UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number: 001-16337
OIL STATES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | 76-0476605 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
| |
Three Allen Center, 333 Clay Street | |
Suite 4620 | 77002 |
Houston, | Texas | (Zip Code) |
(Address of principal executive offices) | |
(713) 652-0582
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | OIS | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 23, 2021,April 22, 2022, the number of shares of common stock outstanding was 61,373,855.61,890,985.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Part I – FINANCIAL INFORMATION | Part I – FINANCIAL INFORMATION | | | Part I – FINANCIAL INFORMATION | | |
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Item 1. Financial Statements: | Item 1. Financial Statements: | | | Item 1. Financial Statements: | | |
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Condensed Consolidated Financial Statements | Condensed Consolidated Financial Statements | | | Condensed Consolidated Financial Statements | | |
Unaudited Consolidated Statements of Operations | Unaudited Consolidated Statements of Operations | | Unaudited Consolidated Statements of Operations | |
Unaudited Consolidated Statements of Comprehensive Loss | Unaudited Consolidated Statements of Comprehensive Loss | | Unaudited Consolidated Statements of Comprehensive Loss | |
Consolidated Balance Sheets | Consolidated Balance Sheets | | Consolidated Balance Sheets | |
Unaudited Consolidated Statements of Stockholders' Equity | Unaudited Consolidated Statements of Stockholders' Equity | | Unaudited Consolidated Statements of Stockholders' Equity | |
Unaudited Consolidated Statements of Cash Flows | Unaudited Consolidated Statements of Cash Flows | | Unaudited Consolidated Statements of Cash Flows | |
Notes to Unaudited Condensed Consolidated Financial Statements | Notes to Unaudited Condensed Consolidated Financial Statements | | – | 23 | Notes to Unaudited Condensed Consolidated Financial Statements | | – | 18 |
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Cautionary Statement Regarding Forward-Looking Statements | Cautionary Statement Regarding Forward-Looking Statements | | – | | Cautionary Statement Regarding Forward-Looking Statements | | – | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | – | | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | – | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | Item 3. Quantitative and Qualitative Disclosures About Market Risk | | Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | Item 4. Controls and Procedures | | Item 4. Controls and Procedures | |
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Part II – OTHER INFORMATION | Part II – OTHER INFORMATION | | | Part II – OTHER INFORMATION | | |
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Item 1. Legal Proceedings | Item 1. Legal Proceedings | | Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | Item 1A. Risk Factors | | Item 1A. Risk Factors | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 3. Defaults Upon Senior Securities | Item 3. Defaults Upon Senior Securities | | Item 3. Defaults Upon Senior Securities | |
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Item 4. Mine Safety Disclosures | Item 4. Mine Safety Disclosures | | Item 4. Mine Safety Disclosures | |
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Item 5. Other Information | Item 5. Other Information | | Item 5. Other Information | |
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Item 6. Exhibits | Item 6. Exhibits | | Item 6. Exhibits | |
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Signature Page | Signature Page | | Signature Page | |
OIL STATES INTERNATIONAL, INC.AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | | |
Products | Products | $ | 78,038 | | | $ | 82,643 | | | $ | 139,483 | | | $ | 185,623 | | Products | | $ | 85,761 | | | $ | 61,445 | | |
Services | Services | 67,686 | | | 63,602 | | | 131,830 | | | 180,316 | | Services | | 78,283 | | | 64,144 | | |
| | 145,724 | | | 146,245 | | | 271,313 | | | 365,939 | | | | 164,044 | | | 125,589 | | |
| Costs and expenses: | Costs and expenses: | | Costs and expenses: | | | |
Product costs | Product costs | 63,926 | | | 68,088 | | | 113,389 | | | 157,834 | | Product costs | | 64,801 | | | 49,463 | | |
Service costs | Service costs | 53,706 | | | 59,995 | | | 106,553 | | | 167,851 | | Service costs | | 61,803 | | | 52,847 | | |
Cost of revenues (exclusive of depreciation and amortization expense presented below) | Cost of revenues (exclusive of depreciation and amortization expense presented below) | 117,632 | | | 128,083 | | | 219,942 | | | 325,685 | | Cost of revenues (exclusive of depreciation and amortization expense presented below) | | 126,604 | | | 102,310 | | |
Selling, general and administrative expense | Selling, general and administrative expense | 22,092 | | | 23,992 | | | 43,317 | | | 50,116 | | Selling, general and administrative expense | | 23,833 | | | 21,225 | | |
Depreciation and amortization expense | Depreciation and amortization expense | 20,909 | | | 24,646 | | | 42,429 | | | 51,055 | | Depreciation and amortization expense | | 17,817 | | | 21,520 | | |
Impairments of goodwill | 0 | | | 0 | | | 0 | | | 406,056 | | |
Impairments of fixed and lease assets | 2,794 | | | 2,992 | | | 3,444 | | | 8,190 | | |
Other operating income, net | (85) | | | (134) | | | (439) | | | (27) | | |
| Impairments of fixed assets | | Impairments of fixed assets | | — | | | 650 | | |
Other operating (income) expense, net | | Other operating (income) expense, net | | 126 | | | (354) | | |
| | 163,342 | | | 179,579 | | | 308,693 | | | 841,075 | | | | 168,380 | | | 145,351 | | |
Operating loss | Operating loss | (17,618) | | | (33,334) | | | (37,380) | | | (475,136) | | Operating loss | | (4,336) | | | (19,762) | | |
| | | Interest expense, net | Interest expense, net | (2,699) | | | (4,179) | | | (5,024) | | | (7,683) | | Interest expense, net | | (2,672) | | | (2,325) | | |
Other income, net | Other income, net | 1,820 | | | 5,994 | | | 5,780 | | | 6,768 | | Other income, net | | 1,025 | | | 3,960 | | |
Loss before income taxes | Loss before income taxes | (18,497) | | | (31,519) | | | (36,624) | | | (476,051) | | Loss before income taxes | | (5,983) | | | (18,127) | | |
Income tax benefit | 3,226 | | | 6,893 | | | 5,543 | | | 46,384 | | |
Income tax (provision) benefit | | Income tax (provision) benefit | | (3,441) | | | 2,317 | | |
Net loss | Net loss | $ | (15,271) | | | $ | (24,626) | | | $ | (31,081) | | | $ | (429,667) | | Net loss | | $ | (9,424) | | | $ | (15,810) | | |
| Net loss per share: | Net loss per share: | | Net loss per share: | | | |
Basic | Basic | $ | (0.25) | | | $ | (0.41) | | | $ | (0.52) | | | $ | (7.19) | | Basic | | $ | (0.16) | | | $ | (0.26) | | |
Diluted | Diluted | (0.25) | | | (0.41) | | | (0.52) | | | (7.19) | | Diluted | | (0.16) | | | (0.26) | | |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | | Weighted average number of common shares outstanding: | | | |
Basic | Basic | 60,317 | | | 59,839 | | | 60,207 | | | 59,747 | | Basic | | 60,498 | | | 60,098 | | |
Diluted | Diluted | 60,317 | | | 59,839 | | | 60,207 | | | 59,747 | | Diluted | | 60,498 | | | 60,098 | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC.AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Thousands)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | |
Net loss | Net loss | $ | (15,271) | | | $ | (24,626) | | | $ | (31,081) | | | $ | (429,667) | | Net loss | | $ | (9,424) | | | $ | (15,810) | | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | | | |
| Currency translation adjustments | Currency translation adjustments | 3,160 | | | (1,230) | | | 1,631 | | | (16,021) | | Currency translation adjustments | | 861 | | | (1,529) | | |
| Comprehensive loss | Comprehensive loss | $ | (12,111) | | | $ | (25,856) | | | $ | (29,450) | | | $ | (445,688) | | Comprehensive loss | | $ | (8,563) | | | $ | (17,339) | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC.AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (Unaudited) | | | | (Unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
| Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 62,650 | | | $ | 72,011 | | Cash and cash equivalents | $ | 39,158 | | | $ | 52,852 | |
Accounts receivable, net | Accounts receivable, net | 170,424 | | | 163,135 | | Accounts receivable, net | 194,257 | | | 186,080 | |
Inventories, net | Inventories, net | 175,049 | | | 170,376 | | Inventories, net | 180,886 | | | 168,573 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 17,164 | | | 18,071 | | Prepaid expenses and other current assets | 20,238 | | | 19,222 | |
Total current assets | Total current assets | 425,287 | | | 423,593 | | Total current assets | 434,539 | | | 426,727 | |
| Property, plant, and equipment, net | Property, plant, and equipment, net | 355,405 | | | 383,562 | | Property, plant, and equipment, net | 330,118 | | | 338,583 | |
Operating lease assets, net | Operating lease assets, net | 29,093 | | | 33,140 | | Operating lease assets, net | 26,202 | | | 25,388 | |
Goodwill, net | Goodwill, net | 76,579 | | | 76,489 | | Goodwill, net | 76,179 | | | 76,412 | |
Other intangible assets, net | Other intangible assets, net | 195,612 | | | 205,749 | | Other intangible assets, net | 180,639 | | | 185,749 | |
Other noncurrent assets | Other noncurrent assets | 33,748 | | | 29,727 | | Other noncurrent assets | 30,288 | | | 32,889 | |
Total assets | Total assets | $ | 1,115,724 | | | $ | 1,152,260 | | Total assets | $ | 1,077,965 | | | $ | 1,085,748 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
Current portion of long-term debt | Current portion of long-term debt | $ | 18,231 | | | $ | 17,778 | | Current portion of long-term debt | $ | 44,047 | | | $ | 18,262 | |
Accounts payable | Accounts payable | 55,574 | | | 46,433 | | Accounts payable | 60,650 | | | 63,343 | |
Accrued liabilities | Accrued liabilities | 45,388 | | | 44,504 | | Accrued liabilities | 41,541 | | | 43,401 | |
Current operating lease liabilities | Current operating lease liabilities | 7,169 | | | 7,620 | | Current operating lease liabilities | 6,143 | | | 6,481 | |
Income taxes payable | Income taxes payable | 2,769 | | | 2,413 | | Income taxes payable | 4,857 | | | 2,564 | |
Deferred revenue | Deferred revenue | 45,210 | | | 43,384 | | Deferred revenue | 47,560 | | | 43,236 | |
Total current liabilities | Total current liabilities | 174,341 | | | 162,132 | | Total current liabilities | 204,798 | | | 177,287 | |
| Long-term debt | Long-term debt | 160,354 | | | 165,759 | | Long-term debt | 134,790 | | | 160,488 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 28,186 | | | 29,166 | | Long-term operating lease liabilities | 24,169 | | | 23,452 | |
Deferred income taxes | Deferred income taxes | 4,860 | | | 14,263 | | Deferred income taxes | 2,897 | | | 3,637 | |
Other noncurrent liabilities | Other noncurrent liabilities | 26,049 | | | 23,309 | | Other noncurrent liabilities | 23,203 | | | 25,058 | |
Total liabilities | Total liabilities | 393,790 | | | 394,629 | | Total liabilities | 389,857 | | | 389,922 | |
| Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
Common stock, $.01 par value, 200,000,000 shares authorized, 73,908,412 shares and 73,288,976 shares issued, respectively | 739 | | | 733 | | |
Common stock, $.01 par value, 200,000,000 shares authorized, 74,573,660 shares and 73,900,160 shares issued, respectively | | Common stock, $.01 par value, 200,000,000 shares authorized, 74,573,660 shares and 73,900,160 shares issued, respectively | 746 | | | 739 | |
Additional paid-in capital | Additional paid-in capital | 1,101,959 | | | 1,122,945 | | Additional paid-in capital | 1,106,963 | | | 1,105,135 | |
Retained earnings | Retained earnings | 314,479 | | | 329,327 | | Retained earnings | 272,143 | | | 281,567 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (69,754) | | | (71,385) | | Accumulated other comprehensive loss | (65,170) | | | (66,031) | |
Treasury stock, at cost, 12,508,964 and 12,283,817 shares, respectively | (625,489) | | | (623,989) | | |
Treasury stock, at cost, 12,682,668 and 12,521,834 shares, respectively | | Treasury stock, at cost, 12,682,668 and 12,521,834 shares, respectively | (626,574) | | | (625,584) | |
Total stockholders' equity | Total stockholders' equity | 721,934 | | | 757,631 | | Total stockholders' equity | 688,108 | | | 695,826 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,115,724 | | | $ | 1,152,260 | | Total liabilities and stockholders' equity | $ | 1,077,965 | | | $ | 1,085,748 | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC.AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
| Three Months Ended June 30, 2021 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity | |
Balance, March 31, 2021 | $ | 738 | | | $ | 1,100,077 | | | $ | 329,750 | | | $ | (72,914) | | | $ | (625,489) | | | $ | 732,162 | | |
Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2021 | | Balance, December 31, 2021 | $ | 739 | | | $ | 1,105,135 | | | $ | 281,567 | | | $ | (66,031) | | | $ | (625,584) | | | $ | 695,826 | |
Net loss | Net loss | — | | | — | | | (15,271) | | | — | | | — | | | (15,271) | | Net loss | — | | | — | | | (9,424) | | | — | | | — | | | (9,424) | |
Currency translation adjustments (excluding intercompany advances) | Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | 556 | | | — | | | 556 | | Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | (3,580) | | | — | | | (3,580) | |
Currency translation adjustments on intercompany advances | Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 2,604 | | | — | | | 2,604 | | Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 4,441 | | | — | | | 4,441 | |
Stock-based compensation expense: | Stock-based compensation expense: | | Stock-based compensation expense: | |
Restricted stock | Restricted stock | 1 | | | 1,882 | | | — | | | — | | | — | | | 1,883 | | Restricted stock | 7 | | | 1,828 | | | — | | | — | | | — | | | 1,835 | |
Surrender of stock to settle taxes on restricted stock awards | Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | — | | | 0 | | Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (990) | | | (990) | |
Adoption of ASU 2020-06 | — | | | — | | | — | | | — | | | — | | | 0 | | |
Balance, June 30, 2021 | $ | 739 | | | $ | 1,101,959 | | | $ | 314,479 | | | $ | (69,754) | | | $ | (625,489) | | | $ | 721,934 | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | $ | 746 | | | $ | 1,106,963 | | | $ | 272,143 | | | $ | (65,170) | | | $ | (626,574) | | | $ | 688,108 | |
| Six Months Ended June 30, 2021 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2020 | Balance, December 31, 2020 | $ | 733 | | | $ | 1,122,945 | | | $ | 329,327 | | | $ | (71,385) | | | $ | (623,989) | | | $ | 757,631 | | Balance, December 31, 2020 | $ | 733 | | | $ | 1,122,945 | | | $ | 329,327 | | | $ | (71,385) | | | $ | (623,989) | | | $ | 757,631 | |
Net loss | Net loss | — | | | — | | | (31,081) | | | — | | | — | | | (31,081) | | Net loss | — | | | — | | | (15,810) | | | — | | | — | | | (15,810) | |
Currency translation adjustments (excluding intercompany advances) | Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | 1,624 | | | — | | | 1,624 | | Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | 1,068 | | | — | | | 1,068 | |
Currency translation adjustments on intercompany advances | Currency translation adjustments on intercompany advances | — | | | — | | | — | | | 7 | | | — | | | 7 | | Currency translation adjustments on intercompany advances | — | | | — | | | — | | | (2,597) | | | — | | | (2,597) | |
Stock-based compensation expense: | Stock-based compensation expense: | | Stock-based compensation expense: | |
Restricted stock | Restricted stock | 6 | | | 4,697 | | | — | | | — | | | — | | | 4,703 | | Restricted stock | 5 | | | 2,815 | | | — | | | — | | | — | | | 2,820 | |
Surrender of stock to settle taxes on restricted stock awards | Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (1,500) | | | (1,500) | | Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (1,500) | | | (1,500) | |
Adoption of ASU 2020-06 | Adoption of ASU 2020-06 | — | | | (25,683) | | | 16,233 | | | — | | | — | | | (9,450) | | Adoption of ASU 2020-06 | — | | | (25,683) | | | 16,233 | | | — | | | — | | | (9,450) | |
Balance, June 30, 2021 | $ | 739 | | | $ | 1,101,959 | | | $ | 314,479 | | | $ | (69,754) | | | $ | (625,489) | | | $ | 721,934 | | |
Balance, March 31, 2021 | | Balance, March 31, 2021 | $ | 738 | | | $ | 1,100,077 | | | $ | 329,750 | | | $ | (72,914) | | | $ | (625,489) | | | $ | 732,162 | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC.AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, March 31, 2020 | $ | 732 | | | $ | 1,115,677 | | | $ | 392,669 | | | $ | (82,537) | | | $ | (623,909) | | | $ | 802,632 | |
Net loss | — | | | — | | | (24,626) | | | — | | | — | | | (24,626) | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | (442) | | | — | | | (442) | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | (788) | | | — | | | (788) | |
Stock-based compensation expense: | | | | | | | | | | | |
Restricted stock | 1 | | | 2,094 | | | — | | | — | | | — | | | 2,095 | |
Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (2) | | | (2) | |
| | | | | | | | | | | |
Balance, June 30, 2020 | $ | 733 | | | $ | 1,117,771 | | | $ | 368,043 | | | $ | (83,767) | | | $ | (623,911) | | | $ | 778,869 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2020 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders' Equity |
Balance, December 31, 2019 | $ | 726 | | | $ | 1,114,521 | | | $ | 797,710 | | | $ | (67,746) | | | $ | (621,244) | | | $ | 1,223,967 | |
Net loss | — | | | — | | | (429,667) | | | — | | | — | | | (429,667) | |
Currency translation adjustments (excluding intercompany advances) | — | | | — | | | — | | | (9,148) | | | — | | | (9,148) | |
Currency translation adjustments on intercompany advances | — | | | — | | | — | | | (6,873) | | | — | | | (6,873) | |
Stock-based compensation expense: | | | | | | | | | | | |
Restricted stock | 7 | | | 3,250 | | | — | | | — | | | — | | | 3,257 | |
Surrender of stock to settle taxes on restricted stock awards | — | | | — | | | — | | | — | | | (2,667) | | | (2,667) | |
Balance, June 30, 2020 | $ | 733 | | | $ | 1,117,771 | | | $ | 368,043 | | | $ | (83,767) | | | $ | (623,911) | | | $ | 778,869 | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | |
Cash flows from operating activities: | | | | | |
Net loss | $ | (9,424) | | | $ | (15,810) | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation and amortization expense | 17,817 | | | 21,520 | | | |
| | | | | |
| | | | | |
Impairments of fixed assets | — | | | 650 | | | |
