Oil States International - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered resilient profitability amid softer revenues: revenue $159.9M (-3% q/q, -4% y/y), net income $3.2M ($0.05 diluted EPS), and adjusted EBITDA $18.7M (flat q/q).
• Backlog hit a decade-high $357M with bookings of $136M and a 1.5x book-to-bill, underpinned by Brazil deepwater awards; Offshore Manufactured Products revenue was seasonally lower on timing of backlog conversion.
• Versus consensus: GAAP EPS beat by $0.01 ($0.05 vs $0.04*) and adjusted EBITDA beat; revenue missed ($159.9M vs $164.1M*) — mix and timing drove the shortfall while offshore/international strength supported margins.
• Guidance held: FY25 revenue $700–$735M and EBITDA $88–$93M maintained; Q2 2025 guided to revenue $170–$180M and EBITDA $20–$22M; management highlighted tariff uncertainty and April WTI decline as macro headwinds but expects offshore/international to stay robust.
• Cash flow catalyst: $9M operating cash flow despite usual Q1 seasonality; opportunistic buybacks ($5.3M in Q1) and low net debt position support capital returns and potential downside support.

What Went Well and What Went Wrong

What Went Well

• Backlog and bookings strength: backlog $357M, bookings $136M, book-to-bill 1.5x; “Our backlog is at its highest level since September 2015,” driven by Brazil deepwater and growing Batam capacity.
• CPS margin recovery and Gulf operations: CPS adjusted EBITDA margin rose to 25% from 12% on stronger Gulf activity and cost actions; “major driver of the improvement… strong recovery… in the Gulf operations”.
• Positive operating cash flow in a seasonally weak quarter: $9M operating cash flow reversed typical Q1 working capital headwinds; “we reversed that trend this quarter”.

What Went Wrong

• Revenue softness and offshore timing: consolidated revenue down 3% q/q and 4% y/y, with Offshore Manufactured Products revenue down 14% q/q due to timing of project conversion from backlog.
• U.S. land demand still weak y/y: U.S. land revenue up 16% q/q but down 20% y/y, reflecting exit of underperforming service lines and softer domestic completions.
• Tariffs and macro volatility: management flagged broad-based U.S. tariffs, retaliations, and OPEC+ production plans; April WTI fell ~20%, adding uncertainty to demand/supply; OIS is mitigating via sourcing/pricing but Downhole perforating inputs face cost increases.

Transcript

Operator (participant)

Good morning. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oil States First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star pound key again. Ellen Pennington, you may begin your conference.

Ellen Pennington (VP of Human Resources and Senior Counsel)

Good morning and welcome to Oil States First Quarter 2025 Earnings Conference Call. Our call today will be led by our President and CEO, Cindy Taylor, Lloyd Hajdik, Oil States Executive Vice President and Chief Financial Officer, and Scott Moses, our Executive Vice President and Chief Operating Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume that any of these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2024 Form 10-K, along with other recent SEC filings.

This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available two hours after the completion of this call and will continue to be available for 12 months. I will now turn the call over to Cindy.

Cindy Taylor (President and CEO)

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our first quarter 2025 results and provide our thoughts on market trends, in addition to discussing our company-specific outlook. In connection with our fourth quarter 2024 earnings conference call, we provided financial guidance ranges for the first quarter and full year 2025. We specifically guided the first quarter 2025 revenues of $160 million-$170 million, with EBITDA expected to range from $17.5 million-$18.5 million. I am pleased to report that both ranges were met or exceeded during the quarter due to strength in our international offerings, along with benefits of our 2024 U.S. land-based optimization efforts and a strong recovery in our Gulf of America operations.

We witnessed ongoing demand in our international and offshore regions, with very strong bookings that totaled $136 million, leading to our highest level of backlog since September 2015, with a book-to-bill ratio of 1.5 times for the quarter. We have historically reported negative cash flow from operations during the first quarter of the year due to seasonal working capital trends. However, we reversed that trend this quarter by generating $9 million of cash flow from operations. We also received proceeds of $9 million from the monetization of equipment and inventory. These cash flows were used during the quarter, largely to fund CapEx and $5 million of share repurchases. Despite good operating results for the quarter, in April, Oil States' stock price suffered material decline stemming from the announcement and imposition of broad-based tariffs by the U.S. on our global trading partners.

