Oil States International - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered resilient offshore-driven results amid U.S. land softness: revenue $165.4M (+3% q/q, -11% y/y), GAAP diluted EPS $0.05, adjusted diluted EPS $0.09, and adjusted EBITDA $21.1M (+13% q/q).
• Offshore Manufactured Products outperformed: revenue +15% q/q to $106.6M, adjusted segment EBITDA +18% q/q to $21.1M; backlog reached $363M (highest since Sep-2015) with $112M bookings and 1.1x book-to-bill.
• Guidance: maintained full-year EBITDA $88–$93M; lowered full-year revenue to $685–$700M; Q3 guidance set at revenue $165–$170M and EBITDA $21–$23M.
• Versus S&P Global consensus: revenue missed ($165.4M vs $170.7M*), Primary EPS beat ($$0.09 vs $0.083*), and EBITDA was roughly in line ($$21.1M vs $21.0M*). Values retrieved from S&P Global.
• Capital allocation remains a catalyst: $14.8M of converts retired at ~97% of par and $6.7M of buybacks in Q2; ABL amended to expand availability and reduce interest expense ahead of April 2026 converts maturity.

What Went Well and What Went Wrong

What Went Well

• Offshore strength and backlog expansion: “Revenues from our Offshore Manufactured Products segment increased 15% sequentially…Bookings totaled $112 million…backlog of $363 million…book-to-bill 1.1x”.
• Mix improvement and cost actions: U.S. land mix fell to 28% from 36% y/y as restructuring progressed; adjusted EPS of $0.09 and adjusted EBITDA +13% q/q reflected higher-margin offshore/international mix.
• Liquidity and deleveraging: $15.0M cash from operations, $8.1M free cash flow, no ABL borrowings, and additional convertible note repurchases alongside share buybacks.

What Went Wrong

• U.S. land pressure: CPS revenue -15% q/q and Downhole -10% q/q amid frac spread and rig declines; CPS/Downhole adjusted segment EBITDA down a combined 12% q/q.
• Segment-level profitability headwinds: Downhole reported a $4.0M operating loss (vs. -$2.1M in Q1), including non-cash lease impairments and severance.
• Revenue below Street: consolidated revenue $165.4M missed S&P Global consensus ($170.7M*), driven by U.S. land activity reductions and planned exits of commoditized service lines. Values retrieved from S&P Global. Management stressed exits improve margins/free cash flow despite revenue declines.

Transcript

Speaker 5

Thank you for standing by. My name is Jael and I will be your conference operator today. At this time, I would like to welcome everyone to the Oil States International Second 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, just press star one again. I would now like to turn the conference over to Ellen Pennington, VP of Human Resources. You may begin.

Speaker 3

Thank you, Jael. Good morning and welcome to Oil States International Second Quarter 2025 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor, Lloyd Hajdik, Oil States International 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 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 International's 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.

Speaker 0

Thank you, Ellen. Good morning and thank you for joining our conference call today, where we will discuss our second quarter 2025 results and provide our thoughts on market trends in addition to discussing our company's specific strategy and outlook. In a quarter marked by geopolitical instability, lower crude oil prices, and fluctuating U.S. trade policies, offshore and international markets demonstrated resilience. With this backdrop, the company performed well, achieving the midpoint of our guided EBITDA range for the second quarter of 2025 due to our product and service mix. Our consolidated results in the second quarter were driven by continued strength of international and offshore activity, supported by backlog growth over recent quarters. Oil States remains well-positioned to benefit going forward as oil and gas operators favor capital allocation to offshore projects with higher production, slower decline curves, and lower break-evens.

During the second quarter, 72% of our consolidated revenues were generated from offshore and international projects, up significantly sequentially and year over year. This shift in revenue mix reflects our strategic actions to grow our international project-driven revenues, as well as our continuing initiative to optimize our U.S. land operations, given lower industry activity levels and competitive market dynamics. U.S. land drilling and completion activity declined significantly during the period, with the quarter-end rig count down 8% and the frac spread count down 14% from March 31, 2025. These U.S. activity reductions stem from weaker crude oil prices driven by ongoing macroeconomic uncertainty and OPEC+'s decision to rapidly unwind over 2 million barrels per day of previous production cuts. The sustained margin benefits stemming from our U.S.

land-based optimization efforts, which were initiated in 2024 and have continued into 2025, are reflected in our results, albeit tempered by the significant decline in U.S. oil-directed activities during the second quarter. Driven by strong demand across our international and offshore markets, our Offshore Manufactured Products segment delivered strong performance. Revenues increased 15% sequentially, while adjusted segment EBITDA rose 18%. Backlog increased to $363 million, again allowing us to achieve our highest level since September 2015. Robust bookings of $112 million, reflective of continued strength in offshore project activity, yielded a quarterly book-to-bill ratio of 1.1 times and a year-to-date ratio of 1.2 times, reinforcing our sustained backlog build. The strength and diversity of our backlog supports our outlook for total company incremental revenue and earnings growth over the balance of 2025.