Stock-based compensation expense | 1,835 | | | 2,820 | | | |
Amortization of debt discount and deferred financing costs | 469 | | | 895 | | | |
Deferred income tax benefit | (174) | | | (2,710) | | | |
| | | | | |
Gains on extinguishment of 1.50% convertible senior notes | — | | | (3,637) | | | |
Gains on disposals of assets | (543) | | | (307) | | | |
Other, net | 550 | | | 285 | | | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | (9,086) | | | (10,701) | | | |
Inventories | (13,090) | | | (3,890) | | | |
Accounts payable and accrued liabilities | (4,555) | | | 1,648 | | | |
| | | | | |
Deferred revenue | 4,324 | | | (206) | | | |
Other operating assets and liabilities, net | 1,142 | | | 1,026 | | | |
Net cash flows used in operating activities | (10,735) | | | (8,417) | | | |
| | | | | |
Cash flows from investing activities: | | | | | |
Capital expenditures | (2,858) | | | (4,120) | | | |
Proceeds from disposition of property and equipment | 869 | | | 1,851 | | | |
Other, net | (67) | | | (95) | | | |
Net cash flows used in investing activities | (2,056) | | | (2,364) | | | |
| | | | | |
Cash flows from financing activities: | | | | | |
Revolving credit facility borrowings | 367 | | | 12,220 | | | |
Revolving credit facility repayments | (367) | | | (24,220) | | | |
Issuance of 4.75% convertible senior notes | — | | | 135,000 | | | |
Purchases of 1.50% convertible senior notes | — | | | (120,000) | | | |
Other debt and finance lease repayments, net | (165) | | | (145) | | | |
Payment of financing costs | (68) | | | (7,961) | | | |
Shares added to treasury stock as a result of net share settlements due to vesting of stock awards | (990) | | | (1,500) | | | |
Net cash flows used in financing activities | (1,223) | | | (6,606) | | | |
| | | | | |
Effect of exchange rate changes on cash and cash equivalents | 320 | | | (111) | | | |
Net change in cash and cash equivalents | (13,694) | | | (17,498) | | | |
Cash and cash equivalents, beginning of period | 52,852 | | | 72,011 | | | |
Cash and cash equivalents, end of period | $ | 39,158 | | | $ | 54,513 | | | |
| | | | | |
Cash paid for: | | | | | |
Interest | $ | 522 | | | $ | 1,842 | | | |
Income taxes, net | 119 | | | 577 | | | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net loss | $ | (31,081) | | | $ | (429,667) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 42,429 | | | 51,055 | |
Impairments of goodwill | 0 | | | 406,056 | |
Impairments of inventories | 0 | | | 25,230 | |
Impairments of fixed and lease assets | 3,444 | | | 8,190 | |
Stock-based compensation expense | 4,703 | | | 3,257 | |
Amortization of debt discount and deferred financing costs | 1,366 | | | 4,067 | |
Deferred income tax benefit | (6,834) | | | (48,738) | |
Gains on extinguishment of 1.50% convertible senior notes | (4,022) | | | (4,779) | |
Gains on disposals of assets | (1,632) | | | (1,489) | |
Other, net | 375 | | | 3,177 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (6,962) | | | 56,062 | |
Inventories | (4,458) | | | (4,320) | |
Accounts payable and accrued liabilities | 11,896 | | | (34,227) | |
| | | |
Deferred revenue | 1,780 | | | 5,991 | |
Other operating assets and liabilities, net | 2,929 | | | 4,266 | |
Net cash flows provided by operating activities | 13,933 | | | 44,131 | |
| | | |
Cash flows from investing activities: | | | |
Capital expenditures | (7,311) | | | (8,915) | |
Proceeds from disposition of property and equipment | 3,422 | | | 5,418 | |
Other, net | (326) | | | (301) | |
Net cash flows used in investing activities | (4,215) | | | (3,798) | |
| | | |
Cash flows from financing activities: | | | |
Revolving credit facility borrowings | 12,571 | | | 72,173 | |
Revolving credit facility repayments | (31,571) | | | (53,104) | |
Issuance of 4.75% convertible senior notes | 135,000 | | | 0 | |
Purchases of 1.50% convertible senior notes | (125,952) | | | (10,595) | |
Other debt and finance lease activity, net | 119 | | | (165) | |
Payment of financing costs | (7,779) | | | (651) | |
Shares added to treasury stock as a result of net share settlements due to vesting of stock awards | (1,500) | | | (2,667) | |
Net cash flows provided by (used in) financing activities | (19,112) | | | 4,991 | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | 33 | | | 2 | |
Net change in cash and cash equivalents | (9,361) | | | 45,326 | |
Cash and cash equivalents, beginning of period | 72,011 | | | 8,493 | |
Cash and cash equivalents, end of period | $ | 62,650 | | | $ | 53,819 | |
| | | |
Cash paid for: | | | |
Interest | $ | 2,256 | | | $ | 3,486 | |
Income taxes, net | 920 | | | 2,888 | |
The accompanying notes are an integral part of these financial statements.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its subsidiaries (referred to in this report as "we" or the(the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission") pertaining to interim financial information. Certain information in footnote disclosures normally included with financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair statement of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. Certain prior-year amounts in the Company's unaudited condensed consolidated financial statements have been reclassified to conform to the current year presentation.
As further discussed in Note 13,11, "Commitments and Contingencies," the impact of the Coronavirus Disease 2019 ("COVID-19") pandemic and the related economic, business and market disruptions continuescontinue to evolve and itstheir future effects remain uncertain. The actual impact of these developments on the Company will depend on numerous factors, many of which are beyond management's control and knowledge. It is therefore difficult for management to assess or predict with precision the broad future effect of this health crisis on the global economy, the energy industry or the Company. During 2020 and the first half of 2021, the Company recorded asset impairments, severance and restructuring charges in response to these developments as further discussed in Note 3,2, "Asset Impairments and Other Restructuring Items." As additional information becomes available, events or circumstances change and strategic operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows.
The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, reserves on inventory, allowances for doubtful accounts, settlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by the Company as of the specified effective date. Management believes that recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.
The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2020.2021.
2. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB"), which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.
In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity's own equity (referred to as "ASU 2020-06"). This guidance eliminated the requirement that the carrying value of convertible debt instruments, such as the Company's 1.50% convertible senior notes due 2023 (the "2023 Notes"), be allocated between debt and equity components. As permitted under the standard, the Company adopted the guidance on January 1, 2021, using the modified retrospective transition method. Adoption of the standard resulted in a $12.2 million increase in the net carrying value of the 2023 Notes, a $2.7 million decrease in deferred income taxes and an $9.5 million net decrease in stockholders' equity. The effective interest rate associated with the 2023 Notes after adoption decreased from approximately 6% to approximately 2%, which compares to the contractual interest rate of 1.50%. As further discussed in Note 6, "Long-term Debt," the Company issued $135 million principal amount of its 4.75% convertible senior notes due 2026 (the "2026 Notes") on March 19, 2021, which have been accounted for in accordance with the provisions of ASU 2020-06.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
3. Asset Impairments and Other Restructuring Items
In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. DemandAs demand for most of the Company's products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, and these conditions caused rapid reductions to most of the Company's customers' drilling, completion and production activities and their related spending on the Company's products and services, particularly those supporting activities in the U.S. shale play regions. Whileregions, until the prices of and supply/demand for crude oil have increased significantly since reaching record low levels in April 2020, with crude oil inventory levels moderating, uncertainty remains regarding the timing of demand recovery to pre-COVID-19 levels. These conditions have and may continue to result in adverse impacts on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and in certain instances, non-payment of amounts owed.
imbalances eased. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives. The Company also assessed the carrying value of goodwill, long-lived and other assets based on the industry outlook regarding overall demand for and pricing of its products and services, other market considerations and the financial condition of the Company's customers. As a result of these events, actions and assessments, the Company recorded the following chargesinitiatives, which continued into 2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In this regard, during the first quarter of 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/ Manufactured Products | | Downhole Technologies | | Well Site Services | | Corporate | | Pre-tax Total | | Tax | | After-tax Total |
First quarter 2020 | | | | | | | | | | | | | |
Impairments of: | | | | | | | | | | | | | |
Goodwill | $ | 86,500 | | | $ | 192,502 | | | $ | 127,054 | | | $ | 0 | | | $ | 406,056 | | | $ | 19,600 | | | $ | 386,456 | |
Fixed assets | 0 | | | 0 | | | 5,198 | | | 0 | | | 5,198 | | | 1,092 | | | 4,106 | |
Inventories (Note 4) | 16,249 | | | 0 | | | 8,981 | | | 0 | | | 25,230 | | | 4,736 | | | 20,494 | |
Severance and restructuring costs | 112 | | | 0 | | | 548 | | | 0 | | | 660 | | | 139 | | | 521 | |
The Company further reduced its workforce and closed additional facilities in the United States during the second quarter of 2020, and recorded the following charges (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/ Manufactured Products | | Downhole Technologies | | Well Site Services | | Corporate | | Pre-tax Total | | Tax | | After-tax Total |
Second quarter 2020 | | | | | | | | | | | | | |
Impairments of fixed assets | $ | 0 | | | $ | 0 | | | $ | 2,992 | | | $ | 0 | | | $ | 2,992 | | | $ | 628 | | | $ | 2,364 | |
Severance and restructuring costs | 322 | | | 1,315 | | | 3,544 | | | 216 | | | 5,397 | | | 1,133 | | | 4,264 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
During the first and second quarters of 2021, the Company continued its restructuring efforts, closed additional facilities in the United States and continued to assess the carrying value of its assets based on management actions and the industry outlook regarding demand for and pricing of its products and services, and recorded the following charges (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/ Manufactured Products | | Downhole Technologies | | Well Site Services | | Corporate | | Pre-tax Total | | Tax | | After-tax Total |
First quarter 2021 | | | | | | | | | | | | | |
Impairments of fixed assets | $ | 0 | | | $ | 0 | | | $ | 650 | | | $ | 0 | | | $ | 650 | | | $ | 137 | | | $ | 513 | |
Severance and restructuring costs | 282 | | | 275 | | | 1,306 | | | 1,555 | | | 3,418 | | | 717 | | | 2,701 | |
| | | | | | | | | | | | | |
Second quarter 2021 | | | | | | | | | | | | | |
Impairment of operating lease assets | $ | 0 | | | $ | 0 | | | $ | 2,794 | | | $ | 0 | | | $ | 2,794 | | | $ | 587 | | | $ | 2,207 | |
Restructuring costs(1) | 0 | | | 203 | | | 2,351 | | | 0 | | | 2,554 | | | 536 | | | 2,018 | |
____________________
(1)Includes recognition of $1.9 million in additional lease-related liabilities associated with the exit of a long-term lease supporting the Well Site Services segment.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/ Manufactured Products | | Well Site Services | | Downhole Technologies | | Corporate | | Pre-tax Total | | Tax | | After-tax Total |
| | | | | | | | | | | | | |
Impairments of fixed assets (Note 3) | $ | — | | | $ | 650 | | | $ | — | | | $ | — | | | $ | 650 | | | $ | 137 | | | $ | 513 | |
Severance and restructuring costs | 282 | | | 1,306 | | | 275 | | | 1,555 | | | 3,418 | | | 717 | | | 2,701 | |
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Additionally, during the three and six months ended June 30,first quarter of 2021, the Company recognized $2.8$4.8 million and $7.6 million, respectively, in aggregate reductions to payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program. The Company continues to evaluate any and all benefits potentially available to it under the CARES Act.
Goodwill
Goodwill is allocated to each reporting unit based on acquisitions made by the Company and is assessed for impairment annually and when an event occurs or circumstances change that indicate the carrying amounts may not be recoverable. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is recorded. The Company had 3 reporting units – Offshore/Manufactured Products, Downhole Technologies and Well Site Services – whose goodwill balances totaled $482.3 million as of December 31, 2019. Given the significance of the March 2020 events described above, the Company performed a quantitative assessment of goodwill for impairment as of March 31, 2020. This interim assessment indicated that the fair value of each of the reporting units was less than their respective carrying amounts due to, among other factors, the significant decline in the Company's stock price (and that of its peers) and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in the Company's March 31, 2020 assessment from the assessment performed as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.
Management utilizes, depending on circumstances, a combination of valuation methodologies including a market approach and an income approach, as well as guideline public company comparables. The fair values of the Company's reporting units were determined using significant unobservable inputs (Level 3 fair value measurements).
Based on this quantitative assessment as of March 31, 2020, the Company concluded that goodwill recorded in the Downhole Technologies and Well Site Services segments was fully impaired while goodwill recorded in the Offshore/Manufactured Products segment was partially impaired. The Company therefore recognized non-cash goodwill impairment charges totaling $406.1 million in the first quarter of 2020, as presented in further detail in the table above.
The Company performed its annual quantitative assessment of goodwill as of December 1, 2020, which indicated that the fair value of the Offshore/Manufactured Products segment was greater than its carrying amount and no additional provision for impairment was required. The Company's remaining goodwill within the segment totaled approximately $76.5 million as of June 30, 2021 and December 31, 2020.
Long-lived Assets
The Company also assesses the carrying value of long-lived assets, including property, plant and equipment, operating lease assets and other intangible assets held by each of its segments (reporting units). As a result of the March 2020 assessment, the Company concluded that certain drilling-related property and equipment held by the Well Site Services segment was impaired and recognized a non-cash fixed asset impairment charge of $5.2 million in the first quarter of 2020.
During the first and second quarters of 2021, the Well Site Services segment recognized non-cash fixed and operating lease asset impairment charges of $0.7 million and $2.8 million, respectively, associated with the closure of additional facilities coupled with other management actions. During the second quarter of 2021, the segment also recorded an additional $1.9 million charge associated with the exit of a leased facility.
Should, among other events and circumstances, the ongoing war between Russia and Ukraine escalate or spread, global economic and industry conditions deteriorate, the COVID-19 pandemic business, supply chain and market disruptions worsen, the outlook for future operating results and cash flow for any of the Company's reporting unitssegments decline, income tax rates increase or regulations change, climate and environmental regulations or rules change, costs of equity or debt capital increase, valuationsvaluation for comparable public companies or comparable acquisition valuations decrease, or management implementimplements strategic decisions based on industry conditions, the Company may need to recognize additional impairment losses and/or other costs in future periods.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
4.3. Details of Selected Balance Sheet Accounts
Additional information regarding selected balance sheet accounts as of June 30, 2021March 31, 2022 and December 31, 20202021 is presented below (in thousands):
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Accounts receivable, net: | Accounts receivable, net: | | | | Accounts receivable, net: | | | |
Trade | Trade | $ | 125,332 | | | $ | 109,294 | | Trade | $ | 124,692 | | | $ | 116,434 | |
Unbilled revenue | Unbilled revenue | 23,813 | | | 23,173 | | Unbilled revenue | 24,368 | | | 24,389 | |
Contract assets | Contract assets | 18,074 | | | 35,870 | | Contract assets | 39,937 | | | 39,755 | |
Other | Other | 10,903 | | | 3,102 | | Other | 10,039 | | | 9,973 | |
Total accounts receivable | Total accounts receivable | 178,122 | | | 171,439 | | Total accounts receivable | 199,036 | | | 190,551 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | (7,698) | | | (8,304) | | Allowance for doubtful accounts | (4,779) | | | (4,471) | |
| | $ | 170,424 | | | $ | 163,135 | | | $ | 194,257 | | | $ | 186,080 | |
| Allowance for doubtful accounts as a percentage of total accounts receivable | Allowance for doubtful accounts as a percentage of total accounts receivable | 4 | % | | 5 | % | Allowance for doubtful accounts as a percentage of total accounts receivable | 2 | % | | 2 | % |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Deferred revenue (contract liabilities) | $ | 45,210 | | | $ | 43,384 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Deferred revenue (contract liabilities) | $ | 47,560 | | | $43,236 |
As of June 30, 2021,March 31, 2022, accounts receivable, net in the United States and the United Kingdom represented 64%78% and 20%12%, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of June 30, 2021.March 31, 2022.
