Oil States International - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered mixed results: GAAP net income of $15.2M ($0.24 diluted EPS) benefited from a $15.3M facility sale gain; adjusted net income was $5.5M ($0.09 EPS) with consolidated revenues of $164.6M and adjusted EBITDA of $18.7M. Sequential revenue declined 6% and adjusted EBITDA declined 13% due to lower U.S. land activity and exited service lines; offshore/international remained resilient.
• Offshore Manufactured Products grew 5% QoQ to $107.3M revenue with 23% adjusted segment EBITDA margin; bookings rose to $113M and backlog ended at $311M, supporting strong 2025 visibility. U.S. land-driven segments (Completion & Production Services, Downhole) remained pressured but show margin improvement potential as restructuring actions take hold.
• 2025 guidance introduced: revenue $700–$735M, EBITDA $88–$93M; Q1 2025 guidance: revenue $160–$170M, EBITDA $17.5–$18.5M. FY 2025 cash from operations $65–$75M and CapEx ~$25M, enabling ongoing share repurchases under the $50M authorization.
• Stock-relevant narrative: offshore/international strength (Latin America, Asia, Africa), market adoption of MPD integrated riser joint, and cost/portfolio optimization in U.S. land; capital returns via buybacks favored over debt reduction per management, a potential sentiment tailwind.

What Went Well and What Went Wrong

• What Went Well

  • Offshore Manufactured Products: revenue +5% QoQ to $107.3M, adjusted segment EBITDA +6% QoQ to $24.7M; bookings $113M, backlog $311M, book-to-bill 1.1x; “our offshore and international operations were very resilient” — Cindy Taylor.
  • Technology traction: managed pressure drilling integrated riser joint gained customer approval in South America; leadership highlighted FPSO connector opportunities (“$15–$25M order of magnitude”) and MPD demand.
  • Cash generation and capital returns: cash from operations $18.2M; free cash flow $29.3M in Q4; repurchased $9.1M of stock; facility sale delivered $24.8M proceeds and a $15.3M gain.

• What Went Wrong

  • U.S. land weakness: consolidated revenues down 6% QoQ driven by lower land activity and exited service lines; CPS revenue fell 25% QoQ to $30.1M; Downhole revenue fell 15% QoQ to $27.3M.
  • Margin pressure: adjusted consolidated EBITDA down 13% QoQ to $18.7M; CPS adjusted segment EBITDA down 35% QoQ to $3.5M; Downhole near breakeven adjusted segment EBITDA ($0.1M).
  • Non-GAAP headwinds/charges: Q4 included $3.1M of restructuring and other costs (and patent enforcement costs earlier in H2); GAAP earnings relied on a one-time $15.3M gain from facility sale.

Transcript

Operator (participant)

Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oil States 4th Quarter for earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker 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 star one again. Thank you. Ms. Ellen Pennington, you may begin your conference.

Ellen Pennington (Counsel and Assistant Corporate Secretary)

Thank you, Mark. Good morning and welcome to Oil States 4th Quarter 2024 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor, and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial 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 2023 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'll 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 fourth quarter 2024 results and provide our thoughts on market trends in addition to discussing our company-specific outlook. Through the fourth quarter, we continued to build momentum towards achieving our strategic objectives, supported by strong demand in offshore and international sectors while overcoming some headwinds in U.S. domestic land-based activities. With continued expansion of our international and offshore product offerings, along with the strategic optimization of our U.S. land-driven businesses, our international and offshore revenues by destination grew to 72% of our consolidated revenues for the quarter, while U.S. land-driven revenues represented 28%. As we have discussed in prior quarters, we have strategically streamlined our operations in the United States through the exit of underperforming locations and business lines. Our focus on business mix optimization continued during the fourth quarter.

Along these lines, we completed the sale of a previously idled facility netting cash proceeds of $24.8 million, resulting in a pre-tax gain of $15.3 million. Our offshore and international operations grew sequentially in terms of revenue and bookings during the fourth quarter. However, improvements in these regions were offset by our U.S. land-driven operations due to a declining frac spread count triggered by typical fourth quarter seasonality. Our completion and production work in the Gulf of America has rebounded to higher activity levels early in 2025 from a slower second half of 2024 following adverse third quarter weather events. 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 shareholders.