Our Completion and Production Services and Downhole Technologies segments, which represent a smaller portion of our business mix, experienced sequential quarter revenue declines of 15% and 10% respectively, primarily due to the significant industry-wide reduction in U.S. land-based activity levels. Responsive to market conditions, we made the strategic decision to exit three additional land-based facilities during the second quarter and to further reduce our U.S. land-focused workforce. During the second quarter, we grew our cash flow from operations 61% sequentially, and we generated $8 million of free cash flow. Free cash flow, together with cash on hand, was used during the quarter to repurchase $7 million of our common stock and $15 million of our convertible senior notes. Our deleveraging efforts should unlock additional equity value to our stockholders as we approach net debt zero and pay off our convertible senior notes at their maturity in April 2026.

Our capital expenditures in the second quarter were elevated by the ongoing construction of our new manufacturing facility in Batam, Indonesia, which will complete in the third quarter, along with the manufacture of our low-impact workover rental riser equipment built pursuant to contracts. We are committed to optimizing our operations and making targeted investments in our highest performing operations while leveraging cutting-edge technologies to drive growth. Our commitment to technology and innovation was once again honored with a 2025 Meritorious Engineering Award from Hart Energy, recognizing our low-impact workover package, which I mentioned earlier. This solution integrates proven field technologies to enhance subsea plug and abandonment operations while ensuring the integrity of aging wells. Lloyd will now review our operating results along with our financial position in more detail.

Speaker 5

Thanks, Cindy, and good morning, everyone. During the second quarter, we generated revenues of $165 million and adjusted consolidated EBITDA of $21 million. Net income totaled $3 million or $0.05 per share, which included facility exit, severance, and other charges and credits totaling $3 million. Our adjusted net income totaled $5 million or $0.09 per share after excluding these charges and credits. Our Offshore Manufactured Products segment generated revenues of $107 million and adjusted segment EBITDA of $21 million in the second quarter. Adjusted segment EBITDA margin was 20% in the second quarter compared to 19% in the first quarter. In our Completion and Production Services segment, we generated revenues of $29 million and adjusted segment EBITDA of $8 million in the second quarter. Adjusted segment EBITDA margin was 28%, benefiting from facility and equipment sale gains in the second quarter compared to 25% in the first quarter.

During the quarter, the segment recorded facility exit and other restructuring charges totaling $2 million. In our Downhole Technologies segment, we generated revenues of $29 million and $1 million of adjusted segment EBITDA in the second quarter. During the quarter, the segment recorded a non-cash operating lease and asset impairment charge of $1 million, as well as severance charges. We generated $15 million of cash flow from operations in the second quarter. Our cash flows were used to fund $10 million of CapEx, which was offset by $3 million in proceeds from the sale of idle properties and equipment. During the quarter, we repurchased $7 million of our common stock under our current share repurchase authorization. In addition, we purchased $15 million of our convertible senior notes at a slight discount.

As a testament to our strong financial position as of June 30, we maintained a solid cash on hand position with no borrowings outstanding on the company's asset-based revolving credit facility. On July 28, we amended our revolving credit facility to provide for additional borrowing availability, to lower interest charges, and to plan for the retirement of our remaining convertible senior notes at maturity in April 2026. We intend to remain opportunistic with additional purchases of our common stock and convertible senior notes, given our solid free cash flow outlook, and will continue to prioritize returns to stockholders. Now, Cindy will offer some market outlook concluding comments.

Speaker 0

Despite recent economic volatility and the imposition and uncertainty around new trade tariffs, we continue to see strong demand for our offshore and international products and services. Our backlog remains at a decade-high level, and we anticipate continued strength in future bookings and have confidence in our offshore project execution. Industry analysts have suggested that while U.S. land-based activity may remain subdued, offshore and international markets are expected to lead upstream growth. Analysts have also highlighted a global pivot towards exploration and offshore development, driven by the need for lower cost, lower carbon resources. As it relates to guidance, based on what we know today, we are maintaining our full-year EBITDA guidance in a range between $88 million to $93 million. However, our revenue guidance needs to be updated for the streamlining of our U.S. land operations, which will reduce our full-year revenue range to $685 million to $700 million.

