Earnings call transcript: Oil States Q4 2024 beats EPS, misses revenue

Oil States International (OIS) reported its fourth-quarter 2024 earnings, surpassing earnings per share (EPS) forecasts but falling short on revenue expectations. The company posted an EPS of $0.09, exceeding the anticipated $0.075, but reported revenues of $164.6 million, below the forecasted $182.13 million. The stock price reacted negatively, dropping 4.66% to $5.12, reflecting investor concerns over the revenue shortfall. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculation, with analysts setting price targets ranging from $5.75 to $9.00.

[Get access to 12+ exclusive InvestingPro Tips for Oil States International and discover why top analysts remain bullish despite recent volatility.]

Key Takeaways

• EPS surpassed expectations by 20%, but revenue fell short.
• Stock price declined by 4.66% in pre-market trading.
• Strong growth in international and offshore revenues.
• Continued innovation in product offerings and technology.
• Revenue guidance for 2025 remains optimistic.

Company Performance

Oil States International demonstrated resilience in the fourth quarter of 2024, focusing on international markets and innovative product lines. The company reported significant growth in offshore and international revenues, which now account for 72% of its total revenue. Despite the revenue miss, the company’s strategic focus on high-end technologies and offshore markets positions it well for future growth.

Financial Highlights

• Revenue: $164.6 million, below forecast.
• EPS: $0.09, beating forecast by 20%.
• Adjusted EBITDA: $19 million.
• Adjusted Net Income: $5.5 million.
• Cash Flows from Operations: $18 million.
• Capital Expenditures: $14 million.

Earnings vs. Forecast

The company exceeded EPS expectations by 20%, posting $0.09 against a forecast of $0.075. However, it missed revenue expectations, reporting $164.6 million compared to the projected $182.13 million. This mixed performance reflects both operational strengths and areas needing improvement.

Market Reaction

Oil States’ stock price fell by 4.66% to $5.12 following the earnings release. This decline indicates investor concerns over the revenue miss, despite the positive EPS results. The stock remains closer to its 52-week low, highlighting ongoing challenges in market sentiment.

Outlook & Guidance

Looking forward, Oil States provided an optimistic revenue guidance for 2025, projecting between $700 million and $735 million. The company anticipates strong EBITDA growth of $88 million to $93 million and expects Q1 2025 revenues to range from $160 million to $170 million.

Executive Commentary

CEO Cindy Taylor emphasized the company’s strategic focus, stating, "We are planning for revenue growth in this environment." She also highlighted the importance of shareholder returns, noting, "No shareholder pays us to sit on cash."

Risks and Challenges

• Revenue miss raises concerns about demand in the U.S. land market.
• Stock price decline may reflect broader investor skepticism.
• Potential supply chain disruptions could impact future performance.
• Economic volatility may affect capital investment in key regions.
• Competition in international markets remains intense.

Q&A

During the earnings call, analysts questioned the company’s strategy in the U.S. land market and its approach to shareholder returns. Management reiterated its focus on high-end technologies and strategic buybacks, aiming to improve margins and enhance shareholder value.

Full transcript - Oil States International Inc (NYSE:OIS) Q4 2024:

Mark, Conference Operator: 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 4Q24 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.

Ms. Ellen Pennington, you may begin your conference.

Ellen Pennington, Corporate Communications, Oil States: Thank you, Mark. Good morning, and welcome to Oil States’ fourth quarter twenty twenty four earnings conference Call. Our call today will be led by our President and CEO, Cindy Taylor and Lloyd Hajek, 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 State’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 twelve months. I’ll now turn the call over to Cindy.

