilian real strengthened compared to the U.S. dollar. During the first three months of 2022, the exchange rate for the British pound weakened compared to the U.S. dollar, while the Brazilian real strengthened compared to the U.S. dollar. During the first quarter of 2021, the exchange rate for the British pound strengthened compared to the U.S. dollar while the exchange rate for the Brazilian real weakened compared to the U.S. dollar.
Segment Operating Results
Offshore/Manufactured Products
Revenues. Our Offshore/Manufactured Products segment revenues increased $23.5$14.1 million, or 39%17%, in the first quarterthree months of 20222023 compared to the first quarterthree months of 20212022 due primarily to increased demand for connector, drilling and short-cycle products and fixed platform equipment.products.
Operating Income (Loss).Income. Our Offshore/Manufactured Products segment reported operating income of $11.1 million in the first three months of 2023, compared to operating income of $10.2 million in the first quarterthree months of 2022. The segmentThis year-over-year increase was due primarily to the segment's reported an operating lossrevenue growth, partially offset by a shift in product sales mix and the impact of $1.1 million in the first quarter of 2021, which included severancehigher material, transportation, labor and restructuring costs of $0.3 million.other costs.
Backlog. Backlog in our Offshore/Manufactured Products segment totaled $265$326 million as of March 31, 20222023 compared to $260$308 million as of December 31, 2021.2022. Bookings during the first quarterthree months of 20222023 totaled $93$118 million, yielding a book-to-bill ratio of 1.1x.1.2x.
Well Site Services
Revenues. Our Well Site Services segment revenues increased $8.6$18.9 million, or 22%39%, in the first quarterthree months of 20222023 compared to the same prior-year period,first three months of 2022, driven primarily by increased U.S. customer activity levels partially offset by the exit of U.S. thru-tubing service offerings in January 2022.levels.
Operating Loss.Income (Loss). Our Well Site Services segment reported operating income of $7.0 million in the first three months of 2023, compared to an operating loss of $3.4 million in the first quarterthree months of 2022. The segment reported ansegment's operating loss of $9.9results improved $10.4 million infrom the first quarter of 2021, which included non-cash fixed asset impairment charges of $0.7 million. The operating loss decrease of $6.5 million, or 66%, compared to the same prior-year period, was primarily driven by the impact ofdue to the reported revenue growth and a $3.7$1.8 million decrease in depreciation and amortization expense.expense, partially offset by increased labor, material and other costs.
Downhole Technologies
Revenues. Our Downhole Technologies segment revenues increased $6.3decreased $0.8 million, or 25%3%, in the first quarterthree months of 20222023 from the same prior-year period due primarily to increased customer demand for perforating and completion products in the United States.first three months of 2022.
Operating Loss. Our Downhole Technologies segment reported an operating loss of $1.5 million in the first quarterthree months of 2022. The segment2023, consistent with the results reported an operating loss of $1.6 million in the first quarterthree months of 2021.2022.
Corporate
Operating Loss. Corporate expenses of $9.6 million in the first quarterthree months of 2023 increased $1.0 million, or 11%, from the first three months of 2022, were comparabledue primarily to the first quarter of 2021.higher personnel costs and professional fees.
Liquidity, Capital Resources and Other Matters
Our primary liquidity needs are to fund operating and capital expenditures, new product development and general working capital needs. In addition, capital has been used to fund strategic business acquisitions, repay debt and fund share repurchases. Our primary sources of funds are cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions.
Operating Activities
Cash flows used in operations totaled $10.7$5.9 million during the first three months ended March 31, 2022,of 2023, compared to $8.4$10.7 million used in operations during the first quarterthree months of 2021.2022.
During 2023, $25.6 million was used to fund net working capital increases, primarily due to the payment of accrued 2022 short- and long-term cash incentives and an activity-driven increase in inventories. During the first quarter of 2022, $21.3 million was used to fund net working capital increases, primarily due to increases in inventories and accounts receivable driven by higher activity levels. During the first quarter of 2021, $12.1 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories.
Investing Activities
CashNet cash used in investing activities during the first quarterthree months of 20222023 totaled $2.1$6.4 million, compared to $2.4$2.1 million used in investing activities during 2021.the first three months of 2022.