During the quarter, we generated cash flows from operations totaling $18 million and repurchased $9 million of our common stock. During 2025, we expect to generate strong free cash flow, allowing for further shareholder returns. 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 fourth quarter, we generated revenues of $165 million and adjusted consolidated EBITDA of $19 million. Our adjusted net income totaled $5.5 million, or $0.09 per share, after excluding a gain of $15.3 million associated with the sale of a previously idled facility and $3.1 million of restructuring charges incurred in connection with certain U.S. land-based operations and facility closures. Our Offshore Manufactured Products segment grew 5% sequentially, generating revenues of $107 million and adjusted segment EBITDA of $25 million, up 6% sequentially in the fourth quarter. Adjusted segment EBITDA margin was 23% in the fourth quarter, comparable to the third quarter. In our Completion and Production Services segment, we generated revenues of $30 million and adjusted segment EBITDA of $3.5 million in the fourth quarter.

Adjusted Segment EBITDA excluded operating lease asset impairment charges of $1.2 million and facility closure and other charges totaling $1.9 million. Excluding these charges, adjusted Segment EBITDA was 12% in the fourth quarter compared to 13% in the third quarter. Excluding the revenue impact of exited operations in both the third and fourth quarters, Completion and Production Services segment revenues declined $1.6 million, or 5% sequentially. In our Downhole Technology segment, we reported revenues of $27 million and break-even adjusted Segment EBITDA for the fourth quarter. Despite some large planned collections from customers moving into early January, Oil States generated $18 million in cash flows from operations during the quarter. We invested $14 million in CapEx, a portion of which was customer-funded, which was more than offset by the $25 million in net proceeds received during the fourth quarter from this idled facility sale.

As Cindy mentioned, cash was used to buy back $9 million of our common stock. Now, Cindy will offer some market outlook and concluding comments.

Cindy Taylor (President and CEO)

Strong long-term prospects for oil, natural gas, and LNG, coupled with growing global power demand, are expected to drive ongoing capital investments in offshore and international projects led by developments in Latin America, the United States, Asia, and Africa. Recently announced FIDs, which have resulted in production orders with major subsea OEMs and associated industry backlog builds, should continue to translate into increased demand for our products, driving higher bidding activity, bookings, and ultimately revenue growth. We are successfully marketing our Managed Pressure Drilling systems, which received further market acceptance with key customer approval to operate in South America during the fourth quarter. We are also seeing positive market momentum across our Conductor Connector products and our flagship FlexJoint deep water riser connector products. In the shallow water environment, project opportunities for fixed platform foundations, subsea pipeline, and associated repair systems, as well as topside equipment, are emerging.

These opportunities, combined with the low capital intensity of our global manufacturing operations, positions us for strong future growth and shareholder returns. While domestic market conditions and activity levels are expected to remain relatively flat throughout 2025, we expect profitability to improve within our completion and production services and downhole technology segments, given our restructuring initiatives undertaken in 2024, coupled with what is expected to be a more energy-friendly regulatory environment. Domestic revenue opportunities for new technology introductions, including our open architecture perforating systems and digital technologies for wireline service providers, should support market share gains. Internationally, our initiatives to secure contracts with our customers for the supply of perforating products are gaining traction, with recent awards in Latin America and the Eastern Hemisphere that are scheduled to commence in 2025. Given a solid offshore and international outlook, combined with the potential for incremental margin improvement across our U.S.

land-driven businesses, we expect 2025 full-year revenues to range between $700-$735 million and full-year EBITDA to range between $88-$93 million. Our first quarter guidance calls for revenues in a range of $160-$170 million and EBITDA of $17.5-$18.5 million. Cash flows from operations are expected to remain strong in 2025 in a range of $65-$75 million, with CapEx of approximately $25 million planned, providing opportunities for ongoing share repurchases during the year. I would remind listeners that we generally see lower cash flows in the first quarter of each year, driven by the timing of funding short- and long-term incentive payments. Our capital allocation priorities remain very focused. We are committed to investing in organic growth opportunities, prioritizing growth CapEx, and funding organic research and development, which will provide for sustained competitive advantages.

Our strategic priorities center on driving long-term profitability and growth by optimizing our global operations, capitalizing on the strength of offshore and international markets, and focusing on our core competencies and technology differentiators. By leveraging our expanded portfolio of technologies and specialized services, we aim to deliver superior value to our customers and generate strong returns for our stockholders. That completes our prepared comments. Mark, would you open up the call for questions and answers at this time, please?