Cindy Taylor, President and CEO, Oil States: Thank you, Ellen. Good morning and thank you for joining our conference call today where we will discuss our fourth quarter twenty twenty four 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 US domestic land based activities with continued expansion of our international and offshore product offerings along with the strategic optimization of our US 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 adult facility netting cash proceeds of $24,800,000 resulting in a pretax gain of 15,300,000.0 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 twenty twenty four 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 $18,000,000 and repurchased $9,000,000 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 Hajek, Executive Vice President and CFO, Oil States: Thanks, Cindy. Good morning, everyone. During the fourth quarter, we generated revenues of $165,000,000 and adjusted consolidated EBITDA of $19,000,000 Our adjusted net income totaled $5,500,000 or $0.09 per share after excluding a gain of 15,300,000 associated with the sale of a previously idled facility and $3,100,000 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 $107,000,000 and adjusted segment EBITDA of $25,000,000 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 $30,000,000 and adjusted segment EBITDA of $3,500,000 in the fourth quarter. Adjusted segment EBITDA excluded operating lease asset impairment charges of $1,200,000 and facility closure and other charges totaling $1,900,000 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 $1,600,000 or 5% sequentially.

In our Downhole Technologies segment, we reported revenues of $27,000,000 and breakeven adjusted segment EBITDA for the fourth quarter. Despite some large planned collections from customers moving into early January, Oil States generated $18,000,000 in cash flows from operations during the quarter. We invested $14,000,000 in CapEx, a portion of which was customer funded, which was more than offset by the $25,000,000 in net proceeds received during the fourth quarter from this idle facility sale. As Cindy mentioned, cash was used to buy back $9,000,000 of our common stock. Now Cindy will offer some market outlook and concluding comments.

Cindy Taylor, President and CEO, Oil States: 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 bills 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 receive 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 flex joint deepwater 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 is 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 $700,000,000 and $735,000,000 and full year EBITDA to range between $88,000,000 and $93,000,000 Our first quarter guidance calls for revenues in a range of $160,000,000 to $170,000,000 and EBITDA of $17,500,000 to $18,500,000 Cash flows from operations are expected to remain strong in 2025 in a range of 65,000,000 to 75,000,000 with CapEx of approximately 25,000,000 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?

Mark, Conference Operator: And your first question comes from the line of Stephen Gengaro with Stifel. Your line is now open.

Stephen Gengaro, Analyst, Stifel: Thanks. Good morning, everybody.

Cindy Taylor, President and CEO, Oil States: Hi, Stephen.

Stephen Gengaro, Analyst, Stifel: I think two things for me. Cindy, you kind of alluded to free cash flow of looks like $40,000,000 to $50,000,000 next in 2025. What are you are you focused on buybacks over debt reduction at this point? Like how do you think about the allocation of that free cash?

Cindy Taylor, President and CEO, Oil States: 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 60,000,000 of net debt. In Lloyd’s comments, we had some very large receivables due late in December that were actually collected on January 9, I think and so I think the point of that is we were roughly net debt 45,000,000 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, Analyst, Stifel: 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 remind us sort of the revenue opportunity you have on the FPSO side. I think one of the big players just sort of suggested 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, Oil States: Well, 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, etcetera, 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 is 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 our 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 it varied I hate to tell you it varies greatly depending on how that field is designed I were 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 build out so if I were giving you a range just on the large of the key connectors is probably anywhere from to order of magnitude and so they’re important to us without question. In turn 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 baton facility and kind of existing backlog and bidding and quoting activity give us a level of confidence to guide to higher revenues.

Stephen Gengaro, Analyst, Stifel: No, great. That’s great color. And if I could just ask one more quick one and that is without asking you sort of specifics, you’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, but what percentage of that do you think falls in that category of sort of stuff that’s kind of if we could if we found a way to divest it, we would. Is it 10% or is it greater?

Cindy Taylor, President and CEO, Oil States: I’m not sure I understand what you’re asking, Steve.

Lloyd Hajek, Executive Vice President and CFO, Oil States: So first off, we did put in the press release that the revenue impact from the exited operations in 2024 was $41,000,000 So that’s that’s okay. I think that’s your starting point.

Cindy Taylor, President and CEO, Oil States: Yes. So I I think the point of what Lloyd is saying, your model may be modeling different revenue mix right 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. Yeah. And and if we’re answering the your specific question.

Stephen Gengaro, Analyst, Stifel: Yeah. No. That that helps. That that helps. That helps.

Thank you.

Cindy Taylor, President and CEO, Oil States: But we did put all of that information on the exited information. It’ll be in the 10 ks to help you model.

Lloyd Hajek, Executive Vice President and CFO, Oil States: It’s in the press release too. And that’s just specific to the completion and production services segment.