Capital expenditures totaled $2.9$6.6 million and $4.1$2.9 million during the first quarterthree months of 20222023 and 2021,2022, respectively. These investments were partially offset by proceeds from the sale of property and equipment of $0.9$0.2 million and $1.9$0.9 million during the first three months of 20222023 and 2021,2022, respectively.
We expect to spend approximately $25 million in capital expenditures during 2022. Whether planned expenditures will actually be made in 2022 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity.2023. We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our ABL Facility discussed below.
Financing Activities
During the first three months ended March 31, 2022,of 2023, net cash of $1.2$14.4 million was used in financing activities.activities, which included the repayment of the $17.3 million principal amount of our outstanding 2023 Notes. This compares to $6.6$1.2 million of cash used in financing activities during the first three months ended March 31, 2021, including our purchases of $125.0 million principal amount of our 2023 Notes for cash totaling $120.0 million and $12.0 million of net repayments under our ABL Facility. Partially offsetting these uses in the first quarter of 2021 was our issuance of $135.0 million principal amount of our 4.75% convertible senior notes (the "2026 Notes") yielding net cash proceeds of $130.3 million.2022.
As of March 31, 2022,2023, we had cash and cash equivalents totaling $39.2$15.8 million, which compared to $52.9$42.0 million as of December 31, 2021.
As of March 31, 2022,2023, we had no$5.0 million in borrowings outstanding under our ABL Facility, $26.0 million principal amount of our 2023 Notes outstanding, $135.0 million principal amount of our 2026 Notes (as defined below) outstanding and other debt of $21.5$3.3 million. Our reported interest expense which included amortization of deferred financing costs of $0.5$0.4 million during the first quarterthree months of 2022, was above our contractual cash interest expense.2023. For the first quarterthree months of 2022,2023, our contractual cash interest expense was $2.2$2.0 million, or approximately 5% of the average principal balance of debt outstanding.
We believe that cash on-hand, cash flow from operations and borrowing capacity available under our ABL Facility will be sufficient to meet our liquidity needs in the coming twelve months. If our plans or assumptions change, or are inaccurate, we may need to raise additional capital. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global banking and financial markets, stakeholder scrutiny of ESG matters and other factors, many of which are beyond our control. In this regard, the effect of the COVID-19 pandemictwo U.S. bank failures in March 2023 resulted in a significant disruption ofdisruptions to global banking and financial markets. For companies like ours that support the energy industry, this disruptionthese disruptions negatively impacted the value of our common stock and may reduce our ability to access capital in the bank and capital markets or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity.
On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related information and risks. We are currently assessing these rules,A final rule is expected to be released in the second quarter of 2023, but at this time we cannot predict the costsfinal form and substance of implementation or any potential adverse impacts resulting from these rules. To the extent these rules are finalized as proposed,rule and its requirements at this time. The ultimate impact on our business is uncertain and, upon finalization, we orand our customers couldmay incur increased compliance costs related to the assessment and disclosure of climate-related risks. We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced
climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting access to capital or seeking more stringent conditions with respect to their investments in us, our customers in the energy industry and other companies like ours that support the energy industry. For more information on our risks related to climate change, see the risk factorfactors in "Part I, Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 20212022 titled, "Our and our customers' operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide.provide" and "Increasing attention to ESG matters may impact our business."
ABLStock Repurchase Program. On February 16, 2023, the Board of Directors authorized $25.0 million for the repurchases of our common stock, par value $0.01 per share, through February 2025. Subject to applicable securities laws, such purchases will be at such times and in such amounts as we deem appropriate. As of March 31, 2023, no repurchases were made under this authorization.
Revolving Credit Facility. On February 10, 2021, we entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. On March 16, 2021, we entered into an amendment to the ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes.
The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics, Inc. discussed below).million.
See Note 4,3, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the ABL Agreement. As of March 31, 2022,2023, we had $19.6$5.0 million of outstanding borrowings and $15.9 million of outstanding letters of credit but no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of March 31, 20222023 was $51.0$92.8 million, calculated based on the currentthen-current borrowing base less outstanding letters of credit.