Operator (participant)

Absolutely. At this time, I would like to remind everyone in order to ask a question to press star, followed by the number one on your telephone keypad. I'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Stephen Gengaro with Stifel. Your line is now open.

Stephen Gengaro (Managing Director)

Thanks. Good morning, everybody.

Lloyd Hajdik (EVP and CFO)

Hi, Stephan.

Stephen Gengaro (Managing Director)

Hi, Stephen. I think two things for me. Cindy, you kind of alluded to free cash flow of, looks like, $40-$50 million in 2025. Are you focused on buybacks over debt reduction at this point? How do you think about the allocation of that free cash?

Cindy Taylor (President and CEO)

We feel very comfortable with our debt levels. I think you saw we executed in Q4 with share repurchases. Yes, we do have our debt maturing in April, but at the end of the year, we noted we had roughly $60 million of net debt. In Lloyd's comments, we had some very large receivables due late in December that were actually collected on January 9th, I think. And so I think the point of that is we were roughly net debt $45 million in January. And so we're really not concerned with the level of debt that we have at this point. And I think it is prudent to focus on shareholder returns.

Stephen Gengaro (Managing Director)

Great. Thanks, and one of the things that kind of keeps surfacing in conversations is this sort of lack of offshore production capacity that sort of delayed rig activity. When we think about FPSO growth, can you give us a sense or a reminder sort of the revenue opportunity you have on the FPSO side? I think one of the big players I sort of suggested is seven to nine per year that are going to be ordered in the next couple of years. Can you just kind of frame your opportunity?

Cindy Taylor (President and CEO)

I can. I mean, we're embedded in our guidance. I know you need to work through the numbers, but there's revenue growth in our offshore manufactured products business. And that's really grounded on, one, existing backlog indicating growth in certain regions. Our bidding and quoting activity, particularly in South America, i.e., Brazil, Guyana, etc., give us the indication that the revenue growth appears solid, coupled with new technology introductions. And so I tend to get a bit more granular when we give our guidance. And it's really predicated on existing bidding and quoting activity that we have coming in. And you know as well, Stephen, we actually try to schedule that as best we can. It's never exact in terms of receiving the orders on a quarter-by-quarter basis. I think maybe we are a little bit different.

Everybody tends to focus on white space for drillers or any kind of new reactivations or rigs coming out of the market. And we're a little more production infrastructure-oriented. And I accept and realize that for analysts that follow it, it's a little harder because you don't ever see the back end on the deployment of the production infrastructure. And I think you're asking me, in a given FPSO opportunity, how big could that be? And I hate to tell you, it varies greatly depending on how that field is designed. I mean, we're really largely driven by the number of import lines, export lines on a facility. Sometimes they will phase those over a period of time. Sometimes you'll do a larger buildout. So if I were giving you a range just on the key connectors, it's probably anywhere from $15-$25 million order of magnitude.

And so they're important to us without question. And it's also some of our leading technology. I hope that answers your questions. I know it's kind of hard to model, but I think important for this call, we are planning for revenue growth in this environment. And I know that the macro suggests kind of a flattish international activity, but new product development, our new Batam facility, and kind of existing backlog and bidding and quoting activity give us a level of confidence to guide to higher revenues.

Stephen Gengaro (Managing Director)

Oh, great. No, that's great color. And if I could just ask one more quick one, and that is, without asking you sort of specifics, we've sort of talked about streamlining opportunities and focusing on more value-added product lines. Of the revenue guidance you gave, if you just kind of use that as a framework, or even 2024, what percentage of that do you think falls in that category of sort of stuff that's kind of, if we found a way to divest it, we would? Is it 10%, or is it greater?

Cindy Taylor (President and CEO)

I'm not sure I understand what you're asking, Stephen.

Lloyd Hajdik (EVP and CFO)

So first off, we did put in the press release that the revenue impact from the exited operations in 2024 was $41 million. So that's. Take that as your starting point for 2024.

Cindy Taylor (President and CEO)

Yeah, so I think the point of what Lloyd is saying, you're maybe modeling different revenue mix because of these exited businesses. But fundamentally, the mix and the margin profile has improved, and it is more exposed to offshore and international and more differentiated technology than it was before.

Lloyd Hajdik (EVP and CFO)

Yeah, and specific.

Cindy Taylor (President and CEO)

If we're answering your specific question.