Our margins will improve with the high grading of our business mix, along with cost reduction initiatives. Our third quarter guidance calls for revenues in a range of $165 million to $170 million and EBITDA of $21 million to $23 million. Strong projected cash flow from operations, which are still expected to be in a range of $65 million to $75 million for the full year, underscores Oil States' free cash flow yields, which is one of the most attractive across our peer group. Our business mix and capital allocation strategies are purpose-driven. We are investing in innovation that provides meaningful advancements to customer operations, driving solid results through project execution, generating significant cash flow that strengthens our balance sheet while unlocking equity value for our stockholders. At the same time, we're building solutions that help our customers thrive in a dynamic world.

These decisions we make are focused on building a stronger, more resilient company that drives meaningful results for those we serve. That completes our prepared comments. Jael, would you open up the call for questions and answers at this time?

Speaker 5

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To ask a question, it is star one. Your first question comes from the line of Jim Rawlison of Raymond James. Your line is open.

Hey, good morning, Cindy and Lloyd. How are you guys today?

Speaker 3

Good, Jim, doing well.

Cindy, maybe circling back to offshore, listening to some of the commentary through this earnings season so far, generally, most people seem to have suggested everything still seems to be on the same track there, and most of the uncertainty seems to be hitting the shorter cycle markets like the U.S. land market you mentioned. I'd just love to hear the kind of color from conversations you've had because you made a comment that everything seems to be on track that fits with what everybody's saying. There have been some talking about some decisions getting pushed into next year just from a timing and because of the uncertainty, but it doesn't sound like that's impacting you. I'd just love to get whatever you could expand on that if you don't mind.

Speaker 0

I'd be happy to. It's hard for me to speak for other companies on the pushing of projects, but my supposition is likely that this is discretionary type investments, could be for drilling offshore drilling rig equipment or a number of other kind of new opportunity sets, whereas ours is much more weighted to production infrastructure associated with these large fields that have already been drilled and discovered. This tends to be multi-year, multi-decade type developments, and we have a lot of individual project visibility that these don't really derail on short-term macroeconomic issues. I think that's the real difference, it's probably discretionary, likely more upgrades, drilling rig equipment, consumables versus large project production infrastructure, which has really been the primary driver of our backlog growth, although we've had several different products, including new products, come into our backlog, such as our new MPD system.

It's probably a combination of the type of equipment we offer to market and benefits of new technology brought to market.

Got it.

Before I leave, I should take the opportunity to say that our bookings outlook remains robust, and we do fully expect that the balance of the year will continue to lead to a book-to-bill north of one.

That's great to hear. Cindy, any updated view or Lloyd, any updated view on kind of tariff impacts just given a few changes since the last quarter?

I'm happy. Right now, we just don't anticipate a material impact from the tariff situation given our variety of global supply sourcing, number one, and two, the fact that a lot of our projects can be manufactured anywhere in the world, and then they are shipped into international locations. The one area that will probably have modest cost increases is actually in the Downhole Technologies, the perforating side of the business, which, as you know, is rather small for us.

Yep, absolutely. Last one, just on the cash flow, free cash flow outlook, Lloyd, you mentioned kind of reiterated the $65 million to $75 million of cash flow from operations, and your CapEx obviously in Q2 was a little more, you know, heavy relative to Q1. My recollection was your kind of annual CapEx guidance was somewhere in the $25 million ballpark. Just trying to circle back on what your CapEx view is so I can, you know, we can back into where free cash flow should come out for the full year.

Speaker 4

Yeah, great, Jim. We're going to guide to CapEx about $30 million because we were a little higher in the second quarter for the completion of the Batam and some specific built riser equipment for customer contracts.

Speaker 0

Yeah, and the Batam spending was in our plans, but what's new is this low-impact workover riser, and again, this is equipment built for future revenue streams. It is perfectly logical that we would up that guided CapEx range for this is special spending pursuant to contracts.

Right. That also wasn't what was in your guide necessarily, was some additional proceeds from asset sales, which have been at least partially offsetting that incremental $5 million, right?

That's correct, and that's likely to continue as we exit some of these land-based operations. We'll have excess equipment, excess inventory, and facilities to monetize. As you know, a lot of that monetization will take time, and we don't have that in our forward guidance.

Speaker 4

Yep, perfect. Thank you, guys. Appreciate it.

Speaker 5

Your next question comes from the line of Patrick Willett of Stifel. Your line is open.