Stephen Gengaro, Analyst, Stifel: Yes. 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 what’s left currently, how what percentage of that kind of revenue base is kind of would you sort of think about as sort of lower margin or stuff that would be extended?

Cindy Taylor, President and CEO, Oil States: Well, Doctor. And you followed us a long time. The key initiatives are often times around kind of our Downhill Technologies business I mean you look at the overall results that they were relatively breakeven but it was a very weak market in November with the holidays and shutdown of completion activity, but a huge focus of us has been and will be in 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.

Stephen Gengaro, Analyst, Stifel: Great. That’s great color. Thank you.

Cindy Taylor, President and CEO, Oil States: Thank you, Stephen.

Mark, Conference Operator: And your next question comes from the line of Jim Rallison with Raymond (NSE:RYMD) James. Please go ahead.

Jim Rallison, Analyst, Raymond James: Hey, good morning, everyone. Maybe taking Stephen’s questions a step further, just so you 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 $20,000,000 type of or just under $20,000,000 of operating losses of stuff that you got rid of, and your full year to date number was low $20,000,000 operating loss. So just kind of trying to bridge the gap here on as we think about 25,000,000 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, like the margin profile in completion production for ’twenty five given what happened in ’twenty four?

Cindy Taylor, President and CEO, Oil States: Yes. 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% to 20% range in twenty twenty five percent. So very substantial EBITDA these are EBITDA margins improvement.

And even last year, a lot of those were impairment charges that 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.

You know, 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, you know, the Gulf Of America rig count 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.

Jim Rallison, Analyst, Raymond James: 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 is 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.

Cindy Taylor, President and CEO, Oil States: 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 tend to be mix 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 we I can’t say that the margin profile is really that different in totality just higher revenues helps with absorption and incrementals.

Jim Rallison, Analyst, Raymond James: Got it. Got it. And then one last follow-up is just kind of circling back to the $40,000,000 50 million dollars of free cash flow. Stephen asked a 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, Oil States: 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 Rallison, Analyst, Raymond James: Awesome. Thanks for all the color. Appreciate it guys.

Cindy Taylor, President and CEO, Oil States: Thanks Jim.

Stephen Gengaro, Analyst, Stifel: Thanks Jim.

Mark, Conference Operator: And our next question comes from the line of Blake MacLean with Daniel Energy Partners. Please go ahead.

Blake MacLean, Analyst, Daniel Energy Partners: Hey, good morning, all.

Jim Rallison, Analyst, Raymond James: Hi, Blake. Hi.

Blake MacLean, Analyst, Daniel Energy Partners: 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 safe technology adoption perspective, maybe just

Lloyd Hajek, Executive Vice President and CFO, Oil States: a little more color on specific markets.

Cindy Taylor, President and CEO, Oil States: Well, I will. I mean, I’ve hit on some of it already, but some of our most differentiated technology is the connection technology we put into production facilities, specifically SPSOs and others. And that has been and will continue to be driven by areas like Brazil, Guyana and on an emerging basis, Surname 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 deepwater driller and producer in the world. So one would think it 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 the Tom. And with that, we do expect to take on incremental market share.

We’ve 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. 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 traditional products coupled with new technology introductions, including the managed pressure drilling systems.

Blake MacLean, Analyst, Daniel Energy Partners: Got it. That’s helpful. Thank you. I guess just 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 you know, going forward through the rest of this year, you know, hope springs eternal 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, Oil States: Yeah, I mean, ours 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 it run an efficient operation and gain market share with the 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 q four, but this was stuff we already had in inventory. We’re moving it into the manufacturer of the valves, supporting the new frac leaks that we have gained in January, but very selective in terms of that capital allocation

Blake MacLean, Analyst, Daniel Energy Partners: got it cindy loyd thank you all very much for your time

Cindy Taylor, President and CEO, Oil States: thanks bloke thanks bloke

Mark, Conference Operator: There are no further question at this time. I turn the call back over to you, Missy Taylor.

Cindy Taylor, President and CEO, Oil States: 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 earning season and hope to see some of you soon.

Take care.

Mark, Conference Operator: That concludes today’s conference call. You may now disconnect.

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