These actions have created uncertainty in the market, both in terms of individual company impacts along with the risk of broader economic consequences, including the heightened possibility of a recession. These concerns, along with planned increases in OPEC Plus oil production levels, negatively impacted global crude oil prices, which declined significantly in April. Given this backdrop, we believe it is prudent to provide more granular information on Oil States' strategic sourcing of goods and materials to aid the market in assessing potential impacts of U.S. tariffs on our operations. As a reminder, Oil States benefits from significant global diversification with broad-based operations outside the U.S. in essentially every major offshore oil and gas basin. In addition, a significant portion of the capital equipment, which we manufacture in the U.S., is exported to other countries.

We anticipate that a significant portion of the company's operations outside of the U.S. should remain relatively unaffected by the implementation of these tariffs. In our domestic operations, we have limited reliance on imported goods, which are primarily used in our downhole technology segment. We have implemented a series of strategic actions to assess and mitigate, where possible, negative tariff impacts, including the use of temporary import bonds for key imported materials, shifting to alternate sources of supply, optimizing our supply chain to secure the most favorable treatment of imports, leveraging existing domestic supply chains, and when necessary, adjusting pricing to our customers. Oil States imports products from foreign sources, including key raw materials and component parts, such as steel forgings and perforating gun steel tubing and other components.

The vast majority of our forgings come to the U.S. under temporary import bonds, which are free of tariffs given their re-export following U.S. manufacturing. Tariffs on imported steel tubing and other components used in the manufacture of perforating systems are expected to increase our completed gun cost. Our analysis has shown that other suppliers of perforating systems utilize similar supply chain sources and are likely to be subject to similar tariffs. As a result, we expect that these cost increases can be passed on to customers. We remain dedicated to growing our operations and strategically investing in our most profitable business areas supported by advanced technologies. We will also continue to focus on the return of cash to our stockholders. Lloyd will now review our operating results along with our financial position in more detail.

Lloyd Hajdik (EVP and CFO)

Thanks, Cindy. Good morning, everyone. During the first quarter, we generated revenues of $160 million and adjusted consolidated EBITDA of $19 million. Our adjusted net income totaled $4 million or $0.06 per share after excluding facility exit charges of $1 million. Our Offshore Manufactured Products segment generated revenues of $93 million and adjusted segment EBITDA of $18 million in the first quarter. Adjusted segment EBITDA margin was 19% in the first quarter compared to 23% in the fourth quarter. In our Completion and Production Services segment, we generated revenues of $35 million and adjusted segment EBITDA of $9 million in the first quarter. Adjusted segment EBITDA excluded facility exit charges totaling $1 million. Adjusted segment EBITDA margin was 25% in the first quarter compared to 12% in the fourth quarter, reflective of significantly higher activity in the Gulf of America and a continued focus on cost reduction.

In our Downhole Technologies segment, we generated revenues of $33 million and $2 million of adjusted segment EBITDA in the first quarter. As Cindy mentioned earlier, we generated $9 million of cash flow from operations and received $9 million of proceeds from asset sales. Our cash flows were used to fund $9 million of CapEx and $5 million of share repurchases. Of the quarterly CapEx spending, $3 million was associated with our new Batam, Indonesia, facility. Our cash flows from operations is expected to range between $65 million and $75 million for the full year, and planned CapEx is expected to total $25 million. Given the expected strong free cash flow generation, we plan to be very opportunistic regarding share repurchases given our currently low stock price. Now, Cindy will offer some market outlook and concluding comments.

Cindy Taylor (President and CEO)

Despite recent economic volatility and the prospect of higher tariffs, we continue to see strong demand for our offshore and international products and services, which has led to our highest level of backlog in a decade. Given that the majority of our offshore manufactured products backlog consists of projects outside the U.S., we anticipate that the import of key raw materials will largely be unaffected by potential new tariffs. Although domestic market conditions and activity levels could come under pressure during 2025 due to weaker crude oil prices, we expect our results and profitability to hold up reasonably well given a solid offshore and international outlook combined with margin improvement across our U.S. land-driven businesses given the actions undertaken in 2024.