For the sixthree months ended June 30, 2021,March 31, 2022, the $17.8$0.2 million net decreaseincrease in contract assets was primarily attributable to $33.3 million transferred to accounts receivable, which was partially offset by $15.4$15.3 million in revenue recognized during the period.period, which was substantially offset by $15.1 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $1.8$4.3 million in the first halfthree months of 2021, primarily2022, reflecting $7.2$10.9 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $5.4$6.6 million of revenue that was deferred at the beginning of the period.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following provides a summary of activity in the allowance for doubtful accounts for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Allowance for doubtful accounts – January 1 | Allowance for doubtful accounts – January 1 | $ | 8,304 | | | $ | 8,745 | | Allowance for doubtful accounts – January 1 | $ | 4,471 | | | $ | 8,304 | |
Provisions | Provisions | 61 | | | 2,549 | | Provisions | 943 | | | 214 | |
Write-offs | Write-offs | (815) | | | (2,184) | | Write-offs | (635) | | | (116) | |
Other | Other | 148 | | | 1,152 | | Other | — | | | 143 | |
Allowance for doubtful accounts – June 30 | $ | 7,698 | | | $ | 10,262 | | |
Allowance for doubtful accounts – March 31 | | Allowance for doubtful accounts – March 31 | $ | 4,779 | | | $ | 8,545 | |
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Inventories, net: | Inventories, net: | | | | Inventories, net: | | | |
Finished goods and purchased products | Finished goods and purchased products | $ | 90,623 | | | $ | 88,634 | | Finished goods and purchased products | $ | 91,215 | | | $ | 87,934 | |
Work in process | Work in process | 30,248 | | | 27,063 | | Work in process | 30,706 | | | 24,722 | |
Raw materials | Raw materials | 93,968 | | | 95,410 | | Raw materials | 98,285 | | | 96,357 | |
Total inventories | Total inventories | 214,839 | | | 211,107 | | Total inventories | 220,206 | | | 209,013 | |
Allowance for excess or obsolete inventory | Allowance for excess or obsolete inventory | (39,790) | | | (40,731) | | Allowance for excess or obsolete inventory | (39,320) | | | (40,440) | |
| | $ | 175,049 | | | $ | 170,376 | | | $ | 180,886 | | | $ | 168,573 | |
The Company recorded impairment charges totaling $25.2 | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
Property, plant and equipment, net: | | | | | | | | | |
| | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
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Property, plant and equipment | | $ | 1,140,743 | | | $ | 1,151,533 | |
Accumulated depreciation | | (810,625) | | | (812,950) | |
| | | | | | | $ | 330,118 | | | $ | 338,583 | |
For the three months ended March 31, 2022 and 2021, depreciation expense was $12.7 million inand $16.4 million, respectively.
During the first quarter of 20202021, the Well Site Services segment recognized non-cash impairment charges of $0.7 million to reduce the carrying value of inventoriescertain of the segment's fixed assets to their estimated net realizable value followingvalue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Other intangible assets: | | | | | | | | | | | |
Customer relationships | $ | 168,276 | | | $ | 69,509 | | | $ | 98,767 | | | $ | 168,284 | | | $ | 66,734 | | | $ | 101,550 | |
Patents/Technology/Know-how | 78,815 | | | 34,679 | | | 44,136 | | | 78,821 | | | 33,151 | | | 45,670 | |
Tradenames and other | 53,682 | | | 15,946 | | | 37,736 | | | 53,708 | | | 15,179 | | | 38,529 | |
| $ | 301,299 | | | $ | 120,660 | | | $ | 180,639 | | | $ | 300,813 | | | $ | 115,064 | | | $ | 185,749 | |
For the three months ended March 2020 decline in crude oil prices, which reduced the near-term utility of certain goods within the Offshore/Manufactured Products31, 2022 and Well Site Services segments.2021, amortization expense was $5.2 million and $5.2 million, respectively.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
| | | | | | | | | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 |
Property, plant and equipment, net: | | | | | | | | | |
Land | | $ | 34,661 | | | $ | 34,968 | |
Buildings and leasehold improvements | | | | | | | 265,793 | | | 267,072 | |
Machinery and equipment | | | | | | | 242,849 | | | 239,986 | |
Completion-related rental equipment | | | | | | | 505,795 | | | 507,755 | |
Office furniture and equipment | | | | | | | 32,329 | | | 35,767 | |
Vehicles | | | | | | | 77,415 | | | 81,607 | |
Construction in progress | | 5,879 | | | 7,207 | |
Total property, plant and equipment | | 1,164,721 | | | 1,174,362 | |
Accumulated depreciation | | (809,316) | | | (790,800) | |
| | | | | | | $ | 355,405 | | | $ | 383,562 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Other noncurrent assets: | | | |
Deferred compensation plan | $ | 21,607 | | | $ | 23,348 | |
Deferred financing costs | 2,525 | | | 2,674 | |
Deferred income taxes | 1,341 | | | 1,878 | |
Other | 4,815 | | | 4,989 | |
| $ | 30,288 | | | $ | 32,889 | |
For the three months ended June 30, 2021 and 2020, depreciation expense was $15.6 million and $18.5 million, respectively. Depreciation expense was $32.0 million and $38.6 million for the six months ended June 30, 2021 and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Other intangible assets: | | | | | | | | | | | |
Customer relationships | $ | 168,290 | | | $ | 60,937 | | | $ | 107,353 | | | $ | 168,288 | | | $ | 55,380 | | | $ | 112,908 | |
Patents/Technology/Know-how | 78,528 | | | 30,425 | | | 48,103 | | | 75,920 | | | 26,124 | | | 49,796 | |
Noncompete agreements | 0 | | | 0 | | | 0 | | | 16,044 | | | 14,742 | | | 1,302 | |
Tradenames and other | 53,708 | | | 13,552 | | | 40,156 | | | 53,708 | | | 11,965 | | | 41,743 | |
| $ | 300,526 | | | $ | 104,914 | | | $ | 195,612 | | | $ | 313,960 | | | $ | 108,211 | | | $ | 205,749 | |
For the three months ended June 30, 2021 and 2020, amortization expense was $5.3 million and $6.1 million, respectively. Amortization expense was $10.5 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively.
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Other noncurrent assets: | | | |
Deferred compensation plan | $ | 24,026 | | | $ | 22,801 | |
Deferred financing costs | 3,097 | | | 0 | |
Deferred income taxes | 1,466 | | | 1,280 | |
Other | 5,159 | | | 5,646 | |
| $ | 33,748 | | | $ | 29,727 | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Accrued liabilities: | | | |
Accrued compensation | $ | 16,840 | | | $ | 18,463 | |
Accrued taxes, other than income taxes | 11,029 | | | 7,307 | |
Insurance liabilities | 6,677 | | | 7,694 | |
Accrued interest | 3,605 | | | 2,202 | |
Accrued commissions | 1,263 | | | 1,416 | |
Other | 5,974 | | | 7,422 | |
| $ | 45,388 | | | $ | 44,504 | |
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
5. Net Loss Per Share
The table below provides a reconciliation of the numerators and denominators of basic and diluted net loss per share for the three and six months ended June 30, 2021 and 2020 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Numerators: | | | | | | | |
Net loss | $ | (15,271) | | | $ | (24,626) | | | $ | (31,081) | | | $ | (429,667) | |
Less: Income attributable to unvested restricted stock awards | 0 | | | 0 | | | 0 | | | 0 | |
Numerator for basic net loss per share | (15,271) | | | (24,626) | | | (31,081) | | | (429,667) | |
Effect of dilutive securities: | | | | | | | |
Unvested restricted stock awards | 0 | | | 0 | | | 0 | | | 0 | |
Numerator for diluted net loss per share | $ | (15,271) | | | $ | (24,626) | | | $ | (31,081) | | | $ | (429,667) | |
| | | | | | | |
Denominators: | | | | | | | |
Weighted average number of common shares outstanding | 61,335 | | | 60,987 | | | 61,252 | | | 60,879 | |
Less: Weighted average number of unvested restricted stock awards outstanding | (1,018) | | | (1,148) | | | (1,045) | | | (1,132) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator for basic and diluted net loss per share | 60,317 | | | 59,839 | | | 60,207 | | | 59,747 | |
| | | | | | | |
Net loss per share: | | | | | | | |
Basic | $ | (0.25) | | | $ | (0.41) | | | $ | (0.52) | | | $ | (7.19) | |
Diluted | (0.25) | | | (0.41) | | | (0.52) | | | (7.19) | |
The calculation of diluted net loss per share for the three and six months ended June 30, 2021 excluded 437 thousand shares and 468 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. The calculation of diluted net loss per share for the three and six months ended June 30, 2020 excluded 596 thousand shares and 613 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of both the 2023 Notes and the 2026 Notes were excluded due to, among other factors, their antidilutive effect. | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Accrued liabilities: | | | |
Accrued compensation | $ | 16,586 | | | $ | 20,904 | |
Accrued taxes, other than income taxes | 6,758 | | | 5,130 | |
Insurance liabilities | 5,231 | | | 6,361 | |
Accrued interest | 5,337 | | | 3,629 | |
Accrued commissions | 2,502 | | | 2,194 | |
Other | 5,127 | | | 5,183 | |
| $ | 41,541 | | | $ | 43,401 | |
6.4. Long-term Debt
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, long-term debt consisted of the following (in thousands):
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Revolving credit facilities(1) | Revolving credit facilities(1) | $ | 0 | | | $ | 18,408 | | Revolving credit facilities(1) | $ | — | | | $ | — | |
2026 Notes(2) | 2026 Notes(2) | 130,851 | | | 0 | | 2026 Notes(2) | 131,506 | | | 131,291 | |
2023 Notes(3) | 2023 Notes(3) | 25,728 | | | 143,242 | | 2023 Notes(3) | 25,839 | | | 25,802 | |
Promissory note | Promissory note | 17,534 | | | 17,095 | | Promissory note | 17,534 | | | 17,534 | |
Other debt and finance lease obligations | Other debt and finance lease obligations | 4,472 | | | 4,792 | | Other debt and finance lease obligations | 3,958 | | | 4,123 | |
Total debt | Total debt | 178,585 | | | 183,537 | | Total debt | 178,837 | | | 178,750 | |
Less: Current portion | Less: Current portion | (18,231) | | | (17,778) | | Less: Current portion | (44,047) | | | (18,262) | |
Total long-term debt | Total long-term debt | $ | 160,354 | | | $ | 165,759 | | Total long-term debt | $ | 134,790 | | | $ | 160,488 | |
____________________
(1)Presented net of $0.6 million of unamortized debt issuance costs as of December 31, 2020. Unamortized debt issuancedeferred financing costs of $3.1$2.5 million and $2.7 million as of June 30,March 31, 2022 and December 31, 2021, respectively, are presented in Otherother noncurrent assets.
(2)The outstanding principal amount of the 2026 Notes was $135.0 million as of June 30,March 31, 2022 and December 31, 2021.
(3)The outstanding principal amount of the 2023 Notes was $26.0 million and $157.4 million as of June 30, 2021March 31, 2022 and December 31, 2020, respectively.2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
Revolving Credit Facilities
ABL Facility
On February 10, 2021, the Company entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into this facility, the Company's former senior secured revolving credit facility (discussed below) was terminated. On March 16, 2021, the Company entered into an amendment to the ABL Facility that permitted the Company to incur the indebtedness represented by the 2026 Notes.Notes discussed below.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note discussed below).
The ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0 million sub-limit for the issuance of letters of credit. Borrowings under the ABL Agreement are secured by a pledge of substantially all of the Company's domestic assets (other than real property) and the stock of certain foreign subsidiaries.
Borrowings under the ABL Agreement bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% to 3.25% and subject to a LIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. TheQuarterly, the Company must also pay a quarterly commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement.
The ABL Agreement places restrictions on the Company's ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2023 Notes and the 2026 Notes)Notes discussed below), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of repayment of all amounts then outstanding. The ABL Agreement also requires the Company to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of timetime: in the event that availability under the ABL Agreement is less than the greater of 15% of the borrowing base and $14.1 millionmillion; to complete certain specified transactions; or if an event of default has occurred and is continuing.
As of June 30, 2021,March 31, 2022, the Company had $17.3$19.6 million of outstanding letters of credit, but 0no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of June 30, 2021March 31, 2022 was $50.3$51.0 million, calculated based on the current borrowing base less outstanding borrowings, if any, and letters of credit. As of June 30, 2021,March 31, 2022, the Company was in compliance with its debt covenants under the ABL Agreement.
Former Facility
The Company's former senior secured revolving credit facility was governed by a credit agreement which was scheduled to mature on January 30, 2022. On June 17, 2020, the Company entered into an omnibus amendment to the credit agreement, under which lender commitments were reduced in exchange for the suspension of certain financial covenants through March 30, 2021.
The following provides a summary of the more significant provisions of the Company's former revolving credit facility.
| | | | | | | | | | | |
| Prior to June 17, 2020 | | From June 17, 2020 to February 10, 2021 |
Lender commitments | $350 million | | $200 million |
Interest rate on outstanding borrowings(1):
| | | |
LIBOR based borrowings | LIBOR plus a margin of 1.75% to 3.00% | | LIBOR plus a margin of 2.50% to 3.75% |
Base-rate based borrowings | Base rate plus a margin of 0.75% to 2.00% | | Base rate plus a margin of 1.50% to 2.75% |
Commitment fees(2)
| 0.25% to 0.50% | | 0.375% to 0.50% |
____________________
(1)Based on the ratio of the Company's total net funded debt to consolidated EBITDA.
(2)Based on unused commitments under the credit agreement.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
2026 Notes
On March 19, 2021, the Company issued $135$135.0 million aggregate principal amount of the 2026 Notesits 4.75% senior convertible notes (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. The Company used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes at a discount, with the balance added to cash on-hand.
The 2026 Notes bear interest at a rate of 4.75% per year until maturity.and will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest and special interest may accrue on the 2026 Notes under certain circumstances as described in the 2026 Indenture. The 2026 Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. The initial conversion rate is 95.3516 shares of the Company's common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of approximately $10.49 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2026 Indenture. The Company's intent is to repay the principal amount of the 2026 Notes in cash and settle the conversion feature in shares of the Company's common stock.
Noteholders may convert their 2026 Notes, at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the 5 consecutive business days immediately after any 5 consecutive trading day period (such 5 consecutive trading day period, the "measurement period") in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company's common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the 2026 Indenture; or (4) if the Company calls the 2026 Notes for redemption, or at any time from, and including, January 1, 2026 until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election, based on the applicable conversion rate(s). If the Company elects to deliver cash or a combination of cash and shares of common stock, then the consideration due upon conversion will be based on a defined observation period.
The 2026 Notes will be redeemable, in whole or in part, at the Company's option on or after April 6, 2024, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice.
If specified change in control events involving the Company as defined in the 2026 Indenture occur, then noteholders may require the Company to repurchase their 2026 Notes at a cash repurchase price equal to the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest. Additionally, the 2026 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. As of June 30, 2021,March 31, 2022, none of the conditions allowing holders of the 2026 Notes to convert, or requiring the Companyus to repurchase the 2026 Notes, had been met.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
2023 Notes
On January 30, 2018, the Company issued $200$200.0 million aggregate principal amount of the 2023 Notes,its 1.50% senior convertible notes (the "2023 Notes") pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. The 2023 Notes bear interest at a rate of 1.50% per year and will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of the 2023 Notes (equivalent to an initial conversion price of approximately $44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2023 Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature, if any, in shares of the Company's common stock.
The initial carrying As of March 31, 2022, $26.0 million principal amount of the 2023 Notes recorded in the consolidated balance sheet was less than their $200 million principal amount, in accordance with then-applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that did not have a conversion feature. The Company recorded the value of the conversion feature as a debt discount, which was amortized as interest expense over the term of the 2023 Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization, prior to the Company's adoption of the ASU 2020-06 revision to accounting guidance for convertible instruments effective January 1, 2021, the interest expense recognized on the 2023 Notes for accounting purposes was based on an effective interest rate of approximately 6%, which was greater than the cash interest the Company is obligated to pay. See Note 2, "Recent Accounting Pronouncement," for discussion of ASU 2020-06, which changed the Company's method of accounting for the 2023 Notes upon adoption.remained outstanding.