Hey, it's Pat O'Leod on for Steve and Jagero. Thanks for taking the questions. Your revenue mix was about 72% offshore and international during the quarter. Do you have any idea what maybe a normalized mix is given the high grading of the U.S. product lines?

Speaker 0

Yeah, it's going, that's a great question, and I probably will break that down a little bit for you in saying that of the 28% current land-based mix, about half of that comes from our Downhole Technologies segment. A portion is military, so it's kind of not what we would think. The reality is the Completion and Production Services segment, which if you all recall has Gulf of Mexico activity, land-based activity, and international activity. The land-based piece was really only about 11% or 12% per CPNS, which is really the area that we have done restructuring around. It's a much smaller piece of U.S. land-driven service activity than probably people recognize.

All right, great. That's really helpful. Thank you. As you continue to streamline the U.S. land operations, could you give us maybe any guidance on the puts and takes of current market conditions and your improving cost structure and how that impacts 2H 2025 margins?

Yeah, I'll look to Lloyd to kind of look to that and realize that the margin progression will accrete throughout the second half and be higher, quite frankly, into 2026. Again, for the reasons I just talked about, these are recent decisions to exit three facilities. Severance costs, some have been accrued, some will still come. We've got some move, relocation, sale of equipment, blah, blah, blah. There'll be some ongoing drag on margins, but the go-forward margins, I'll look more towards 2026, should be in a range of what, Lloyd?

Speaker 5

Upper 20s to low 30s.

Speaker 0

Yeah, noticeable, almost a doubling of our EBITDA margins by these actions.

Great. Thanks for the outlook there. I'll turn it back.

Thanks, Matt.

Speaker 5

Your next question comes from the line of John Daniel of Daniel Energy Partners. Your line is open.

Good morning, Cindy and Lloyd. Thanks for having me. The first one is just a housekeeping. Cindy, can you remind me what % of the U.S. land-based business is tied to production vs. D&C activity?

Speaker 0

I'm going to say I attribute virtually everything we do to completions. Remember, we are completely out of flowback and well testing, which you might have said is I can put that in completions too, but we're completely out of that line. I'd say everything we have left is really focused on completion activity, zero drilling.

Right. Got it. Okay. If you could wave a magic wand and get whatever land-based business you wanted, what would that be today and why?

We have our Downhole Technologies, which, you know, you can think perforating and plugs. These are downhole consumables. While the market has been under competitive pressure, that is a really good long-term business to be in, again, because you consume it downhole and you can manage your cost structure a bit more readily than others. Our Tempuris product line is absolutely a market-leading technology for the drill-out of plugs during completion operations, and I would put my money right there.

Okay. Got it. It's pretty easy for us to see, like when a frac company shuts down or a workover rig company shuts down. I don't always see what happens on some of the niche tool businesses, if you will. I'm curious, are you seeing any type of headaches with some of your competitors on those product lines where there might be some?

What do you mean? Clarify niche tools.

I'm just saying, like, it's just any type of, like, small tool rental businesses. It's, you know, when you drive around, I don't know, we write about it, like, you'll see, like, a rig yard shut down or a frac yard shut down or a coil tubing person shut down, but you don't often hear about some of the smaller rental companies. I'm just curious, like, within some of the markets you compete, are you seeing maybe the competitive dynamics potentially getting more favorable to you because some of your less well-capitalized competitors maybe don't?

Yeah, remember, there's only about 11% or 12% of my revenue mix today shrinking.

I know. I'm just.

I'm just going to throw that out there. I'm going to put the reverse in. You ought to look at what we are doing, which will farm up the market, but it'll farm it up for someone else.

Right. Okay.

Speaker 4

Because our focus is more international and offshore, correct?

No, I know. I'm just stuck as an old man now here. Sorry. Just digging in.

Speaker 0

Okay. The market will firm up, and there's lots of discussion about consolidating the land-based market, which is overdue. All I'm saying is that's not going to be what we do.

Fair enough. I just got to get your whys and experience. I figured I'd test you with the questions. Thank you for having me. Okay.

Thank you, Jim.

You guys as well. Bye.

Speaker 5

Your next question comes from the line of Chuck Mendervino of Susquehanna. Your line is open.

Hi, good morning.

Speaker 0

Thank you. Good morning, Chuck.

Good morning. Just a couple of questions. Number one, the guidance for the full year, it kind of implies a step up in revenues in the fourth quarter and also EBITDA. I was just wondering if you could kind of touch on what's happening there, you know, to kind of get to that full-year number.