Lloyd Hajdik (EVP and CFO)

Yeah. No, that helps. Thank you.

Cindy Taylor (President and CEO)

But we did put all of that information on the website information. It'll be in the 10-K to help you model.

Lloyd Hajdik (EVP and CFO)

Yeah. It's in the press release too, and that's just specific to the Completion and Production Services segment.

Yeah. No, that is helpful. I think I probably asked the question poorly, but I think my question was, of the remainder of the business, so sort of of what's left currently, what percentage of that kind of revenue base is kind of what you sort of think about as sort of lower margin or stuff that would be expanded along the way?

Cindy Taylor (President and CEO)

Beckington, you followed us a long time. The key initiatives are oftentimes around kind of our downhole technologies business. I mean, you look at the overall results, they were relatively break-even. But it was a very weak market in November, December with the holidays and shutdown of completion activity. But a huge focus of us has been and will be this year improving the margin profile for the downhole technology segment. And the international expansion efforts are already beginning to pay off in the sense of new contract opportunities internationally. And then we're rolling out new technology domestically. And we're seeing early indications of market share gains there as well.

Lloyd Hajdik (EVP and CFO)

Great. That's great color. Thank you.

Cindy Taylor (President and CEO)

Thank you, Stephen.

Operator (participant)

And your next question comes from the line of Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson (Equity Research Analyst)

Hey, good morning, everyone. Maybe taking Steven's questions a step further, just so he talked about the revenue side of that. The other part you put in the press release on completion and production services was the kind of $20 million type of or just under $20 million of operating losses of stuff that you got rid of. And your full year-to-date number was low $20 million operating loss. So just kind of trying to bridge the gap here on, as we think about 2025 and the margin profile in that business segment, how are you thinking about that when you look at what you've done to get rid of the kind of bad mix of stuff that you got rid of, the new tech and international rollout opportunities and the margins embedded there?

How do we think about, maybe for the full year or however you want to talk about it, the margin profile and completion production for 2025, given what happened in 2024?

Cindy Taylor (President and CEO)

Yeah. I'm looking to Lloyd to kind of tell me what it was for 2024, but I think it was mid-teens range. I'm sure you have that in front of you. And we are trying to move those margins more into the 19%-20% range in 2025. So very substantial EBITDA. These are EBITDA margins improvement. And even last year, a lot of those were impairment charges. They weren't necessarily cash costs. Some were. But as we go forward, this is a much cleaner year. We envision that today, i.e., we've gotten through a lot of this work. Our employees on the phone should know that this is largely behind us. And it'll pay off.

And I should also mention, in Completion and Production Services, we have a mix of businesses, part of which is international weighted to the Middle East, part of which is Gulf of Mexico, and I meant our Gulf of America, as it is now called. So that mix shifts to, again, a little more international offshore mix of business, which generally is a little higher margin and more resilient, albeit the Gulf of America rig counts low. It's beneficial work at good margins. And so that mix helps us as we go forward. And then again, the drag has been just the cost structure and some of the low to no margin contributing businesses that are no longer in our portfolio.

Got it. That's very helpful, Cindy. Appreciate that. Following up on that, one of the things kind of heard over the course of the last, I don't know, three or four quarters from other manufacturers of various products is kind of this theme that backlog has kind of been gradually rolling from lower margin work that was priced back coming out of COVID to gradually higher-priced backlog as pricing has gotten better because the market got stronger. Maybe just a little bit of commentary around you talk about bidding opportunities, and the general thesis seems to be your OMP revenues will grow year-over-year, but maybe talk about the kind of margin profile there.

We really didn't have the adverse margin. We didn't take a lot of loss leaders, if you will, during the down market. And so ours tends to be mixed-oriented. And if you go back for the last five years, our Offshore Manufactured Products business has been very solid in terms of growth and margin profile over the years and cash flow generation. I mean, it's a great business. And what we are looking for really is increased market share, top-line growth that incrementals come through very well. But I can't say that the margin profile is really that different in totality. Just higher revenues helps with absorption and incrementals.

Jim Rollyson (Equity Research Analyst)

Got it. Got it. And then one last follow-up is just kind of circling back to the $40-$50 million of free cash flow. If Stephen asked the question about debt repayment, and that makes sense, especially given where your converts are trading. How do you think about deploying that free cash flow between buying back stock and just kind of building more cash, given kind of where you are now and presumably where you are as of January with the extra collections?