The following table provides details with respect to the carrying amounta summary of the 2023 Notes in the consolidated balance sheets as of June 30, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Principal amount of the liability component | $ | 25,969 | | | $ | 157,369 | |
Less: Unamortized discount | 0 | | | 12,308 | |
Less: Unamortized issuance costs | 241 | | | 1,819 | |
Net carrying amount of the liability component | $ | 25,728 | | | $ | 143,242 | |
| | | |
Net carrying amount of the equity component | n.a. | | $ | 25,683 | |
The following table presents the Company's purchases of outstanding 2023 Notes during the three- and six-month periodsthree months ended June 30,March 31, 2021, and 2020, with non-cash gains includedreported within other income, net (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Principal Amount | | Carrying Value of Liability | | Cash Paid | | Non-cash Gain Recognized |
Three months ended June 30, | | | | | | | |
2021 | $ | 6,400 | | | $ | 6,337 | | | $ | 5,952 | | | $ | 385 | |
2020 | 11,981 | | | 10,637 | | | 5,858 | | | 4,779 | |
Six months ended June 30, | | | | | | | |
2021 | $ | 131,400 | | | $ | 129,974 | | | $ | 125,952 | | | $ | 4,022 | |
2020 | 17,681 | | | 15,374 | | | 10,595 | | | 4,779 | |
Since December 31, 2018, the Company has purchased a cumulative $174.0 million principal amount of the outstanding 2023 Notes for $152.8 million in cash.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Principal Amount | | Carrying Value of Liability | | Cash Paid | | Non-cash Gains Recognized |
Three Months Ended March 31, | | | | | | | |
| | | | | | | |
2021 | $ | 125,000 | | | $ | 123,637 | | | $ | 120,000 | | | $ | 3,637 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Promissory Note
In connection with the 2018 acquisition of GEODynamics, (theInc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), the Company issued a $25.0 million promissory note that bears interest at 2.50% per annum (subject to adjustment) and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to the GEODynamics Acquisition. The Company has provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. The Company has incurred settlement costs and expenses of $7.5 million related to such indemnification claims, and believes that the maturity date of such note is extended until the resolution of such indemnity claims and that it is permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $17.5 million as of June 30, 2021,March 31, 2022, which is its current best estimate of what is owed after set-off for such indemnification matters. See Note 13,11, "Commitments and Contingencies."
7.5. Fair Value Measurements
The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the 2023 Notes and 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2023 Notes as of June 30, 2021March 31, 2022 was $24.4$24.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $26.0 million. The estimated fair value of the 2026 Notes as of June 30, 2021March 31, 2022 was $146.0$146.7 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $135.0 million.
8.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Stockholders' Equity
Common and Preferred Stock
The following table provides details with respect to the changes to the number of shares of common stock, $0.01 par value, outstanding during the first sixthree months of 20212022 (in thousands):
| | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Shares of common stock outstanding – December 31, 20202021 | | | | | 61,00561,378 | |
Restricted stock awards, net of forfeitures | | | | | 619674 | |
Shares withheld for taxes on vesting of stock awards and transferred to treasury | | | | | (225)(161) | |
Shares of common stock outstanding – June 30, 2021March 31, 2022 | | | | | 61,39961,891 | |
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had 25,000,000 shares of preferred stock, $0.01 par value, authorized, with 0no shares issued or outstanding.
9. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, reported as a component of stockholders' equity, decreased from $71.4 million at December 31, 2020primarily relates to $69.8 million at June 30, 2021, due to changesfluctuations in currency exchange rates. Accumulated other comprehensive loss is primarily related to fluctuations in the currency exchange rates compared toagainst the U.S. dollar which areas used to translate certain of the international operations of the Company's operating segments. Accumulated other comprehensive loss decreased from $66.0 million at December 31, 2021 to $65.2 million at March 31, 2022. For the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, currency translation adjustments recognized as a component of other comprehensive loss due to exchange rate movements were primarily attributable to the United Kingdom and Brazil.
AsDuring the three months ended March 31, 2022, the exchange rate for the British pound weakened by 3% compared to the U.S. dollar and the Brazilian real strengthened by 17% compared to the U.S. dollar, contributing to other comprehensive income of June 30,$0.9 million. During the three months ended March 31, 2021, the exchange rate for the British pound and the Brazilian realstrengthened by 1% compared to the U.S. dollar strengthened by 1% and 4%, respectively, compared to the exchange rates at December 31, 2020, contributing to other comprehensive income of $1.6 million reported for the six months ended June 30, 2021. During the first six months of 2020, the exchange rate for the British pound andwhile the Brazilian real weakened by 8% compared to the U.S. dollar, weakened by 6% and 27%, respectively, compared to the exchange rate at December 31, 2019, contributing to other comprehensive loss of $16.0$1.5 million.
7. Income Taxes
For the three months ended March 31, 2022, the Company's income tax expense was $3.4 million reportedon a pre-tax loss of $6.0 million. Income tax expense in the first quarter of 2022 included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses and discrete tax items. This compares to an income tax benefit of $2.3 million on a pre-tax loss of $18.1 million, which included certain non-deductible expenses and discrete tax items, for the sixthree months ended June 30, 2020.March 31, 2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
10.8. Net Loss Per Share
The table below provides a reconciliation of the numerators and denominators of basic and diluted net loss per share for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | |
Numerators: | | | | | | | | | |
Net loss | | | | | $ | (9,424) | | | $ | (15,810) | | | |
Less: Income attributable to unvested restricted stock awards | | | | | — | | | — | | | |
Numerator for basic net loss per share | | | | | (9,424) | | | (15,810) | | | |
Effect of dilutive securities: | | | | | | | | | |
Unvested restricted stock awards | | | | | — | | | — | | | |
Numerator for diluted net loss per share | | | | | $ | (9,424) | | | $ | (15,810) | | | |
| | | | | | | | | |
Denominators: | | | | | | | | | |
Weighted average number of common shares outstanding | | | | | 61,627 | | | 61,169 | | | |
Less: Weighted average number of unvested restricted stock awards outstanding | | | | | (1,129) | | | (1,071) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Denominator for basic and diluted net loss per share | | | | | 60,498 | | | 60,098 | | | |
| | | | | | | | | |
Net loss per share: | | | | | | | | | |
Basic | | | | | $ | (0.16) | | | $ | (0.26) | | | |
Diluted | | | | | (0.16) | | | (0.26) | | | |
The calculation of diluted net loss per share for the three months ended March 31, 2022 and 2021 excluded 298 thousand shares and 500 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of both the 2023 Notes and the 2026 Notes were excluded due to, among other factors, their antidilutive effect.
9. Long-Term Incentive Compensation
The following table presents a summary of activity for stock options, service-based restricted stock awards and performance-based stock unit awards for the sixthree months ended June 30, 2021March 31, 2022 (in thousands):
| | | Stock Options | | Service-based Restricted Stock | | Performance-based Stock Units | | Stock Options | | Service-based Restricted Stock | | Performance-based Stock Units |
Outstanding – December 31, 2020 | 530 | | | 1,087 | | | 287 | | |
Outstanding – December 31, 2021 | | Outstanding – December 31, 2021 | 388 | | | 993 | | | 358 | |
Granted | Granted | 0 | | | 596 | | | 245 | | Granted | — | | | 686 | | | 233 | |
Vested | Vested | 0 | | | (597) | | | (70) | | Vested | — | | | (403) | | | — | |
Forfeited | Forfeited | (134) | | | (46) | | | (42) | | Forfeited | (122) | | | (12) | | | — | |
Outstanding – June 30, 2021 | 396 | | | 1,040 | | | 420 | | |
Weighted average grant date fair value (2021 awards) | $ | 0 | | | $ | 6.78 | | | $ | 6.84 | | |
Outstanding – March 31, 2022 | | Outstanding – March 31, 2022 | 266 | | | 1,264 | | | 591 | |
Weighted average grant date fair value (2022 awards) | | Weighted average grant date fair value (2022 awards) | $ | — | | | $ | 6.53 | | | $ | 6.53 | |
The restricted stock program consists of a combination of service-based restricted stock and performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over theira term which is generallyof three years. Performance-based restricted stock awards generally vest at the end of a three-year period, with the number of shares ultimately issued under the program dependent upon achievement of predefined specific performance measures.objectives. The performance objective for performance-based awards granted in 2022 and 2021 is the Company's cumulative EBITDA over a three-year period. The performance objective for outstanding awards granted in 2020 is the Company's EBITDA growth rate over a three-year period.
In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200% of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. The performance measure for outstanding awards granted in 2019 and 2020 is the Company's EBITDA growth rate over a three-year period. The performance measure for outstanding awards granted in 2021 is the Company's cumulative EBITDA over a three-year period.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During the first quarters of 20212022 and 2020,2021, the Company issued conditional long-term cash incentive awards ("Cash Awards") of $1.5 million and $1.5 million, (adjusted for forfeitures), respectively, with the ultimate dollar amount to be awarded ranging from 0zero to a maximum of $3.1 million for both the 2022 and 2021 Cash Award and from 0 to a maximum of $3.0 million for the 2020 Cash Award.Awards. The performance measure for these Cash Awards is relative total stockholder return compared to a peer group of companies measured over a three-year period. The ultimate dollar amount to be awarded for the 20212022 and 20202021 Cash Awards is limited to their targeted award value ($1.5 million) if the Company's total stockholder return is negative over the performance period. The obligations, if any, related to the Cash Awards are classified as liabilities and recognized over the vesting period.
Stock-based compensation expense recognized during the three and six months ended June 30,March 31, 2022 and 2021 totaled $1.9$1.8 million and $4.7 million, respectively. Stock-based compensation expense recognized during the three and six months ended June 30, 2020 totaled $2.1 million and $3.3$2.8 million, respectively. As of June 30, 2021,March 31, 2022, there was $9.6$11.0 million of pre-tax compensation costs related to service-based and performance-based stock awards, which will be recognized in future periods as vesting conditions are satisfied.
On May 11, 2021, the Company’s stockholders approved the Amended and Restated Equity Participation Plan of Oil States International, Inc., which provided for a 4.5 million increase in the number of shares authorized for issuance under the plan.
11. Income Taxes
For the three months ended June 30, 2021, the Company's income tax benefit was $3.2 million on a pre-tax loss of $18.5 million, which included certain non-deductible expenses. This compares to an income tax benefit of $6.9 million on a pre-tax loss of $31.5 million, which included certain non-deductible expenses, for the three months ended June 30, 2020.
For the six months ended June 30, 2021, the Company's income tax benefit was $5.5 million on a pre-tax loss of $36.6 million, which included certain non-deductible expenses. This compares to an income tax benefit of $46.4 million on a pre-tax loss of $476.1 million, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes, for the six months ended June 30, 2020. The impact of these non-deductible expenses in 2020 was partially offset by a $14.8 million discrete tax benefit related to the carryback of U.S. net operating losses under the CARES Act.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
12.10. Segments and Related Information
The Company operates through 3 operating segments: Offshore/Manufactured Products, Downhole Technologies and Well Site Services.Services and Downhole Technologies. Financial information by operating segment for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 is summarized in the following tables (in thousands).
| | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three Months Ended June 30, 2021 | | | | | | | | | | |
Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | | | | | | | | |
Offshore/Manufactured Products | Offshore/Manufactured Products | $ | 76,908 | | | $ | 5,557 | | | $ | 4,810 | | | $ | 792 | | | $ | 526,842 | | Offshore/Manufactured Products | $ | 84,112 | | | $ | 5,330 | | | $ | 10,196 | | | $ | 902 | | | $ | 559,877 | |
Well Site Services | | Well Site Services | 48,172 | | | 7,932 | | | (3,395) | | | 1,548 | | | 197,077 | |
Downhole Technologies | Downhole Technologies | 26,760 | | | 4,521 | | | (2,295) | | | 197 | | | 279,324 | | Downhole Technologies | 31,760 | | | 4,384 | | | (1,505) | | | 317 | | | 265,958 | |
Well Site Services(1) | 42,056 | | | 10,642 | | | (11,590) | | | 1,877 | | | 216,498 | | |
Corporate | Corporate | 0 | | | 189 | | | (8,543) | | | 325 | | | 93,060 | | Corporate | — | | | 171 | | | (9,632) | | | 91 | | | 55,053 | |
Total | Total | $ | 145,724 | | | $ | 20,909 | | | $ | (17,618) | | | $ | 3,191 | | | $ | 1,115,724 | | Total | $ | 164,044 | | | $ | 17,817 | | | $ | (4,336) | | | $ | 2,858 | | | $ | 1,077,965 | |
| | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets | | Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Three Months Ended June 30, 2020 | | | | | | | | | | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | | | | | | | | |
Offshore/Manufactured Products | Offshore/Manufactured Products | $ | 94,936 | | | $ | 5,476 | | | $ | 9,419 | | | $ | 457 | | | $ | 548,226 | | Offshore/Manufactured Products | $ | 60,609 | | | $ | 5,469 | | | $ | 1,071 | | | $ | 463 | | | $ | 534,819 | |
Well Site Services(1) | | Well Site Services(1) | 39,550 | | | 11,468 | | | (9,853) | | | 3,330 | | | 229,968 | |
Downhole Technologies | Downhole Technologies | 14,965 | | | 5,619 | | | (11,110) | | | 1,165 | | | 308,942 | | Downhole Technologies | 25,430 | | | 4,389 | | | (1,615) | | | 83 | | | 280,320 | |
Well Site Services(2) | 36,344 | | | 13,368 | | | (22,920) | | | 1,923 | | | 270,803 | | |
Corporate | Corporate | 0 | | | 183 | | | (8,723) | | | (511) | | | 118,912 | | Corporate | — | | | 194 | | | (9,365) | | | 244 | | | 79,312 | |
Total | Total | $ | 146,245 | | | $ | 24,646 | | | $ | (33,334) | | | $ | 3,034 | | | $ | 1,246,883 | | Total | $ | 125,589 | | | $ | 21,520 | | | $ | (19,762) | | | $ | 4,120 | | | $ | 1,124,419 | |
________________
(1)Operating loss included non-cash operating lease asset impairment charges of $2.8 million.
(2)Operating loss included a non-cash fixed asset impairment charge of $3.0$0.7 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Six Months Ended June 30, 2021 | | | | | | | | | |
Offshore/Manufactured Products | $ | 137,517 | | | $ | 11,026 | | | $ | 5,881 | | | $ | 1,255 | | | $ | 526,842 | |
Downhole Technologies | 52,190 | | | 8,910 | | | (3,910) | | | 280 | | | 279,324 | |
Well Site Services(1) | 81,606 | | | 22,110 | | | (21,443) | | | 5,207 | | | 216,498 | |
Corporate | 0 | | | 383 | | | (17,908) | | | 569 | | | 93,060 | |
Total | $ | 271,313 | | | $ | 42,429 | | | $ | (37,380) | | | $ | 7,311 | | | $ | 1,115,724 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | Depreciation and amortization | | Operating income (loss) | | Capital expenditures | | Total assets |
Six Months Ended June 30, 2020 | | | | | | | | | |
Offshore/Manufactured Products(2) | $ | 186,108 | | | $ | 11,104 | | | $ | (86,077) | | | $ | 1,522 | | | $ | 548,226 | |
Downhole Technologies(3) | 56,030 | | | 11,203 | | | (203,801) | | | 2,814 | | | 308,942 | |
Well Site Services(4) | 123,801 | | | 28,404 | | | (167,874) | | | 4,975 | | | 270,803 | |
Corporate | 0 | | | 344 | | | (17,384) | | | (396) | | | 118,912 | |
Total | $ | 365,939 | | | $ | 51,055 | | | $ | (475,136) | | | $ | 8,915 | | | $ | 1,246,883 | |
________________
(1)Operating loss included non-cash fixed and lease asset impairment charges of $3.4 million.
(2)Operating loss included non-cash goodwill and inventory impairment charges of $86.5 million and $16.2 million, respectively.
(3)Operating loss included a non-cash goodwill impairment charge of $192.5 million.
(4)Operating loss included non-cash goodwill, inventory and fixed asset impairment charges of $127.1 million, $9.0 million and $8.2 million, respectively.