2026 Notes.On March 16, 2021, we We issued $135.0 million aggregate principal amount of the4.75% convertible senior notes due 2026 Notes(the "2026 Notes") pursuant to an indenture, dated as of March 16,19, 2021 (the "2026 Indenture"), between the Companyus and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Net proceeds from thesuccessor trustee. The 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes, with the balance added to cash on-hand.will mature on April 1, 2026, unless earlier repurchased, redeemed or converted.
The 2026 Indenture contains certain events of default, including certain defaults by the Companyus with respect to other indebtedness of at least $40.0 million.
See Note 4,3, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2026 Notes. As of March 31, 2022,2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.
2023 Notes. On January 30, 2018, we issued $200.0 million aggregate principal amount of theFebruary 15, 2023, Notes pursuant to an indenture, dated as of January 30, 2018our 1.50% convertible senior notes due 2023 (the "2023 Indenture"Notes"), between matured and the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Since September 2019, we have purchased a cumulative $174.0outstanding $17.3 million principal amount of the 2023 Notes for $152.8 million in cash, with $26.0 million principal amount outstanding as of March 31, 2022.
The 2023 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million.
See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2023 Notes. As of March 31, 2022, none of the conditions allowing holders of the 2023 Notes to convert, or requiring us to repurchase the 2023 Notes, had been met.
Promissory Note. In connection with the 2018 acquisition of GEODynamics, Inc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), we issued a $25.0 million promissory note that was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics. We have provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. We have incurred settlement costs and expenses of $7.5 million related to such indemnification claims and believe that the maturity date of such note is extended until the resolution of such indemnity claims and that we are permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million as of March 31, 2022, which is our current best estimate of what is owed after set-off for indemnification matters. See Note 11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.full.
Our total debt represented 21%17% and 20%18% of our combined total debt and stockholders' equity as of March 31, 20222023 and December 31, 2021,2022, respectively.
Contingencies and Other Obligations. We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our product or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of the businesses and, in other cases, we have indemnified the buyers of businesses. In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S. federal income tax carryback claims we received under the provisions of the CARES Act legislation. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, a motion by the Seller for partial summary judgement was denied by the state court. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
See Note 11,10, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.
Off-Balance Sheet Arrangements. As of March 31, 2022,2023, we had no off-balance sheet arrangements.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K.10-K for the year ended December 31, 2022. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by us as of the specified effective date. Management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk refers to the potential losses arising from changes in interest rates, foreign currency fluctuations and exchange rates, equity prices, and commodity prices, including the correlation among these factors and their volatility.
Our principal market risks are our exposure to changes in interest rates and foreign currency exchange rates. We enter into derivative instruments only to the extent considered necessary to meet risk management objectives and do not use derivative contracts for speculative purposes.
Interest Rate Risk. We have a revolving credit facility that is subject to the risk of higher interest charges associated with increases in interest rates. As of March 31, 2022,2023, we had no$5.0 million in floating-rate obligations outstanding under our ABL Facility. UseThe use of floating-rate obligations would exposeexposes us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rates increased by 1% from March 31, 2023 levels, our consolidated interest expense would increase by a total of approximately $0.1 million annually.
Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world and we receive revenue from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our functional currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of foreign currency exchange rate risks in areas outside of the United States (primarily in our Offshore/Manufactured Products segment), we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. During the first three months ended March 31, 2022,of 2023, our reported foreign currency exchange losses were $0.4$0.5 million and are included in "Other operating expense, net" in the consolidated statements of operations.
Accumulated other comprehensive loss, reported as a component of stockholders' equity, primarily relates to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain of the international operations of our operating segments. Our accumulated other comprehensive loss decreased $0.9$4.1 million from $66.0$78.9 million as of December 31, 20212022 to $65.2$74.8 million as of March 31, 2022,2023, due to changes in currency exchange rates. During the three months ended March 31, 2022,2023, the exchange raterates for the British pound weakened by 3% compared to the U.S. dollar whileand the Brazilian real strengthened by 17%3% and 2%, respectively, compared to the U.S. dollar.