During our fourth quarter 2024 earnings conference call, we provided revenue guidance for the full year 2025 of $700 million-$735 million and full year EBITDA guidance in a range between $88 million and $93 million. Based upon our strong bookings in the first quarter, improved Completion and Production Services margins, and information we know about market conditions today, we are not changing our annual guidance. Our guidance for the upcoming quarter suggests revenue will be generated in a range of $170 million-$180 million, with EBITDA ranging from $20 million-$22 million. Our low net debt levels and robust free cash flow provide investors with an attractive opportunity for stock ownership in a company with peer-leading free cash flow yield. Our capital allocation priorities are well-defined.

We plan to invest in organic growth opportunities to fund research and development to sustain competitive advantages, to pay off our remaining debt, and to fund share repurchases. We aim to drive exceptional value for our customers and generate strong returns for our stockholders in the process.

Lloyd Hajdik (EVP and CFO)

That completes our prepared remarks. Jeannie, would you open up the call for questions and answers at this time?

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, press Star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jim Rawlinson with Raymond James. Please go ahead.

Jim Rawlinson (Analyst)

Hey, good morning, everyone, and congrats on a nice quarter given everything going on.

Lloyd Hajdik (EVP and CFO)

Thanks, Jim.

Jim Rawlinson (Analyst)

Cindy, first of all, great bookings quarter, obviously leading to backlog being at the kind of cycle high, which is great. Congrats on that. As we've gone through earnings season so far, there's obviously a lot of uncertainty about how the rest of the year might play out. One theme I've kind of heard recurring is longer cycle projects internationally and especially offshore seem to be proceeding. I mean, you're just coming off a great bookings quarter, but in conversations with your customers at this stage, curious what y'all are seeing from a willingness to proceed with plans that were already in progress given kind of what's happened on the macro just maybe as we think about bookings over the course of the rest of the year.

Cindy Taylor (President and CEO)

Oh, thanks, Jim. It's a great question. You've been doing this a long time as I have. Typically, development drilling programs that are multi-year in nature don't depend on short-term movements up and down in the commodity price. I think this is a continuation of that theme, quite frankly. These are more development drilling programs that are decades long. It's not new exploratory programs. It's always the short cycle weighted to U.S. shell that tends to be the quickest to flex up in a recovery and down in a cycle. I think we're seeing that play out significantly as we go forward. If I comment about our strong bookings, first of all, we're obviously thrilled to see that come early in the year, particularly in the first quarter.

A lot of this really exemplifies what I'm talking about, which is the major subsea equipment production equipment that we offer the market led by Brazil. They are the deep water leader globally. That really benefited us in the quarter and will continue to benefit us throughout not only this year but future years. I'd say we are also beginning to see early benefits of the strategic investment we made in our new Batam facility on our connector products. Again, that is a trend we expect to continue. Other than that, we are expanding and broadening our service and refurb and repair business around a larger installed base that really is supported by our global operations. I think that gives you the color of not only the successful bookings we had, but how we got confident around that.

We got into a book-to-bill north of one in connection with our last quarter call. I always say when you have a strong quarter like this, that guidance gets a lot more comfortable as we progress. That would be on the back of higher revenues, which obviously implies greater year-over-year bookings.

Jim Rawlinson (Analyst)

Absolutely. Appreciate the color there. Maybe since you brought up the short cycle stuff, your CPS business had a pretty remarkable sequential improvement. I think you noted part of it was from the cost efforts you guys have been doing for a while now and then Gulf of America benefits. Maybe if you could parse out kind of how the sequential impact was just between the cost side and the Gulf, and as we think about this going forward over the rest of the year, how sustainable are margins in that realm or better, and how are you seeing the Gulf unfold at this point?

Cindy Taylor (President and CEO)

I'll give some lead-off comments and ask Lloyd to pitch in with supplemental type feedback. We came out of the hurricane season in the third quarter with lower Gulf revenues, and that perpetuated throughout the fourth quarter as well. We were pleased to see some recovery in our Gulf operations. This is more differentiated equipment, high-end technology that's out in the marketplace, and it tends to support higher margins as a result. I'll also tell you that part of our updated guidance will be dependent on upgoing activity in the Gulf, which we are seeing continuing today. That's on a positive note. We have done, I think, a good job throughout 2024 of making decisions around the product and service lines that we wanted to remain in and, importantly, allocate capital to, which you have to do in that business, CP&S.