See Note 3,2, "Asset Impairments and Other Restructuring Items," and Note 4,3, "Details of Selected Balance Sheet Accounts," for further discussion of these and other charges and benefits recognized in first sixthree months of 2021 and 2020.2021.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/Manufactured Products | | Downhole Technologies | | Well Site Services | | Total |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Three months ended June 30 | | | | | | | | | | | | | | | |
Major revenue categories - | | | | | | | | | | | | | | | |
Project-driven products | $ | 31,826 | | | $ | 51,365 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 31,826 | | | $ | 51,365 | |
Short-cycle: | | | | | | | | | | | | | | | |
Completion products and services | 10,447 | | | 4,739 | | | 26,760 | | | 14,965 | | | 39,083 | | | 36,175 | | | 76,290 | | | 55,879 | |
Drilling services | 0 | | | 0 | | | 0 | | | 0 | | | 2,973 | | | 169 | | | 2,973 | | | 169 | |
Other products | 5,583 | | | 6,634 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,583 | | | 6,634 | |
Total short-cycle | 16,030 | | | 11,373 | | | 26,760 | | | 14,965 | | | 42,056 | | | 36,344 | | | 84,846 | | | 62,682 | |
Other products and services | 29,052 | | | 32,198 | | | 0 | | | 0 | | | 0 | | | 0 | | | 29,052 | | | 32,198 | |
| $ | 76,908 | | | $ | 94,936 | | | $ | 26,760 | | | $ | 14,965 | | | $ | 42,056 | | | $ | 36,344 | | | $ | 145,724 | | | $ | 146,245 | |
| | | Offshore/Manufactured Products | | Downhole Technologies | | Well Site Services | | Total | | Offshore/Manufactured Products | | Well Site Services | | Downhole Technologies | | Total |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Six months ended June 30 | | | | | | | | | | | | | | | | |
Three Months Ended March 31 | | Three Months Ended March 31 | | | | | | | | | | | | | | | |
Major revenue categories - | Major revenue categories - | | Major revenue categories - | |
Project-driven products | Project-driven products | $ | 53,200 | | | $ | 88,153 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 53,200 | | | $ | 88,153 | | Project-driven products | $ | 33,844 | | | $ | 21,374 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33,844 | | | $ | 21,374 | |
Short-cycle: | Short-cycle: | | Short-cycle: | |
Completion products and services | Completion products and services | 18,561 | | | 18,416 | | | 52,190 | | | 56,030 | | | 77,882 | | | 119,101 | | | 148,633 | | | 193,547 | | Completion products and services | 13,580 | | | 8,114 | | | 45,166 | | | 38,799 | | | 31,760 | | | 25,430 | | | 90,506 | | | 72,343 | |
Drilling services | Drilling services | 0 | | | 0 | | | 0 | | | 0 | | | 3,724 | | | 4,700 | | | 3,724 | | | 4,700 | | Drilling services | — | | | — | | | 3,006 | | | 751 | | | — | | | — | | | 3,006 | | | 751 | |
Other products | Other products | 9,719 | | | 15,054 | | | 0 | | | 0 | | | 0 | | | 0 | | | 9,719 | | | 15,054 | | Other products | 7,044 | | | 4,136 | | | — | | | — | | | — | | | — | | | 7,044 | | | 4,136 | |
Total short-cycle | Total short-cycle | 28,280 | | | 33,470 | | | 52,190 | | | 56,030 | | | 81,606 | | | 123,801 | | | 162,076 | | | 213,301 | | Total short-cycle | 20,624 | | | 12,250 | | | 48,172 | | | 39,550 | | | 31,760 | | | 25,430 | | | 100,556 | | | 77,230 | |
Other products and services | Other products and services | 56,037 | | | 64,485 | | | 0 | | | 0 | | | 0 | | | 0 | | | 56,037 | | | 64,485 | | Other products and services | 29,644 | | | 26,985 | | | — | | | — | | | — | | | — | | | 29,644 | | | 26,985 | |
| | $ | 137,517 | | | $ | 186,108 | | | $ | 52,190 | | | $ | 56,030 | | | $ | 81,606 | | | $ | 123,801 | | | $ | 271,313 | | | $ | 365,939 | | | $ | 84,112 | | | $ | 60,609 | | | $ | 48,172 | | | $ | 39,550 | | | $ | 31,760 | | | $ | 25,430 | | | $ | 164,044 | | | $ | 125,589 | |
Revenues from products and services transferred to customers over time accounted for approximately 61%62% and 63%62% of consolidated revenues for each of the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of June 30, 2021,March 31, 2022, the Company had $158$152.0 million of remaining backlog related to contracts with an original expected duration of greater than one year. Approximately 33%35% of this remaining backlog is expected to be recognized as revenue over the remaining sixnine months of 2021,2022, with an additional 33%35% recognized in 20222023 and the balance thereafter.
13.11. Commitments and Contingencies
During 2021 and the first halfquarter of 2021,2022, the distribution of COVID-19 vaccines progressed and many government-imposed restrictions were relaxed or rescinded. However, the effecteffects of the COVID-19 pandemic and related economic, business and market disruptions continue and the macro outlook remains uncertain. The most direct and immediate impactimpacts that the Company has experienced and expects to continuecontinues to experience from the COVID-19 pandemic isare decreased demandpricing for and pricing of its products and services due to lowerthe timing and rate of activity levelsincreases, market pressures driving increased capital discipline by its customers, resulting from the reductionsupply chain disruptions, labor market constraints and inflation in the demand for crude oil.wages, materials, parts, equipment and other costs. While the prices of and demand for crude oil have recovered from the lows seen in the initial stages of the pandemic, further outbreaks or the emergence of new strains of the COVID-19 virus could result in the reimposition of domestic and international regulations directing individuals to stay at home, limiting travel, requiring facility closures and imposing quarantines. Widespread reimpositionimplementation of these or similar restrictions could result in reductions in thecommodity price of and demand for crude oil and thus, thevolatility, reduced demand for the Company's products and services, as well as delays in or inability of the Company to fulfill its contractual obligations to customers, logistic constraints, increases in the Company's costs and workforce shortages and unavailability of raw materials.material shortages. The Company continues to monitor the effect of the COVID-19 pandemic on its employees, customers, critical suppliers and other stakeholders. The ultimate duration of the COVID-19 pandemic, thealong with resulting governmental restrictions and the related impactimpacts on the prices of and the demand for crude oil, and the U.S. and global economy and capital markets remains uncertain.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)
The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Following the GEODynamics Acquisition in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process were potentially subject to anti-dumping and countervailing duties. Following an internal review, the Company voluntarily disclosed this matter to U.S. Customs and Border Protection ("CBP") and, in December 2020, reached an agreement with CBP to settle this matter for $7.3 million. The Company believes that the Seller is required to indemnify and hold the Company harmless against the amount of this and other settlements and related costs of $7.5 million, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company believes that its agreements with the Seller allow it to set-off such amounts against payments due under the $25.0 million promissory note and that, because the Company has asserted indemnification claims, the maturity date of such note is extended until the resolution of such claims. Accordingly, the Company reduced the carrying amount of such note in its consolidated balance sheetssheet to $17.5 million as of June 30, 2021,March 31, 2022, which is the Company's current best estimate of what is owed after set-off for such indemnification matters.matters, but without considering the outcome of the counterclaim described below.
In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries in federal court alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. Additionally, the Seller alleged that it was entitled to approximately $19.0 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, following the federal magistrate's report and recommendation that the federal district court dismiss the Seller's lawsuit for lack of federal jurisdiction, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, the state court denied the Seller's motion for partial summary judgement. In December 2021, the Company filed a counterclaim against the Seller alleging material misrepresentations and breaches of warranties by the Seller with respect to GEODynamics' liability for anti-dumping and countervailing duties. The Company denies the validity of thesethe breach of contract claims asserted by the Seller and plans tois vigorously defenddefending against this lawsuit.
12. Subsequent Events
On April 14, 2022, the Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other statements we make contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934.1934 (the "Exchange Act"). Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in our 20202021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 22, 2021 as well as "Part II. Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q.2022.
You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances.
While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, our Company:us:
•public health crises, such asthe ongoing impact of the Coronavirus Disease 2019 ("COVID-19") pandemic, which has negatively impacted the global economy, and correspondingly, demand for crude oil;pandemic;
•the ability and willingness of the Organization of Petroleum Exporting Countries ("OPEC") and other producing nations to set and maintain oil production levels and pricing;
•the level of supply of and demand for oil and natural gas;gas, which has been impacted by the ongoing war between Russia and Ukraine that began in February 2022;
•fluctuations in the current and future prices of oil and natural gas;
•the level of exploration, drilling and completion activity;
•the cyclical nature of the oil and natural gas industry;
•the level of offshore oil and natural gas developmental activities;
•the financial health of our customers;
•the impact of environmental matters, including executive actions and regulatory or legislative efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced oil and natural gas production or demand globally;
•proposed new rules by the SEC relating to the disclosure of a range of climate-related information and risks;
•political, economic and litigation efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change;
•the availability of and access to attractive oil and natural gas field prospects, which may be affected by governmental actions or actions of other parties which may restrictrestricting drilling and completion activities;
•general global economic conditions;
•global weather conditions and natural disasters;
•changes in tax laws and regulations;
•supply chain disruptions;
•the impact of tariffs and duties on imported materials and exported finished goods;
•our ability to timely obtain and maintain critical permits for operating facilities;
•our ability to findattract and retain skilled personnel;
•negative outcome of litigation, threatened litigation or government proceedings;
•our ability to develop new competitive technologies and products;
•inflation, including our ability to increase prices to our customers as our costs increase;
•fluctuations in currency exchange rates;
•physical, digital, cyber, internal and external security breaches and other incidents affecting information security and data privacy;
•our ability to access and the cost of capital in the bank and capital markets;
•our ability to protect and enforce our intellectual property rights;
•our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and
•the other factors identified in "Part I, Item 1A. Risk Factors" in our 20202021 Annual Report on Form 10-K.
Should one or more of these risks or uncertainties materialize or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.
In addition, in certain places in this Quarterly Report on Form 10-Q, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in better understanding the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 20202021 Annual Report on Form 10-K in order to understand factors, such as business combinations, charges and credits, and financing transactions and changes in tax regulations, which may impact comparability from period to period.
We provide a broad range of manufactured products and services to customers in the oilenergy, industrial and gas industrymilitary sectors through our Offshore/Manufactured Products, Downhole Technologies and Well Site Services and Downhole Technologies segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, making demand for our products and services sensitive to expectations regarding future crude oil and natural gas prices, as well as economic growth, commodity demand and estimates of resource production. As a result, demand for our productsproduction and services is sensitiveregulatory pressures related to future expectations with respect to crude oilenvironmental, social and natural gas prices.governance ("ESG") considerations.
Recent Developments
In March of 2020, theThe spot price of West Texas Intermediate ("WTI")Brent crude oil declined over 50% in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. Demand for most of our products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, and these conditions caused rapid reductions to most of our customers' drilling, completion and production activities and their related spending on products and services, particularly those supporting activities in the U.S. shale play regions. While the prices of and demand for crude oil have increased significantly since reaching record low levels in April 2020, with crude oil inventory levels moderating, uncertainty remains regarding the timing of demand recovery to pre-COVID-19 levels.
Following the unprecedented events in March 2020, we immediately began aggressive implementation of cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company, stabilize our cash flows and protect liquidity. In addition, as discussed in more detail below and under "– ABL Facility," "– 2023 Notes," and "– 2026 Notes," we completed two significant financing transactionsprice averaged $101 per barrel during the first quarter of 2021, which served to extend the maturity profile2022, an increase of our debt and provide greater access to liquidity.
On February 10, 2021, we entered into a new $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory. The ABL Facility matures in February 2025. Concurrent with entering into the ABL Facility, our former senior secured revolving credit facility was terminated. On March 16, 2021, we secured an amendment that permitted us to incur the indebtedness represented by the 2026 Notes discussed below.
On March 19, 2021, we issued $135.0 million aggregate principal amount of our 4.75% convertible senior notes due 2026 (the "2026 Notes"). Net proceeds27% from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. The 2026 Notes will mature on April 1, 2026fourth quarter 2021 average and bear interest at an annual rate of 4.75%, which is payable semi-annually on April 1 and October 1. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of our outstanding 1.50% convertible senior notes due 2023 (the "2023 Notes") at a discount, with the balance added to cash on-hand.
Additionally, as discussed in more detail under "– 2023 Notes," duringhighest quarterly average level observed since the second quarter of 2021, we purchased $6.4 million principal amount2014. The higher commodity price environment was driven by crude oil supply reductions resulting from the Russian invasion of our 2023 Notes for $6.0 million in cash.
2022, increased demand as the global effects of the COVID-19 pandemic have moderated and slower crude oil production growth due to reduced investments by operators globally.Brent and WTIWest Texas Intermediate ("WTI") crude oil and natural gas pricing trends were as follows:
| | | Average Price(1) for quarter ended | | Average Price(1) for year ended December 31 | | Average Price(1) for quarter ended | | Average Price(1) for year ended December 31 |
Year | Year | | March 31 | | June 30 | | September 30 | | December 31 | | Year | | March 31 | | June 30 | | September 30 | | December 31 | |
Brent Crude (per bbl) | Brent Crude (per bbl) | | | | | | | | | Brent Crude (per bbl) | | | | | | | | |
2022 | | 2022 | | $ | 100.87 | | | $ | — | | | $ | — | | | $ | — | | | $ | 100.87 | |
2021 | 2021 | | $ | 61.04 | | | $ | 68.98 | | | 2021 | | 61.04 | | | 68.98 | | | 73.51 | | | 79.61 | | | 70.86 | |
2020 | | $ | 50.27 | | | $ | 29.70 | | | $ | 42.91 | | | $ | 44.32 | | | $ | 41.96 | | |
| WTI Crude (per bbl) | WTI Crude (per bbl) | | WTI Crude (per bbl) | |
2022 | | 2022 | | $ | 95.18 | | | $ | — | | | $ | — | | | $ | — | | | $ | 95.18 | |
2021 | 2021 | | $ | 58.09 | | | $ | 66.19 | | | 2021 | | 58.09 | | | 66.19 | | | 70.58 | | | 77.33 | | | 68.14 | |
2020 | | $ | 45.34 | | | $ | 27.96 | | | $ | 40.89 | | | $ | 42.52 | | | $ | 39.16 | | |
| Henry Hub Natural Gas (per MMBtu) | Henry Hub Natural Gas (per MMBtu) | | Henry Hub Natural Gas (per MMBtu) | |
2022 | | 2022 | | $ | 4.67 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4.67 | |
2021 | 2021 | | $ | 3.50 | | | $ | 2.95 | | | 2021 | | 3.50 | | | 2.95 | | | 4.35 | | | 4.75 | | | 3.90 | |
2020 | | $ | 1.91 | | | $ | 1.70 | | | $ | 2.00 | | | $ | 2.52 | | | $ | 2.03 | | |
|
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(1)Source: U.S. Energy Information Administration (spot prices).
On July 23, 2021,April 22, 2022, Brent crude oil, WTI crude oil and natural gas spot prices closed at $72.24$105.15 per barrel, $74.86$102.86 per barrel and $4.11$6.59 per MMBtu, respectively. Additionally, as presented in more detail below, the U.S. drilling rig count reported on July 23, 2021April 22, 2022 was 491695 rigs, 9%10% above the secondfirst quarter 2021 average.
In January of 2022, we completed the previously announced exit of certain non-performing service offerings within our Well Site Services segment. These service offerings generated revenues of $4.4 million in the first quarter of 2021.
During the first quarter of 2022, we recorded bad debt expense of $0.8 million related to receivables from Russia-based customers of the Offshore/Manufactured Products segment. As of March 31, 2022, we had no remaining material balance sheet exposure related to Russia.
On April 14, 2022, our Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand.
Overview
Current and expected future pricing for WTI crude oil, along with expectations regarding the regulatory environment, are factors that will continue to influence our customers' willingness to invest in U.S. shale play developments as they allocate capital and strive for financial discipline and spending levels that are within their capital budgets and cash flows. Expectations for the longer-term price for Brent crude oil will continue to influence our customers' spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment.
Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, including geopolitical conflicts (such as the direction and outcome of Russia's invasion of Ukraine), unrest and tensions; sanctions; global uncertainties related to the COVID-19 pandemic; domestic or international crude oil production; changes in governmental rules and regulations; the willingness of operators to invest capital in the exploration for and development of resources; use of alternative fuels; improved vehicle fuel efficiency; a more sustained movement to electric vehicles; and the potential for ongoing supply/demand imbalances. Capital investment by our customers recently reached a 15-year low due to negative developments with respect to many of these factors.
Customer spending in the natural gas shale plays has been limited due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in the United States.
U.S. drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of our U.S. operations.
Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities globally, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry. This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 39%40% of Offshore/Manufactured Products segment sales in the first six monthsquarter of 20212022 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies ("IOCs") and state-run national oil companies ("NOCs"))companies) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas.
Backlog reported by our Offshore/Manufactured Products segment totaled $214increased to $265 million as of June 30, 2021, with quarterly bookings totaling $65March 31, 2022 from $226 million as of March 31, 2021. Bookings totaled $93 million in the first quarter of 2022, yielding a quarterly book-to-bill ratio of 0.9x and a year-to-date ratio of 1.0x.1.1x. The following table sets forth backlog as of the dates indicated (in millions).
| | | Backlog as of | | Backlog as of |
Year | Year | | March 31 | | June 30 | | September 30 | | December 31 | Year | | March 31 | | June 30 | | September 30 | | December 31 |
2022 | | 2022 | | $ | 265 | | | $ | — | | | $ | — | | | $ | — | |
2021 | 2021 | | $ | 226 | | | $ | 214 | | | | | | 2021 | | 226 | | | 214 | | | 249 | | | 260 | |
2020 | 2020 | | $ | 267 | | | $ | 235 | | | $ | 227 | | | $ | 219 | | 2020 | | 267 | | | 235 | | | 227 | | | 219 | |
2019 | | $ | 234 | | | $ | 283 | | | $ | 293 | | | $ | 280 | | |
Our Well Site Services segment provides completion services and, to a much lesser extent, land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. We primarily supply equipment and service personnel utilized in the completion of and initial production from new and recompleted wells in our U.S. operations, which are dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity have increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells.
Our Downhole Technologies segment comprised of the GEODynamics, Inc. ("GEODynamics") business we acquired in 2018, provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary frac plug and toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments.
Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. We primarily supply equipment and service personnel utilized in the completion and initial production of new and recompleted wells. Our U.S. activity is dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells.