ITEM 4. Controls and Procedures
(i) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 20222023 at the reasonable assurance level.
(ii) Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2022,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
The information with respect to this Item 1 is set forth under Note 11,10, "Commitments and Contingencies."
ITEM 1A. Risk Factors
"Part I, Item 1A. Risk Factors" of our 2021 Annual Report on Form 10-K for the year ended December 31, 2022 includes a detailed discussion of our risk factors. The risks described in such report are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may materially adversely affect our business, financial conditions or future results. ThereExcept as described below, there have been no material changes to our risk factors as set forth in our 20212022 Annual Report on Form 10-K.
Adverse developments affecting the financial services industry, such as events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect the Company's current and projected business operations and its financial condition and results of operations.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about such events or other similar risks, have in the past and may in the future lead to acute or market-wide liquidity problems. In addition, if any of the Company's customers, suppliers or other business counterparties are unable to access funds held by such a financial institution, such parties' ability to pay their obligations to the Company or to enter into new commercial arrangements requiring additional payments to the Company could be adversely affected.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, Federal Deposit Insurance Corporation ("FDIC") and Federal Reserve Board have announced a program to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other needs of financial institutions for immediate liquidity may exceed the capacity of such program. Additionally, the Company maintains cash balances at third-party financial institutions in excess of FDIC standard insurance limits, and there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of such banks or financial institutions, or that they would do so in a timely fashion.
Access to funding sources and other credit arrangements in amounts adequate to finance the Company's business operations could be significantly impaired by the foregoing factors that affect the Company, any financial institutions with which the Company enters into credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on the Company's current and projected business operations and the Company's financial condition and results of operations. These risks include, but may not be limited to, the following:
•delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
•inability to enter into credit facilities or other working capital resources;
•potential or actual breach of contractual obligations that require the Company to maintain letters of credit or other credit support arrangements; or
•termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for the Company to acquire financing on acceptable terms or at all. Any decline in available funding or access to cash and liquidity resources could, among other risks, adversely impact the Company's ability to meet operating expenses or other obligations, financial or otherwise, result in breaches of the Company's financial and/or contractual obligations, or result in violations of federal or state wage and hour laws. In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by the Company's customers, vendors or suppliers. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors, could have material adverse impacts on the Company's liquidity and its current and/or projected business operations and financial condition and results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c)
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
January 1 through January 31, 2022 | | — | | | $ | — | | | — | | | $ | — | |
February 1 through February 28, 2022 | | 160,834 | | | 6.15 | | | — | | | — | |
March 1 through March 31, 2022 | | — | | | — | | | — | | | — | |
Total | | 160,834 | | | $ | 6.15 | | | — | | | |
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Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2) |
January 1 through January 31, 2023 | | — | | | $ | — | | | — | | | $ | — | |
February 1 through February 28, 2023 | | 204,541 | | | 9.47 | | | — | | | 25,000,000 | |
March 1 through March 31, 2023 | | — | | | — | | | — | | | 25,000,000 | |
Total | | 204,541 | | | $ | 9.47 | | | — | | | |
________________
(1)All shares purchased during the three-month period ended March 31, 20222023 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock grants. These shares were not part of a publicly announced program to purchase common stock.
(2)On February 16, 2023, the Company's Board of Directors authorized $25.0 million for the repurchases of the Company's common stock, par value $0.01 per share, through February 2025. As of March 31, 2023, no repurchases were made under this authorization.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
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Exhibit No. | | Description |
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101.INS* | — | XBRL Instance Document |
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101.SCH* | — | XBRL Taxonomy Extension Schema Document |
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101.CAL* | — | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | — | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | — | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | — | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* Filed herewith.
** | | | | | |
* | Filed herewith. |
** | Furnished herewith. |
+ | Management contracts or compensatory plans or arrangements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | OIL STATES INTERNATIONAL, INC. | |
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Date: | April 29, 202228, 2023 | | By: | /s/ LLOYD A. HAJDIK | |
| | | | Lloyd A. Hajdik | |
| | | | Executive Vice President, Chief Financial Officer and | |
| | | | Treasurer (Duly Authorized Officer and Principal Financial Officer) | |