A lot of that was behind us, but there were still some fixed cost things to get out of, i.e., leases and buildings. You have to relocate equipment from one basin to new basins. It has been ongoing. I will tell you that throughout the first quarter, we are beginning to be on the downside of those types of efforts. I will say that I think our CP&S margins for the quarter, if I remember correctly, let Lloyd correct me if not, were in the 25% range. They really did recover strongly. I will not guarantee that level, but our goals were obviously 20% plus as we entered the year. Really pleased to see that improvement, not only in CP&S. We saw some also in downhole technologies.

I think if I look forward, it's very important to get all this transitional stuff behind us. Do either of the two want to add anything to that?

Lloyd Hajdik (EVP and CFO)

Cindy, just confirming your comments about the Gulf being the major driver of the improvement quarter over quarter, Q1 over Q4, certainly, with the strong recovery we saw in the Gulf operations. We are looking kind of across the rest of the year. We expect that to continue. To your point, yes, the EBITDA margin was about 25% in the first quarter, and we are targeting 20% or slightly above that for the full year for the segment.

Jim Rawlinson (Analyst)

Gotcha. If I could sneak one last quick one in, it's just your balance sheet is obviously in fantastic shape. Lloyd, correct me if I'm wrong, but you're kind of targeting free cash flow conversion rates of 40+%. As you generate free cash over the balance of the year, which is normally your better periods of time, how do you think about kind of the buckets of repurchasing shares that are even more depressed now than when you started the program versus maybe attacking a little bit more of the convert that's been below par and matures in April of next year versus just parking cash for a maybe slightly more uncertain environment?

Lloyd Hajdik (EVP and CFO)

Yeah. Yeah, I'll go ahead and take that first. In terms of where the stock price is today, I would expect us to be opportunistic and fairly aggressive in share repurchases with our free cash flow. I think the same question was asked on the February call. I don't think our investors want to be sitting on cash at this juncture with such a low stock price. To your point, also with the convert trading below 3%-4% below par at 96 or 97, there is some opportunity there to try to buy some of those back in ahead of the April 1, 2026 maturity date. I would say from a capital allocation priority, it's share repurchases and debt reduction leading into next year's maturity.

Jim Rawlinson (Analyst)

Gotcha. Gotcha. Thanks very much, guys, for the call.

Operator (participant)

Thanks, Jim. Again, if you would like to ask a question, press Star, then the number one on your telephone keypad. Your next question comes from the line of Sean Mitchell with Daniel Energy Partners. Please go ahead.

Sean Mitchell (Managing Partner)

Good morning, guys. Thanks for taking my question. Lloyd, maybe I know you mentioned or you guys talked a little bit about the tariffs, maybe the potential impact. It sounds like it's minimal at this point from what you know today. Is there any way to handicap? Is that a 5% lower, or is it 5% higher, 10% higher on cost? Have you done any kind of back of the envelope there?

Lloyd Hajdik (EVP and CFO)

We're working on that. I'd say that's probably in that range. I'm looking at Scott, and he's nodding his head, yes. Again, we mentioned on the conference call, the impacts are really around in the Downhole Technologies segment, specifically to the perforating business with the importation of the gun steel components, endplates, subs, etc., that our other competitors in the space are importing essentially from the same sources. Us and our competitors would be looking at similar price increases or cost increases that, all things being equal, would adjust in our selling prices to our customers.

Sean Mitchell (Managing Partner)

Got it. Cindy, maybe just yep, go ahead.

Cindy Taylor (President and CEO)

No, Sean, I just wanted to add that remember that the perforating side of our business is a smaller piece of the business in totality. A lot of what we need to do is just focus on the big picture for the total company, not an individual segment. We are not going to say we are not affected by these, but we are not seeing some of the material impacts that someone that is solely reliant on imports for equipment vested for U.S. use, right?

Sean Mitchell (Managing Partner)

Yeah. Okay. All right. I'll turn it back. Thanks, guys.

Operator (participant)

That concludes our Q&A session for today. I will now turn it back over to Cindy Taylor for closing remarks.

Cindy Taylor (President and CEO)

Thanks to all of you for your ongoing interest in the oil space and the work that you do to understand the drivers of our business, especially in volatile industry periods. We look forward to future discussions as we execute our strategy. Take care, and I hope you have a good earnings season for the remainder. Bye-bye.

Operator (participant)

This concludes today's conference call. You may now disconnect.