Cindy Taylor (President and CEO)

Oh, we favor share repurchases. No shareholder pays us to sit on cash. And we've got plenty of balance sheet working capital to support repayment of the debt. I'm very fine with our debt level, but I don't think you sit for a year and not return cash to shareholders.

Jim Rollyson (Equity Research Analyst)

Awesome. Thanks for all the color. Appreciate it, guys.

Cindy Taylor (President and CEO)

Thanks, Jim.

Lloyd Hajdik (EVP and CFO)

Thanks, Jim.

Operator (participant)

Again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. And our next question comes from the line of Blake McLean with Daniel Energy Partners. Please go ahead.

Blake McLean (Managing Director)

Hey, good morning, y'all.

Lloyd Hajdik (EVP and CFO)

Hi, Blake.

Cindy Taylor (President and CEO)

Hi.

Blake McLean (Managing Director)

I was hoping maybe on the international and offshore opportunities that you could just maybe provide a bit more color on the various markets and how they differentiate and what those outlooks look like from an activity perspective, from an Oil States technology adoption perspective, maybe just a little more color on specific markets.

Cindy Taylor (President and CEO)

I will. I mean, I hit on some of it already, but some of our most differentiated technology is the connection technology we put into production facilities, specifically FPSOs and others, and that has been and will continue to be driven by areas like Brazil, Guyana, and on an emerging basis, Suriname as an example, where we have active bidding and quoting activity. That aligns very well with the industry dynamics, i.e., Petrobras is the largest deep-water driller and producer in the world, so one would think that we would have significant exposure there, and we do and have for years, and a growing presence, i.e., expanding into other product lines into the region, even including perforating products as an example. We probably have had static or shrinking market share in Southeast Asia because of a higher cost base of manufacturing.

That was the specific objective in building this new facility in Batam, and with that, we do expect to take on incremental market share. We have had very active bids and quotes of consequence around our large OD conductor casing connectors in that region, and we have the potential longer-term opportunity to move more manufacturing into that region. Our "transitional energy activities" are not that big as a percentage, but we do have some exposure, obviously, to fixed foundation wind. We talked about that in our conference call notes. We're doing some around CCS and geothermal, and we have longer-term potential for offshore wind, not in the United States, but really in the European region, but we're not counting on much growth there. It's more our traditional products coupled with new technology introductions, including the managed pressure drilling systems.

Blake McLean (Managing Director)

Got it. That's helpful. Thank you. I guess my last one, maybe on U.S. land, you talked about sort of flattish activity, although you guys will have improving profitability. But how do you think about the trajectory of activity here going forward through the rest of this year? Hope springs to turn on the dry gas basins, I guess. But any color you would provide on how you're thinking about that or things you're looking at or customer conversations?

Cindy Taylor (President and CEO)

Yeah. I mean, we've seen a lift in activity as early as January and taken on incremental frac fleets. We are very selective with our product offering on land. It's generally frac and isolation and extended reach technology for the most part. And we're very region-specific and customer-specific in doing so. So we have got to think about how to run an efficient operation and gain market share in the regions and with the customers that give us continuous work. We're not trying to be all things to all people in this. And again, we've augmented our operations with new technology introductions in that space, specifically the Active Seat Gate Valves that are used in frac and isolation. And more recently, we're introducing our automation equipment into that market. Just think about us being more high-end and very selective in terms of capital allocation to that business.

As an example, we did show a little higher CapEx in this segment in Q4, but this was stuff we already had in inventory. We're moving it into the manufacture of the valves, supporting the new frac fleet that we have gained in January, but very selective in terms of that capital allocation.

Blake McLean (Managing Director)

Got it. Cindy, Lloyd, thank you all very much for your time.

Cindy Taylor (President and CEO)

Thanks, Blake.

Lloyd Hajdik (EVP and CFO)

Thanks, Blake.

Operator (participant)

There are no further questions at this time. I turn the call back over to you, Ms. Cindy Taylor.

Cindy Taylor (President and CEO)

Okay. Thank you, Mark. I just want to thank all of you for joining the call today and for your continued interest and support in Oil States. We know we have some conferences coming up, and we hope to catch up with you more fully in the coming weeks and months. Have a great earnings season and hope to see some of you soon. Take care.

Operator (participant)

That concludes today's conference call. You may now.