Demand for our completioncompletion-related products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the average U.S. and international drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated.
| | | Average for the | | | Average for the |
| | As of July 23, 2021 | | Three Months Ended June 30, | | Six Months Ended June 30, | | As of April 22, 2022 | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
United States: | | | | | | | | | | |
United States Rig Count: | | United States Rig Count: | | | | | | |
Land – Oil | Land – Oil | 370 | | 339 | | 293 | | 314 | | 472 | Land – Oil | 537 | | | 493 | | 286 |
Land – Natural gas and other | Land – Natural gas and other | 104 | | 97 | | 84 | | 94 | | 98 | Land – Natural gas and other | 145 | | | 123 | | 91 |
Offshore | Offshore | 17 | | 14 | | 15 | | 15 | | 18 | Offshore | 13 | | | 17 | | 16 |
| | 491 | | 450 | | 392 | | 423 | | 588 | | 695 | | | 633 | | 393 |
International: | | | | | | | | | | |
International Rig Count: | | International Rig Count: | | | | | | |
Land | Land | | 630 | | 651 | | 649 | | 837 | Land | | | 828 | | 667 |
Offshore | Offshore | | 178 | | 207 | | 173 | | 227 | Offshore | | | 193 | | 169 |
| | 808 | | 858 | | 822 | | 1,064 | | | 1,021 | | 836 |
| | 1,258 | | 1,250 | | 1,245 | | 1,652 | | | 1,654 | | 1,229 |
The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of June 30, 2021,March 31, 2022, oil-directed drilling accounted for 79% of the total U.S. rig count – with the balance largely natural gas related. Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining from 790 rigs as of February 29, 2020 to a trough of 244 rigs as of August 14, 2020. Since August 14, 2020,From this trough, the U.S. rig count has increased 93% to 470670 rigs as of June 30, 2021.March 31, 2022. As can be derived from the table above, the average U.S. rig count for the first three months ended June 30, 2021of 2022 increased by 58240 rigs, or 15%61%, compared to the average for the first three months ended June 30, 2020.
Reduced demand for our products and services, coupled with a reduction in the prices we charge our customers for our products and services, has adversely affected our results of operations, cash flows and financial position. If the current pricing environment for crude oil declines from current levels, our customers may be required to further reduce their capital expenditures, causing declines in the demand for and prices of our products and services, which would adversely affect our results of operations, cash flows and financial position.2021.
We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 13,11, "Commitments and Contingencies."
Other factors that can affect our business and financial results include but are not limited toto: the general global economic environment,environment; competitive pricing pressures,pressures; public health crises,crises; natural disasters; labor market constraints; supply chain disruptions; inflation in wages, materials, parts, equipment and other costs; climate-related and other regulatory changes,changes; geopolitical tensions; and changes in tax laws in the United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business.
Human Capital
For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1. Business – Human Capital" in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Selected Financial Data
This selected financial data should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notesNotes included in "Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 20202021 in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data.
Unaudited Consolidated Results of Operations Data
The following summarizes our unaudited consolidated results of operations for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands, except per share amounts):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, | |
| | 2021 | | 2020 | | Variance | | 2021 | | 2020 | | Variance | | | 2022 | | 2021 | | Variance |
Revenues: | Revenues: | | | | | | | | | | | | Revenues: | | | | | | |
Products | Products | $ | 78,038 | | | $ | 82,643 | | | $ | (4,605) | | | $ | 139,483 | | | $ | 185,623 | | | $ | (46,140) | | Products | | $ | 85,761 | | | $ | 61,445 | | | $ | 24,316 | |
Services | Services | 67,686 | | | 63,602 | | | 4,084 | | | 131,830 | | | 180,316 | | | (48,486) | | Services | | 78,283 | | | 64,144 | | | 14,139 | |
| | 145,724 | | | 146,245 | | | (521) | | | 271,313 | | | 365,939 | | | (94,626) | | | | 164,044 | | | 125,589 | | | 38,455 | |
Costs and expenses: | Costs and expenses: | | | | | | | | | | | | Costs and expenses: | | | | | | |
Product costs | Product costs | 63,926 | | | 68,088 | | | (4,162) | | | 113,389 | | | 157,834 | | | (44,445) | | Product costs | | 64,801 | | | 49,463 | | | 15,338 | |
Service costs | Service costs | 53,706 | | | 59,995 | | | (6,289) | | | 106,553 | | | 167,851 | | | (61,298) | | Service costs | | 61,803 | | | 52,847 | | | 8,956 | |
Cost of revenues (exclusive of depreciation and amortization expense presented below)(1) | Cost of revenues (exclusive of depreciation and amortization expense presented below)(1) | 117,632 | | | 128,083 | | | (10,451) | | | 219,942 | | | 325,685 | | | (105,743) | | Cost of revenues (exclusive of depreciation and amortization expense presented below)(1) | | 126,604 | | | 102,310 | | | 24,294 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 22,092 | | | 23,992 | | | (1,900) | | | 43,317 | | | 50,116 | | | (6,799) | | Selling, general and administrative expenses | | 23,833 | | | 21,225 | | | 2,608 | |
Depreciation and amortization expense | Depreciation and amortization expense | 20,909 | | | 24,646 | | | (3,737) | | | 42,429 | | | 51,055 | | | (8,626) | | Depreciation and amortization expense | | 17,817 | | | 21,520 | | | (3,703) | |
Impairments of goodwill(2) | Impairments of goodwill(2) | — | | | — | | | — | | | — | | | 406,056 | | | (406,056) | | Impairments of goodwill(2) | | — | | | — | | | — | |
| Impairments of fixed and lease assets(3) | 2,794 | | | 2,992 | | | (198) | | | 3,444 | | | 8,190 | | | (4,746) | | |
Other operating income, net | (85) | | | (134) | | | 49 | | | (439) | | | (27) | | | (412) | | |
Impairments of fixed assets(1) | | Impairments of fixed assets(1) | | — | | | 650 | | | (650) | |
Other operating (income) expense, net | | Other operating (income) expense, net | | 126 | | | (354) | | | 480 | |
| | 163,342 | | | 179,579 | | | (16,237) | | | 308,693 | | | 841,075 | | | (532,382) | | | | 168,380 | | | 145,351 | | | 23,029 | |
Operating loss | Operating loss | (17,618) | | | (33,334) | | | 15,716 | | | (37,380) | | | (475,136) | | | 437,756 | | Operating loss | | (4,336) | | | (19,762) | | | 15,426 | |
| Interest expense, net | Interest expense, net | (2,699) | | | (4,179) | | | 1,480 | | | (5,024) | | | (7,683) | | | 2,659 | | Interest expense, net | | (2,672) | | | (2,325) | | | (347) | |
Other income(4) | 1,820 | | | 5,994 | | | (4,174) | | | 5,780 | | | 6,768 | | | (988) | | |
Other income, net(2) | | Other income, net(2) | | 1,025 | | | 3,960 | | | (2,935) | |
Loss before income taxes | Loss before income taxes | (18,497) | | | (31,519) | | | 13,022 | | | (36,624) | | | (476,051) | | | 439,427 | | Loss before income taxes | | (5,983) | | | (18,127) | | | 12,144 | |
Income tax benefit(5) | Income tax benefit(5) | 3,226 | | | 6,893 | | | (3,667) | | | 5,543 | | | 46,384 | | | (40,841) | | Income tax benefit(5) | | (3,441) | | | 2,317 | | | (5,758) | |
Net loss | Net loss | $ | (15,271) | | | $ | (24,626) | | | $ | 9,355 | | | $ | (31,081) | | | $ | (429,667) | | | $ | 398,586 | | Net loss | | $ | (9,424) | | | $ | (15,810) | | | $ | 6,386 | |
| Net loss per share: | Net loss per share: | Net loss per share: |
Basic | Basic | $ | (0.25) | | | $ | (0.41) | | | $ | (0.52) | | | $ | (7.19) | | | Basic | | $ | (0.16) | | | $ | (0.26) | | |
Diluted | Diluted | (0.25) | | | (0.41) | | | (0.52) | | | (7.19) | | | Diluted | | (0.16) | | | (0.26) | | |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: |
Basic | Basic | 60,317 | | 59,839 | | 60,207 | | 59,747 | | Basic | | 60,498 | | 60,098 | |
Diluted | Diluted | 60,317 | | 59,839 | | 60,207 | | 59,747 | | Diluted | | 60,498 | | 60,098 | |
________________
(1)Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $25.2 million ($12.0 million in product costs and $13.2 million in service costs) recognized in the first quarter of 2020.
(2)During the first quarter of 2020, we recognized non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of our reporting units to their estimated fair value.
(3)During the first quarter of 2021, and 2020, our Well Site Services segmentwe recognized non-cash impairment charges of $0.7 million and $5.2 million, respectively, to reduce the carrying value of the segment's fixed assets to their estimated realizable value. During the second quarter of 2021, our Well Site Services segment recognized non-cash impairment charges of $2.8 million to reduce the carrying value of certain of the segment's operating lease assets to their estimated realizable value. During the second quarter of 2020, our Well Site Services segment recognized a non-cash impairment charge of $3.0 million to reduce the carrying value of the segment's fixed assets to their estimated realizable value.
(4)(2)During the first quarter of 2021, we recognized non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 2023 Notes. During the second quarter of 2021, we recognized non-cash gains of $0.4 million in connection with our purchases of $6.4 million principal amount of our 2023 Notes. During the second quarter of 2020, we recognized non-cash gains of $4.8 million in connection with our purchases of $12.0 million principal amount of our 2023 Notes.
(5)During the first quarter of 2020, we recognized a discrete tax benefit of $14.8 million related to U.S. net operating loss carrybacks under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
See Note 3,2, "Asset Impairments and Other Restructuring Items," Note 4,3, "Details of Selected Balance Sheet Accounts," Note 6, "Long-term Debt,"Accounts" and Note 11, "Income Taxes,4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first sixthree months of 2021 and 2020.2021.
Unaudited Operating Segment Financial DataResults of Operations
We manage and measure our business performance in three distinct operating segments: Offshore/Manufactured Products, Downhole Technologies and Well Site Services.Services and Downhole Technologies. Supplemental unaudited financial information by operating segment for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 is summarized below (dollars in(in thousands):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, | |
| | 2021 | | 2020 | | Variance | | 2021 | | 2020 | | Variance | | | 2022 | | 2021 | | Variance |
Revenues | Revenues | Revenues | | | | | | |
Offshore/Manufactured Products | Offshore/Manufactured Products | $ | 76,908 | | | $ | 94,936 | | | $ | (18,028) | | | $ | 137,517 | | | $ | 186,108 | | | $ | (48,591) | | Offshore/Manufactured Products | | |
Project-driven products | | Project-driven products | | $ | 33,844 | | | $ | 21,374 | | | $ | 12,470 | |
Short-cycle products | | Short-cycle products | | 20,624 | | | 12,250 | | | 8,374 | |
Other products and services | | Other products and services | | 29,644 | | | 26,985 | | | 2,659 | |
Total Offshore/Manufactured Products | | Total Offshore/Manufactured Products | | 84,112 | | | 60,609 | | | 23,503 | |
Well Site Services | | Well Site Services | | 48,172 | | | 39,550 | | | 8,622 | |
Downhole Technologies | Downhole Technologies | 26,760 | | | 14,965 | | | 11,795 | | | 52,190 | | | 56,030 | | | (3,840) | | Downhole Technologies | | 31,760 | | | 25,430 | | | 6,330 | |
Well Site Services | 42,056 | | | 36,344 | | | 5,712 | | | 81,606 | | | 123,801 | | | (42,195) | | |
Total | Total | $ | 145,724 | | | $ | 146,245 | | | $ | (521) | | | $ | 271,313 | | | $ | 365,939 | | | $ | (94,626) | | Total | | $ | 164,044 | | | $ | 125,589 | | | $ | 38,455 | |
| Operating income (loss) | Operating income (loss) | Operating income (loss) | | |
Offshore/Manufactured Products(1) | $ | 4,810 | | | $ | 9,419 | | | $ | (4,609) | | | $ | 5,881 | | | $ | (86,077) | | | $ | 91,958 | | |
Downhole Technologies(2) | (2,295) | | | (11,110) | | | 8,815 | | | (3,910) | | | (203,801) | | | 199,891 | | |
Well Site Services(3) | (11,590) | | | (22,920) | | | 11,330 | | | (21,443) | | | (167,874) | | | 146,431 | | |
Offshore/Manufactured Products | | Offshore/Manufactured Products | | $ | 10,196 | | | $ | 1,071 | | | $ | 9,125 | |
Well Site Services(1) | | Well Site Services(1) | | (3,395) | | | (9,853) | | | 6,458 | |
Downhole Technologies | | Downhole Technologies | | (1,505) | | | (1,615) | | | 110 | |
Corporate | Corporate | (8,543) | | | (8,723) | | | 180 | | | (17,908) | | | (17,384) | | | (524) | | Corporate | | (9,632) | | | (9,365) | | | (267) | |
Total | Total | $ | (17,618) | | | $ | (33,334) | | | $ | 15,716 | | | $ | (37,380) | | | $ | (475,136) | | | $ | 437,756 | | Total | | $ | (4,336) | | | $ | (19,762) | | | $ | 15,426 | |
________________
(1)Operating loss in the first quarter of 2020 included non-cash goodwill and inventory impairment charges of $86.5 million and $16.2 million, respectively.
(2)Operating loss in the first quarter of 2020 included a non-cash goodwill impairment charge of $192.5 million.
(3)Operating loss in the first quarter of 2021 included non-cash fixed asset impairment charges of $0.7 million. Operating loss in the second quarter of 2021 included non-cash operating lease asset impairment charges of $2.8 million. Operating loss in the first quarter of 2020 included non-cash goodwill, inventory and fixed asset impairment charges of $127.1 million, $9.0 million and $5.2 million, respectively. Operating loss in the second quarter of 2020 included a non-cash fixed asset impairment charge of $3.0 million.
See Note 3,2, "Asset Impairments and Other Restructuring Items," and Note 4,3, "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first sixthree months of 2021 and 2020.2021.
Three Months Ended June 30, 2021March 31, 2022 Compared to Three Months Ended June 30, 2020
Consolidated Operating ResultsMarch 31, 2021
We reported a net loss for the three months ended June 30, 2021March 31, 2022 of $15.3$9.4 million, or $0.25$0.16 per share. The second quarter 2021 loss included non-cash operating lease asset impairment charges of $2.8 million ($2.2 million after-tax, or $0.04 per share), restructuring charges of $2.6 million ($2.0 million after-tax, or $0.03 per share) and non-cash gains on extinguishment of 2023 Notes of $0.4 million ($0.3 million after-tax, or $0.01 per share). These results compare to a net loss for the three months ended June 30, 2020March 31, 2021 of $24.6$15.8 million, or $0.41$0.26 per share. The reported second quarter 2020 loss included: $5.4share, which included non-cash gains of $3.6 million ($4.32.9 million after-tax, or $0.07$0.05 per share) associated with debt extinguishment offset by $3.4 million ($2.7 million after-tax, or $0.04 per share) of severance and restructuring costs; non-cash fixed asset impairment charges of $3.0 million ($2.4 million after-tax, or $0.04 per share); $2.2 million ($1.7 million after-tax, or $0.03 per share) in bad debt provisions related to customer bankruptcies; and non-cash gains of $4.8 million ($3.8 million after-tax, or $0.06 per share) associated with debt extinguishment.costs.
Our reported results of operations reflect the negative impact of the global response to the COVID-19 pandemic, and ongoing uncertainties related to future crude oil demand and supply.supply and, to a lesser extent, supply chain disruptions. Customer-driven activity has improved off of 2020'scontinued to improve since the low levels of 2020, but could remain tempered over the balance of 2021 given uncertainty remains around the timingwillingness of demand recoveryoperators (our customers) to pre-COVID-19 levels due to the ongoing nature of the COVID-19 pandemic. If the pricing environment for crude oil declines from current levels, our customers may be required to moderate or reduce their planned capital expenditures, leading to declinesinvest in the demand forU.S. land-based drilling, completion and prices of our products and services.production activities given regulatory pressures around ESG considerations.
During the secondfirst quarter of 2021, we recognized an aggregate $2.8$4.8 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the CARESCoronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program. We continue to evaluate additional benefits potentially available to us under the CARES Act.
Revenues. Consolidated total revenues in the secondfirst quarter of 2021 were relatively consistent with2022 increased $38.5 million, or 31%, from the level reported in the secondfirst quarter of 2020, but were up 16% sequentially.2021.
Consolidated product revenues in the secondfirst quarter of 2022 increased $24.3 million, or 40%, from the first quarter of 2021, decreased $4.6 million, or 6%, from the second quarter of 2020, driven primarily by reduced project-driven customer demand for connector products, partially offset by an increase inincreased U.S. land-based customer activity.activity and higher demand for project-related fixed platform equipment. Consolidated service revenues in the secondfirst quarter of 20212022 increased $4.1$14.1 million, or 6%22%, from the secondfirst quarter of 20202021 due primarily to higher customer spending in the U.S. shale play regions as activity recovers fromand the 2020 COVID-19 induced lows.Gulf of Mexico, partially offset by the exit of certain non-performing service offerings in January 2022. As can be derived from the following table, 58%61% of our consolidated revenues in both the secondfirst quarter of 2022 and 2021 were derived from sales of our short-cycle product and service offerings, which compares to 43% in the same period last year.offerings.