No, that's a very astute observation, and it's absolutely correct. It is going to be led by our Offshore Manufactured Products segment, and most of it is based on backlog build. We've had a 1.2 year-to-date book-to-bill ratio. While you can always worry a little bit about whether they come in the fourth quarter or flip to the first based on material receipts, these are generally POC contracts, and they are generally in backlog. You're right, there is a step up in Q4 based on that.

Got it. In the Completion and Production Services segment, I thought it was interesting that such a small piece of that is U.S. land business, just given the decline year-over-year in revenues in that segment. I was just wondering what other aspect of that business kind of saw a sharp decline, or if you could just explain a little bit what's going on there. It sounds like it maybe was more than just the U.S. land piece that may have declined.

I think that the big point that I fear that maybe the street has missed a little bit is we are in a continual mode of exiting these commoditized product lines started last year where, you know, we had a decent flowback and well-testing business, certainly contributed to revenue, but contributed very little to EBITDA and maybe negative cash flow, probably was. That is no longer in our revenue mix. We have also announced, I can't remember if it's late last year or early this year, closure of various regions on our Completion and Production Services segment in the Northeast, in East Texas, and other regions, and we just announced three more. When you do that, yes, revenues come down, but given how marginal these operations were, they're not damaging our EBITDA, and they're actually improving our free cash flow.

Yep, I did notice the substantial margin improvement there as well. Okay, that's all for me. Thank you.

Thanks, Chuck.

Speaker 5

Your next question comes from the line of Stephen Gingaro of Stifel. Your line is open.

Thanks. Good morning, everybody. I apologize if I missed this because I joined late, but I was curious, on the offshore side and on the order flow side, it's obviously been very good year to date. It sounds like from talking to others, there's a potential for a pretty solid uptick in offshore activity in 2026 plus. Are you seeing that and any thoughts on how we should be thinking about order flow for the next several quarters?

Speaker 0

No, absolutely. I think you did miss the comment I made that we are looking at a book-to-bill north of one throughout the balance of this year and do have optimism as we go into 2026. We actually had some very good clarifying questions. I think it came from Jim in terms of kind of why are you different, meaning a lot of companies are kind of guiding down, but we're more long-cycle project-driven, production infrastructure-driven, less so on shorter-term, you know, upgrades, refurbs of rig equipment and the like. I think the rig equipment exposure we have is very strategic, and it's new technology to market, particularly our MPD-type assets. That was a new, basically, product introduction made early last year.

It's got great reception in the market from a variety of customers, but I would mention SeaDrill in particular, which we have some joint marketing videos out there that really talk about the differentiation of the equipment in the market. We have recently introduced a low-impact system for P&A operations that we think is unique and improved technology. It's for older wellheads, and it could be any wellhead, but certainly had an advantage for older wellheads that elevated our CapEx, but that investment was made pursuant to contracts with customers. That's why we upped our CapEx guided from $25 million to $30 million. A large proportion of our spending, probably 50%, is unique and expansionary, i.e., the Batam facility, as well as this new intervention riser that we plan to take to market on a rental basis.

Great. Thanks. The other quick question, it's a little scary because I just look back at my model and it goes back to 2001, I think, at the Offshore Manufactured Products margins over the years. Is that range, like when you think about sort of a range in 2025 and 2026, you had a nice uptick in the second quarter. Is that, you know, kind of give or take 20% range, something that we should probably be modeling in for the next year or two, or do you think there's potentially an upside to that as absorption maybe is a little higher?

I would probably model in.

2020 to 2022.

20 to '22. We have a five-year model, and obviously, what a real driver for improved margin is steady, consistent throughput through our facilities. As backlog builds, we should get that. There's always some mix issues depending on which product has the higher weighting in a given quarter. Overall, and you've been with us a long, long time, probably our historical margins over two decades in that segment were somewhere from about 13% to 17%. If you look over the last five years, our revenue growth, our EBITDA growth, and our margin progression has been very favorable in that segment. Now we're more sustained and have been around kind of 19% to 20%. If revenue continues to grow and expand, as we think it will, those should accrete up to 21% to 22% over time.

Great. No, that's great color. Thank you.

Thank you.

Thanks, Stephen.

Speaker 5

That concludes our Q&A session. I will now turn the conference back over to Cindy for closing remarks.

Speaker 0

All right. Jael, thank you so much for helping us host the call today. I do thank all of you for your time and joining us. What we attempted to communicate during this call is that we are focused on the right end markets. We're getting leaner by design, and we're being more selective about our capital allocation strategies. With that backdrop, we expect to see higher EBITDA margins and enhanced cash flows, all efforts that should benefit our stockholders. Thanks, and have a great day.

Speaker 5

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