The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | | Offshore/ Manufactured Products | | Downhole Technologies | | Well Site Services | | Total | | Offshore/ Manufactured Products | | Well Site Services | | Downhole Technologies | | Total |
Three months ended June 30 | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | |
Three Months Ended March 31 | | Three Months Ended March 31 | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Major revenue categories - | Major revenue categories - | | | | | | | | | | | | | | | | Major revenue categories - | | | | | | | | | | | | | | | |
Project-driven products | Project-driven products | $ | 31,826 | | | $ | 51,365 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 31,826 | | | $ | 51,365 | | Project-driven products | $ | 33,844 | | | $ | 21,374 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33,844 | | | $ | 21,374 | |
Short-cycle: | Short-cycle: | | Short-cycle: | |
Completion products and services | Completion products and services | 10,447 | | | 4,739 | | | 26,760 | | | 14,965 | | | 39,083 | | | 36,175 | | | 76,290 | | | 55,879 | | Completion products and services | 13,580 | | | 8,114 | | | 45,166 | | | 38,799 | | | 31,760 | | | 25,430 | | | 90,506 | | | 72,343 | |
Drilling services | Drilling services | — | | | — | | | — | | | — | | | 2,973 | | | 169 | | | 2,973 | | | 169 | | Drilling services | — | | | — | | | 3,006 | | | 751 | | | — | | | — | | | 3,006 | | | 751 | |
Other products | Other products | 5,583 | | | 6,634 | | | — | | | — | | | — | | | — | | | 5,583 | | | 6,634 | | Other products | 7,044 | | | 4,136 | | | — | | | — | | | — | | | — | | | 7,044 | | | 4,136 | |
Total short-cycle | Total short-cycle | 16,030 | | | 11,373 | | | 26,760 | | | 14,965 | | | 42,056 | | | 36,344 | | | 84,846 | | | 62,682 | | Total short-cycle | 20,624 | | | 12,250 | | | 48,172 | | | 39,550 | | | 31,760 | | | 25,430 | | | 100,556 | | | 77,230 | |
Other products and services | Other products and services | 29,052 | | | 32,198 | | | — | | | — | | | — | | | — | | | 29,052 | | | 32,198 | | Other products and services | 29,644 | | | 26,985 | | | — | | | — | | | — | | | — | | | 29,644 | | | 26,985 | |
| | $ | 76,908 | | | $ | 94,936 | | | $ | 26,760 | | | $ | 14,965 | | | $ | 42,056 | | | $ | 36,344 | | | $ | 145,724 | | | $ | 146,245 | | | $ | 84,112 | | | $ | 60,609 | | | $ | 48,172 | | | $ | 39,550 | | | $ | 31,760 | | | $ | 25,430 | | | $ | 164,044 | | | $ | 125,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Percentage of total revenue by type - | | | | | | | | | | | | | | | |
Products | 72 | % | | 73 | % | | 85 | % | | 90 | % | | — | % | | — | % | | 54 | % | | 57 | % |
Services | 28 | % | | 27 | % | | 15 | % | | 10 | % | | 100 | % | | 100 | % | | 46 | % | | 43 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Percentage of total revenue by type - | | | | | | | | | | | | | | | |
Products | 71 | % | | 65 | % | | — | % | | — | % | | 82 | % | | 86 | % | | 52 | % | | 49 | % |
Services | 29 | % | | 35 | % | | 100 | % | | 100 | % | | 18 | % | | 14 | % | | 48 | % | | 51 | % |
Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $10.5increased $24.3 million, or 8%24%, in the secondfirst quarter of 20212022 compared to the secondfirst quarter of 2020.2021.
Consolidated product costs in the secondfirst quarter of 2021, decreased $4.22022 increased $15.3 million, or 6%31%, fromcompared to the secondfirst quarter of 2020.2021. Consolidated service costs in the secondfirst quarter of 2021, decreased $6.32022 increased $9.0 million, or 10%17%, fromcompared to the secondfirst quarter of 2020 due to implemented cost saving measures.2021.
Selling, General and Administrative Expense. Selling, general and administrative expense decreased $1.9increased $2.6 million, or 8%12%, in the secondfirst quarter of 2022 from the first quarter of 2021 from the second quarter of 2020 due primarily to reductions in personnel, compensation levels andhigher professional service, bad debt expense along with other implemented cost reduction measures, partially offset by $2.1 million in restructuring charges recognized during the current quarter.and trade show expenses.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $3.7 million, or 15%17%, in the secondfirst quarter of 20212022 compared to the prior-year quarter,period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 12,10, "Segments and Related Information," to our Consolidated Financial Statements presents depreciation and amortization expense by segment.
Impairments of Fixed and Lease Assets. During the second quartersfirst quarter of 2021, and 2020, our Well Site Services segment recorded non-cash impairment charges of $2.8$0.7 million and $3.0 million, respectively, to reduce the carrying value of certain of the segment's fixed and lease assets to their estimated realizable value.
Operating Income (Loss).Loss. Our consolidated operating loss was $17.6$4.3 million in the secondfirst quarter of 2021, which included $2.8 million of non-cash operating lease asset impairment charges and $2.6 million of restructuring charges.2022. This compares to a consolidated operating loss of $33.3$19.8 million recognized in the secondfirst quarter of 2020,2021, which included $5.4 million of severance and restructuring charges and $3.0the $0.7 million of non-cash fixed asset impairment charges.charges and $3.4 million in severance and restructuring costs. Excluding these charges, our consolidated operating loss decreased $11.4 million or 72%.
Interest Expense, Net. Net interest expense was $2.7 million in the secondfirst quarter of 2021,2022, which compares to $4.2$2.3 million in the same periodfirst quarter of 2020.2021. Interest expense which included amortization of deferred financing costs in 2021 and amortization of debt discount and deferred financing costs in 2020, as a percentage of total debt outstanding was approximately 6% in the secondfirst quarter of 20212022 and 2020.4% in the first quarter of 2021.
Other Income, Net. Net other income for secondthe first quarter of 2021 included non-cash gains of $0.4$3.6 million recognized in connection with our purchases of $6.4$125.0 million principal amount of our 2023 Notes1.5% convertible senior notes (the "2023 Notes") for $6.0 million in cash. Net other income for second quarter of 2020 included non-cash gains of $4.8 million recognized in connection with our purchases of $12.0 million principal amount of our 2023 Notes for $5.9$120.0 million in cash.
Income Tax. For the three months ended June 30, 2021,first quarter of 2022, our income tax benefitprovision was $3.2$3.4 million or 17% of theon a pre-tax loss of $18.5 million, which$6.0 million. Income tax expense in the first quarter of 2022 included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses.expenses and discrete tax items. This compares to an income tax benefit of $6.9$2.3 million or 22% of theon a pre-tax loss of $31.5$18.1 million for the three months ended June 30, 2020,first quarter of 2021, which also included certain non-deductible expenses that are not deductible for incomeand discrete tax purposes.items.
Other Comprehensive Income (Loss). Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss). Other comprehensive income was $3.2$0.9 million in the secondfirst quarter of 20212022 compared to loss of $1.2$1.5 million in the secondfirst quarter of 20202021 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our operating segments. For the three months ended June 30,first quarters of 2022 and 2021, and 2020, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to Brazil. During the second quarter of 2021, the exchange rate for the Brazilian real strengthened compared to the U.S. dollar. This compares to the second quarter of 2020, when the exchange rate for the Brazilian real weakened compared to the U.S. dollar.
Segment Operating Results
Offshore/Manufactured Products
Revenues. Our Offshore/Manufactured Products segment revenues decreased $18.0 million, or 19%, in the second quarter of 2021 compared to the second quarter of 2020 due primarily to a reduction in sales of its connector products.
Operating Income. Our Offshore/Manufactured Products segment reported operating income of $4.8 million in the second quarter of 2021, compared to operating income of $9.4 million in the second quarter of 2020, with the impact of the year-over-year decrease in revenues partially offset by implemented cost reduction measures.
Backlog. Backlog in our Offshore/Manufactured Products segment totaled $214 million as of June 30, 2021, with second quarter 2021 bookings of $65 million and a quarterly book-to-bill ratio of 0.9x.
Downhole Technologies
Revenues. Our Downhole Technologies segment revenues increased $11.8 million, or 79%, in the second quarter of 2021 from the prior-year period due primarily to an increase in U.S. land-based customer completion activity.
Operating Loss. Our Downhole Technologies segment reported an operating loss of $2.3 million in the second quarter of 2021 compared to an operating loss of $11.1 million in the prior-year period, driven by the significant increase in revenues and implemented cost reduction measures. The second quarter 2020 results included a $1.5 million bad debt provision on a receivable from a customer claiming bankruptcy protection and $1.3 million in severance and restructuring costs.
Well Site Services
Revenues. Our Well Site Services segment revenues increased $5.7 million, or 16%, in the second quarter of 2021 compared to the prior-year quarter, driven by higher customer drilling, completion and production activity.
Operating Loss. Our Well Site Services segment reported an operating loss of $11.6 million in the second quarter of 2021, which included $2.4 million in restructuring charges and $2.8 million of non-cash operating lease asset impairment charges. The segment reported an operating loss of $22.9 million in the second quarter of 2020, which included $3.5 million in severance and restructuring costs and $3.0 million of non-cash fixed asset impairment charges. Excluding these charges, our Well Site Services operating loss decreased $10.0 million from the prior-year period due to the increase in revenues and implemented cost reduction measures.
Corporate
Corporate expenses decreased $0.2 million, or 2%, in the second quarter of 2021 from the prior-year period.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Consolidated Operating Results
We reported a net loss for the six months ended June 30, 2021 of $31.1 million, or $0.52 per share. The reported first half of 2021 loss included non-cash impairment charges of $3.4 million ($2.7 million after-tax, or $0.05 per share) associated with write-downs of fixed and lease assets, $6.0 million ($4.7 million after-tax, or $0.08 per share) of severance and restructuring costs and non-cash gains of $4.0 million ($3.2 million after-tax, or $0.05 per share) associated with debt extinguishment. These results compare to a net loss for the six months ended June 30, 2020 of $429.7 million, or $7.19 per share, which included: non-cash impairment charges totaling $439.5 million ($413.4 million after-tax, or $6.92 per share) related to write-downs of goodwill, inventories and fixed assets; $6.1 million ($4.8 million after-tax, or $0.08 per share) of severance and restructuring costs; $2.2 million ($1.7 million after-tax, or $0.03 per share) in bad debt provisions related to customer bankruptcies; non-cash gains of $4.8 million ($3.8 million after-tax, or $0.06 per share) associated with debt extinguishment; and a discrete tax benefit of $14.8 million, or $0.25 per share, associated with the carryback of tax losses allowed under the CARES Act.
Our reported results of operations reflect the negative impact of the unprecedented decline in crude oil prices starting in March and April of 2020 stemming from the global response to the COVID-19 pandemic and ongoing uncertainties related to future crude oil demand and supply. Customer-driven activity has improved off of 2020's low levels but could remain tempered over the balance of 2021 given uncertainty around the timing of demand recovery to pre-COVID-19 levels. If the pricing environment for crude oil declines from current levels, our customers may be required to moderate or reduce their planned capital expenditures, leading to declines in the demand for and prices of our products and services.
During the first half of 2021, we recognized an aggregate $7.6 million reduction of payroll tax expense (recognized within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program. During the first half of 2020, we also recognized a discrete income tax benefit of $14.8 million related to U.S. net operating loss carrybacks under provisions of the CARES Act. We continue to evaluate additional benefits potentially available to us under the CARES Act.
Revenues. Consolidated total revenues in the first six months of 2021 decreased $94.6 million, or 26%, from the first six months of 2020.
Consolidated product revenues in the first six months of 2021 decreased $46.1 million, or 25%, from the first six months of 2020, driven by the significant decline in U.S. land-based customer activity beginning in March 2020 and reduced project-driven customer demand for connector products. Consolidated service revenues in the first six months of 2021 decreased $48.5 million, or 27%, from the first six months of 2020 due primarily to higher customer spending in the U.S. shale play regions in the first quarter of 2020, prior to the significant impact of the COVID-19 pandemic on our operating results. As can be derived from the following table, 60% of our consolidated revenues in the first six months of 2021 were derived from sales of our short-cycle product and service offerings, which compares to 58% in the same period last year.
The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the six months ended June 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Offshore/ Manufactured Products | | Downhole Technologies | | Well Site Services | | Total |
Six months ended June 30 | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Major revenue categories - | | | | | | | | | | | | | | | |
Project-driven products | $ | 53,200 | | | $ | 88,153 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 53,200 | | | $ | 88,153 | |
Short-cycle: | | | | | | | | | | | | | | | |
Completion products and services | 18,561 | | | 18,416 | | | 52,190 | | | 56,030 | | | 77,882 | | | 119,101 | | | 148,633 | | | 193,547 | |
Drilling services | — | | | — | | | — | | | — | | | 3,724 | | | 4,700 | | | 3,724 | | | 4,700 | |
Other products | 9,719 | | | 15,054 | | | — | | | — | | | — | | | — | | | 9,719 | | | 15,054 | |
Total short-cycle | 28,280 | | | 33,470 | | | 52,190 | | | 56,030 | | | 81,606 | | | 123,801 | | | 162,076 | | | 213,301 | |
Other products and services | 56,037 | | | 64,485 | | | — | | | — | | | — | | | — | | | 56,037 | | | 64,485 | |
| $ | 137,517 | | | $ | 186,108 | | | $ | 52,190 | | | $ | 56,030 | | | $ | 81,606 | | | $ | 123,801 | | | $ | 271,313 | | | $ | 365,939 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Percentage of total revenue by type - | | | | | | | | | | | | | | | |
Products | 69 | % | | 72 | % | | 85 | % | | 91 | % | | — | % | | — | % | | 51 | % | | 51 | % |
Services | 31 | % | | 28 | % | | 15 | % | | 9 | % | | 100 | % | | 100 | % | | 49 | % | | 49 | % |
Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $105.7 million, or 32%, in the first six months of 2021 compared to the first six months of 2020. Cost of revenues in the first six months of 2020 included provisions totaling $25.2 million for excess and obsolete inventory – driven by the unprecedented market downturn beginning in March of 2020. Excluding these provisions, consolidated cost of revenues decreased $80.5 million, or 27%, from the prior-year period.
Consolidated product costs in the first six months of 2021, decreased $44.4 million, or 28%, from the first six months of 2020, which included a provision of $12.0 million for excess and obsolete inventory. Excluding this charge, consolidated product costs decreased $32.5 million, or 22%, from the prior-year period. Consolidated service costs in the first six months of 2021, decreased $61.3 million, or 37%, from the first six months of 2020, which included provisions for excess and obsolete inventory of $13.2 million. Excluding these charges, consolidated service costs decreased $48.0 million, or 31%, from the prior-year period.
Selling, General and Administrative Expense. Selling, general and administrative expense decreased $6.8 million, or 14%, in the first six months of 2021 from the first six months of 2020 due primarily to reductions in personnel, compensation levels, travel and bad debt expenses along with other implemented cost reduction measures, partially offset by $3.7 million in severance and restructuring costs recognized in the first half of 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $8.6 million, or 17%, in the first six months of 2021 compared to the prior-year period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment.
Impairments of Goodwill. During the first quarter of 2020, our Offshore/Manufactured Products, Downhole Technologies and Well Site Services operations recognized non-cash goodwill impairment charges of $86.5 million, $192.5 million and $127.1 million, respectively, arising from, among other factors, the significant decline in our stock price (and that of most of our peers) and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis.
Impairments of Fixed and Lease Assets. During the first six months of 2021 and 2020, our Well Site Services segment recorded non-cash impairment charges of $3.4 million and $8.2 million, respectively, to reduce the carrying value of certain of the segment's fixed and lease assets to their estimated realizable value.
Operating Income (Loss). Our consolidated operating loss was $37.4 million in the first six months of 2021, which included $3.4 million of non-cash asset impairment charges and $6.0 million of severance and restructuring costs. This compares to a consolidated operating loss of $475.1 million recognized in the first six months of 2020, which included the impact of $439.5 million non-cash asset impairment charges and $6.1 million in severance and restructuring costs.
Interest Expense, Net. Net interest expense was $5.0 million in the first six months of 2021, which compares to $7.7 million in the same period of 2020. Interest expense, which included amortization of deferred financing costs in 2021 and amortization of debt discount and deferred financing costs in 2020, as a percentage of total debt outstanding was approximately 5% in the first six months of 2021 and 6% in the first six months of 2020.
Other Income, Net. Net other income for the first six months of 2021 included non-cash gains of $4.0 million recognized in connection with our purchases of $131.4 million principal amount of our 2023 Notes for $126.0 million in cash. In the first six months of 2020, we recognized non-cash gains of $4.8 million recognized in connection with our purchases of $17.7 million principal amount of our 2023 Notes for $10.6 million in cash.
Income Tax. For the six months ended June 30, 2021, our income tax benefit was $5.5 million, or 15% of the pre-tax loss of $36.6 million, which included certain non-deductible expenses and discrete tax items. This compares to an income tax benefit of $46.4 million, or 10% of the pre-tax loss of $476.1 million for the six months ended June 30, 2020, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes. In the first six months of 2020, the impact of these non-deductible expenses was partially offset by a $14.8 million discrete tax benefit related to the carryback of U.S. net operating losses under the CARES Act.
Other ComprehensiveIncome (Loss). Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss). Other comprehensive income was $1.6 million in the first six months of 2021 compared to loss of $16.0 million in the first six months of 2020 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our operating segments. For the six months ended June 30, 2021 and 2020,recurring currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the first six monthsquarter of 2022, the exchange rate for the British pound weakened compared to the U.S. dollar, while the Brazilian real strengthened compared to the U.S. dollar. During the first quarter of 2021, the exchange rate for the British pound and the Brazilian real strengthened compared to the U.S. dollar. This compares to the first six months of 2020, whendollar while the exchange rate for both the British pound and Brazilian real weakened compared to the U.S. dollar.
Segment Operating Results
Offshore/Manufactured Products
Revenues. Our Offshore/Manufactured Products segment revenues declined $48.6increased $23.5 million, or 26%39%, in the first six monthsquarter of 20212022 compared to the first six monthsquarter of 20202021 due primarily to a reduction in sales of its connector andincreased demand for short-cycle products and service activities.fixed platform equipment.
Operating Income (Loss). Our Offshore/Manufactured Products segment reported operating income of $5.9$10.2 million in the first six monthsquarter of 2021, which included $0.3 million of severance and restructuring charges.2022. The segment reported an operating loss of $86.1$1.1 million in the first six monthsquarter of 2020,2021, which included severance and restructuring costs of $0.4 million and non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory. Excluding these charges, our Offshore/Manufactured Products segment operating income decreased $10.8 million in the first six months of 2021 compared to the first six months of 2020, with the impact of the year-over-year decrease in revenues partially offset by implemented cost reduction measures.$0.3 million.
Backlog. Backlog in our Offshore/Manufactured Products segment totaled $214$265 million as of June 30, 2021, a decreaseMarch 31, 2022 compared to $260 million as of 2% from December 31, 2020.2021. Bookings during first six months 2021 totaled $135 million, yielding a year-to-date book-to-bill ratio of 1.0x.
Downhole Technologies
Revenues. Our Downhole Technologies segment revenues decreased $3.8 million, or 7%, in the first six months of 2021 from the prior-year period due primarily to higher U.S. land-based customer completion activity during the first quarter of 2020, prior to the significant impact2022 totaled $93 million, yielding a book-to-bill ratio of the COVID-19 pandemic on our operating results.
Operating Loss. Our Downhole Technologies segment reported an operating loss of $3.9 million in the first six months of 2021, which included $0.5 million of severance and restructuring charges. The segment reported an operating loss of $203.8 million in the prior-year period, which included severance and restructuring costs of $1.3 million and a non-cash goodwill impairment charge of $192.5 million. Excluding these charges, operating loss declined $6.6 million in the first six months of 2021 from the prior-year period due to implemented cost reduction measures.1.1x.
Well Site Services
Revenues. Our Well Site Services segment revenues decreased $42.2increased $8.6 million, or 34%22%, in the first six monthsquarter of 20212022 compared to the same prior-year period, driven by higherincreased U.S. customer completion and production activity duringlevels partially offset by the first quarterexit of 2020, prior to the significant impact of the COVID-19 pandemic on our operating results.U.S. thru-tubing service offerings in January 2022.
Operating Loss. Our Well Site Services segment reported an operating loss of $21.4$3.4 million in the first six monthsquarter of 2021, which included $3.7 million in severance and restructuring costs and non-cash fixed and lease asset impairment charges of $3.4 million.2022. The segment reported an operating loss of $167.9$9.9 million in the first six monthsquarter of 2020,2021, which included severance and restructuring costs of $4.1 million and non-cash fixed asset impairment charges of $127.1 million related to goodwill, $9.0 million related to inventory and $8.2 million related to fixed assets. Excluding these charges, our Well Site Services$0.7 million. The operating loss decreased $5.2decrease of $6.5 million, fromor 66%, compared to the same prior-year period due to implemented cost reduction measures.was primarily driven by the impact of the reported revenue growth and a $3.7 million decrease in depreciation and amortization expense.
CorporateDownhole Technologies
Corporate expensesRevenues. Our Downhole Technologies segment revenues increased $0.5$6.3 million, or 3%25%, in the first six monthsquarter of 20212022 from the same prior-year period with $1.6due primarily to increased customer demand for perforating and completion products in the United States.
Operating Loss. Our Downhole Technologies segment reported an operating loss of $1.5 million of severance costs incurred in the first six monthsquarter of 2021 substantially offset by implemented cost reduction measures.2022. The segment reported an operating loss of $1.6 million in the first quarter of 2021.
Operating Loss. Corporate expenses of $9.6 million in the first quarter of 2022 were comparable to the first quarter of 2021.
Liquidity, Capital Resources and Other Matters
Our primary liquidity needs are to fund operating and capital expenditures, new product development and general working capital needs. In addition, capital has been used to fund strategic business acquisitions, repay debt and fund share repurchases. Our primary sources of funds are cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions.
Operating Activities
Cash flows fromused in operations totaling $13.9totaled $10.7 million were generatedduring the three months ended March 31, 2022, compared to $8.4 million used in operations during the first halfquarter of 2021, compared to $44.1 million generated by operations during the same period of 2020. 2021.
During the first halfquarter of 2021, $5.22022, $21.3 million was provided byused to fund net working capital decreases,increases, primarily due to an increaseincreases in inventories and accounts payable, partially offsetreceivable driven by higher activity levels. During the first quarter of 2021, $12.1 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories. During the first half of 2020, $27.8 million was provided by net working capital decreases, primarily due to a reduction in accounts receivable, partially offset by decreases in accounts payable and accrued liabilities.
Investing Activities
Cash used in investing activities during the first halfquarter of 20212022 totaled $4.2$2.1 million, compared to $3.8$2.4 million used in investing activities during the first half of 2020.2021.
Capital expenditures totaled $7.3$2.9 million and $8.9$4.1 million during the first halfquarter of 20212022 and 2020,2021, respectively. These investments were partially offset by proceeds from the sale of property and equipment of $3.4$0.9 million and $5.4$1.9 million during the sixfirst three months ended June 30,of 2022 and 2021, and 2020, respectively.
We expect to spend approximately $15$25 million in capital expenditures during 2021.2022. Whether planned expenditures will actually be made in 20212022 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity. We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our ABL Facility.Facility discussed below.
Financing Activities
During the sixthree months ended June 30, 2021,March 31, 2022, net cash of $19.1$1.2 million was used in financing activities. This compares to $6.6 million of cash used in financing activities during the three months ended March 31, 2021, including our purchases of $131.4$125.0 million principal amount of our 2023 Notes for cash totaling $126.0$120.0 million and $19.0$12.0 million of net repayments under our ABL Facility. Partially offsetting these uses in the first quarter of 2021 was our issuance of $135.0 million principal amount of our 2026 Notes4.75% convertible senior notes (the "2026 Notes") yielding net cash proceeds of $130.6 million. This compares to $5.0 million of cash provided by financing activities during the six months ended June 30, 2020, primarily as a result of $19.1 million in net borrowings under our former revolving credit facility, partially offset by our purchases of $17.7 million principal amount of our 2023 Notes for $10.6$130.3 million.
As of June 30, 2021,March 31, 2022, we had cash and cash equivalents totaling $62.7$39.2 million, which compared to $72.0$52.9 million as of December 31, 2020.2021.
As of June 30, 2021,March 31, 2022, we had no borrowings outstanding under our ABL Facility, (discussed below),$26.0 million principal amount of our 2023 Notes outstanding, $135.0 million principal amount of our 2026 Notes outstanding $26.0 million principal amount of our 2023 Notes outstanding and other debt of $22.0$21.5 million. Our reported interest expense, which appropriately included amortization of deferred financing costs of $1.4$0.5 million during the first six monthsquarter of 2021,2022, was above our contractual cash interest expense. For the first six monthsquarter of 2021,2022, our contractual cash interest expense was $3.7$2.2 million, or approximately 4%5% of the average principal balance of debt outstanding.
We believe that cash on-hand, cash flow from operations and borrowing capacity available under our ABL Facility will be sufficient to meet our liquidity needs in the coming twelve months. If our plans or assumptions change, or are inaccurate, we may need to raise additional capital. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, stakeholder scrutiny of environmental, social and governanceESG matters and other factors, many of which are beyond our control. In this regard, the effect of the COVID-19 pandemic has resulted in a significant disruption of global financial markets. For companies like ours that support the energy industry, this disruption has been exacerbated by the global crude oil supply and demand imbalance and resulting decline in crude oil prices during 2020, which has negatively impacted the value of our common stock; hasstock and may continue to reduce our ability to access capital in the bank and capital markets; and has and may continue tomarkets or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity.
On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related information and risks. We are currently assessing these rules, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from these rules. To the extent these rules are finalized as proposed, we or our customers could incur increased costs related to the assessment and disclosure of climate-related risks. We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting or seeking more stringent conditions with respect to their investments in our customers in the energy industry and companies like ours that support the energy industry. For more information on our risks related to climate change, see the risk factor in "Part I, Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2021 titled, "Our and our customers' operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide."ABL Facility. On February 10, 2021, we entered into the ABL Facilitya senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into the ABL Facility, we terminated our former revolving credit facility. On March 16, 2021, we entered into an amendment to the ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes.
The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics)GEODynamics, Inc. discussed below).
TheSee Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $50.0Agreement. As of March 31, 2022, we had $19.6 million sub-limit for the issuance of outstanding letters of credit. Borrowings under the ABL Agreement are secured by a pledge of substantially all of our domestic assets (other than real property) and the stock of certain foreign subsidiaries.
Borrowings under the ABL Agreement bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75% to 3.25% and subject to a LIBOR floor rate of 0.50%, or at a base rate plus a margin of 1.75% to 2.25%, in each case based on average borrowing availability. We must also pay a quarterly commitment fee of 0.375% to 0.50% per annum, based on unused commitments under the ABL Agreement.
The ABL Agreement places restrictions on our ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2023 Notes and 2026 Notes), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of all amounts then outstanding. The ABL Agreement also requires us to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time in the event that availability under the ABL Agreement is less than the greater of 15% of the borrowing base and $14.1 million or if an event of default has occurred and is continuing.
As of June 30, 2021, we hadcredit, but no borrowings outstanding under the ABL Facility and $17.3 million of outstanding letters of credit.Agreement. The total amount available to be drawn as of June 30, 2021March 31, 2022 was $50.3$51.0 million, calculated based on the current borrowing base less outstanding letters of credit.
Former Revolving Credit Facility. See Note 6, "Long-term Debt," for further information regarding our former revolving credit facility.
2026 Notes. On March 16, 2021, we issued $135$135.0 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 16, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes, with the balance added to cash on-hand.
The 2026 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million.
See Note 6,4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2026 Notes. As of June 30, 2021,March 31, 2022, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.
2023 Notes. On January 30, 2018, we issued $200$200.0 million aggregate principal amount of the 2023 Notes pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Since September 2019, we have purchased a cumulative $174.0 million principal amount of the 2023 Notes for $152.8 million in cash, with $26.0 million principal amount outstanding as of March 31, 2022.
The 2023 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million.
During the first six months of 2021, we purchased $131.4 million principal amount of the outstanding 2023 Notes for $126.0 million in cash. Since September 2019, we have purchased a cumulative $174.0 million principal amount of the 2023 Notes for $152.8 million in cash.
See Note 6,4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2023 Notes. As of June 30, 2021,March 31, 2022, none of the conditions allowing holders of the 2023 Notes to convert, or requiring us to repurchase the 2023 Notes, had been met.
Promissory Note. In connection with the 2018 acquisition of GEODynamics, (theInc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics. We have provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. We have incurred settlement costs and expenses of $7.5 million related to such indemnification claims and believe that the maturity date of such note is extended until the resolution of such indemnity claims and that we are permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million as of June 30, 2021,March 31, 2022, which is our current best estimate of what is owed after set-off for indemnification matters. See Note 13,11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.
Our total debt represented 21% and 20% of our combined total debt and stockholders' equity as of June 30, 2021March 31, 2022 and December 31, 2020.2021, respectively.
Contingencies and Other Obligations. We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our product or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of the businesses and, in other cases, we have indemnified the buyers of businesses. In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S. federal income tax carryback claims we received under the provisions of the CARES Act legislation. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, a motion by the Seller for partial summary judgement was denied by the state court. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 13,11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.
Off-Balance Sheet Arrangements
Arrangements.As of June 30, 2021,March 31, 2022, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.arrangements.
Availability and Cost of Products
We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 13, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 20202021 Annual Report on Form 10-K. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (the "FASB"), which are adopted by us as of the specified effective date. Unless otherwise discussed, managementManagement believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.
In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity (referred to as "ASU 2020-06"). This guidance eliminated the requirement that the carrying value of convertible debt instruments, such as our 2023 Notes, be allocated between the debt and equity components. As permitted under the standard, we adopted the guidance on January 1, 2021 using the modified retrospective transition method. Adoption of the standard resulted in a $12.2 million increase in the net carrying value of the 2023 Notes, a $2.7 million decrease in deferred income taxes and an $9.5 million net decrease in stockholders' equity. The effective interest rate associated with the 2023 Notes after adoption of the standard decreased from approximately 6% to approximately 2%, which compares to the contractual cash interest rate of 1.50%. As further discussed in Note 6, "Long-term Debt," we issued $135 million principal amount of our 2026 Notes on March 19, 2021, which have been accounted for in accordance with the provisions of ASU 2020-06.
ITEMItem 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk refers to the potential losses arising from changes in interest rates, foreign currency fluctuations and exchange rates, equity prices, and commodity prices, including the correlation among these factors and their volatility.
Our principal market risks are our exposure to changes in interest rates and foreign currency exchange rates. We enter into derivative instruments only to the extent considered necessary to meet risk management objectives and do not use derivative contracts for speculative purposes.
Interest Rate Risk. We have a revolving credit facility that is subject to the risk of higher interest charges associated with increases in interest rates. As of June 30, 2021,March 31, 2022, we had no floating-rate obligations outstanding under our ABL Facility. Use of floating-rate obligations would expose us to the risk of increased interest expense in the event of increases in short-term interest rates.
Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world and we receive revenue from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our functional currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of foreign currency exchange rate risks in areas outside of the United States (primarily in our Offshore/Manufactured Products segment), we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. During the sixthree months ended June 30, 2021,March 31, 2022, our reported foreign currency exchange losses were $0.1$0.4 million and are included in "Other operating expense, net" in the condensed consolidated statements of operations.
Our accumulatedAccumulated other comprehensive loss, reported as a component of stockholders' equity, decreased $1.6 million from $71.4 million as of December 31, 2020primarily relates to $69.8 million as of June 30, 2021, due to changesfluctuations in currency exchange rates. Accumulated other comprehensive loss is primarily related to fluctuations in the currency exchange rates compared toagainst the U.S. dollar which areas used to translate certain of the international operations of our operating segments.
Our accumulated other comprehensive loss decreased $0.9 million from $66.0 million as of December 31, 2021 to $65.2 million as of March 31, 2022, due to changes in currency exchange rates. During the three months ended March 31, 2022, the exchange rate for the British pound weakened by 3% compared to the U.S. dollar while the Brazilian real strengthened by 17% compared to the U.S. dollar.
ITEM 4. Controls and Procedures
(i) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission.SEC. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021March 31, 2022 at the reasonable assurance level.
(ii) Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2021,March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II --– OTHER INFORMATION
ITEM 1. Legal Proceedings
The information with respect to this Item 1 is set forth under Note 13,11, "Commitments and Contingencies."
ITEM 1A. Risk Factors
"Part I, Item 1A. Risk Factors" of our 20202021 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The risks described in such report are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may materially adversely affect our business, financial conditions or future results. There have been no material changes to our risk factors as set forth in our 20202021 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c)
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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Period | | | | | | | | | | | | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | January 1 through January 31, 2022 | | — | | | $ | — | | | — | | | $ | — | | February 1 through February 28, 2022 | | 160,834 | | | 6.15 | | | — | | | — | | March 1 through March 31, 2022 | | — | | | — | | | — | | | — | | Total | | 160,834 | | | $ | 6.15 | | | — | | | |
________________ (1)All shares purchased during the three-month period ended March 31, 2022 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock grants. These shares were not part of a publicly announced program to purchase common stock. | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans orPrograms
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April 1 through April 30, 2021 | | — | | | $ | — | | | — | | | $ | — | |
May 1 through May 31, 2021 | | — | | | — | | | — | | | — | |
June 1 through June 30, 2021 | | — | | | — | | | — | | | — | |
Total | | — | | | $ | — | | | — | | | |
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
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101.INS* | — | XBRL Instance Document |
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101.SCH* | — | XBRL Taxonomy Extension Schema Document |
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101.CAL* | — | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | — | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | — | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | — | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | OIL STATES INTERNATIONAL, INC. | |
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Date: | JulyApril 29, 20212022 | | By: | /s/ LLOYD A. HAJDIK | |
| | | | Lloyd A. Hajdik | |
| | | | Executive Vice President, Chief Financial Officer and | |
| | | | Treasurer (Duly Authorized Officer and Principal Financial Officer) | |