HOUSTON, Oct. 29 /PRNewswire-FirstCall/ -- Oil States International, Inc. today reported record quarterly net income for the three months ended September 30, 2008 of $89.1 million, or $1.70 per diluted share. This compares to $50.5 million, or $0.97 per diluted share, reported in the third quarter of 2007.
"Despite the impact of the hurricanes on our operations and the challenges they presented to our Gulf Coast employees both professionally and personally, Oil States delivered a record quarter," stated Cindy B. Taylor, Oil States' President and Chief Executive Officer. "Our Tubular Services group led the growth with record shipments, revenues and EBITDA during the quarter and our oil sands lodges in Canada continued to provide Oil States with a strong base of earnings and significant year-over-year growth."
Mrs. Taylor continued, "We expect the fourth quarter to also be strong, but it will likely be tempered by reduced drilling and completion activity in North America which would adversely impact our Tubular Services and Well Site Services segments primarily. As a result, our current expectation for fourth quarter 2008 earnings is in a range of $1.45 to $1.55 per diluted share."
During the third quarter of 2008, the Company recognized a $3.5 million pre-tax gain related to the sale of the remainder of its equity investment in Boots & Coots (the Company continues to hold a $21.2 million note receivable from Boots & Coots). Excluding this equity gain, the Company generated record quarterly revenues of $814.8 million and $168.7 million of Adjusted EBITDA (defined as net income plus interest, taxes, depreciation and amortization, excluding the gain on sale), during the third quarter of 2008, compared to $527.4 million and $94.6 million, respectively, in the third quarter of 2007.(A) Year-over-year growth in the Company's oil sands accommodations capacity, substantially increased activity and profitability in the Company's Tubular Services segment, partially offset by lower Offshore Products results, led to year-over-year increases in revenue and Adjusted EBITDA of 55% and 78%, respectively, in the third quarter of 2008. Consolidated operating income was $141.5 million during the quarter compared to $74.8 million for the third quarter of 2007.
In the third quarter of 2008, the Company recognized an effective tax rate of 37.1% compared to 30.3% in the third quarter of 2007. The higher effective tax rate was primarily due to a greater proportion of U.S. income compared to lower taxed foreign income and the recognition of additional U.S. taxable income related to the Company's Canadian operations. Capital expenditures totaled $71.0 million during the third quarter of 2008, primarily related to the expansion of the Company's rental tool operations and accommodations facilities serving customers in the oil sands region of Canada.
For the nine month period ended September 30, 2008, the Company generated year-over-year increases in revenue of 36% and operating income 48%. The Company reported net income of $215.7 million, or $4.15 per diluted share, on revenues of $2.0 billion and operating income of $333.9 million for the first nine months of 2008. For the first nine months of 2007, the Company reported net income of $155.2 million, or $3.05 per diluted share, on revenues of $1.5 billion and operating income of $226.1 million. The nine month periods ended September 30, 2008 and 2007 included gains on the sale of Boots & Coots common stock of $0.08 and $0.17 per diluted share, respectively.
BUSINESS SEGMENT RESULTS
Unless otherwise noted, the following discussion compares the quarterly results from the third quarter of 2008 to the results from the third quarter of 2007. In order to present a more meaningful comparison of the Company's operating results, the third quarter 2008 results exclude the $3.5 million gain related to the sale of Boots & Coots common stock.
Well Site Services
In the third quarter of 2008, Well Site Services generated revenues of $249.2 million and Adjusted EBITDA of $84.1 million, compared to $179.7 million and $65.4 million, respectively, in the third quarter of 2007, representing year-over-year increases of 39% and 29%, respectively. Increases in revenues and Adjusted EBITDA were primarily attributed to growth in oil sands accommodations, increased utilization and contributions from the Company's drilling operations and an overall improvement in North American activity resulting from the 13% year-over-year increase in drilling activity.
Accommodations generated revenues and EBITDA of $105.4 million and $33.9 million, respectively, for the third quarter of 2008, compared to revenues of $65.9 million and EBITDA of $22.7 million in the third quarter of 2007. The growth represents a revenue increase of 60% and EBITDA increase of 49%, primarily due to contributions from additional room capacity at the Company's major oil sands lodges. The quarter also includes the accounting recognition of $13.8 million of deferred revenue and related deferred costs associated with a camp delivered in 2005 at relatively low manufacturing margins which adversely affected overall third quarter 2008 accommodations margins. Rental tools generated $91.7 million of revenues and $30.0 million of EBITDA in the third quarter of 2008 compared to revenue of $73.6 million and EBITDA of $26.4 million in the third quarter of 2007. This year-over-year growth was primarily driven by the 13% increase in North American drilling activity, partially offset by inefficiencies and downtime caused by the Gulf Coast hurricanes in the quarter. In the third quarter of 2008, drilling services generated revenues of $52.1 million and Adjusted EBITDA of $20.1 million compared to revenues and EBITDA of $40.2 million and $16.3 million, respectively, in the third quarter 2007. The year-over-year improvement in revenue was due to the addition of three new drilling rigs coupled with higher dayrates received. Higher pricing led to year-over-year cash margin improvements, partially offset by increased costs.
Offshore Products
The Offshore Products segment reported revenue of $120.0 million and EBITDA of $22.9 million, in the third quarter of 2008, compared to $132.1 million of revenues and $24.7 million in EBITDA in the third quarter of 2007. The third quarter 2008 results were negatively impacted by downtime in the Houston and Houma facilities related to hurricanes Gustav and Ike. Gross margin improved to 26.3% in the third quarter of 2008 compared to 23.8% in the third quarter of 2007 due to more profitable bearing and connector products and rig and vessel equipment. Due to increases in orders related to cranes and deck equipment and shipments delayed by the hurricanes, backlog at September 30, 2008 increased 9% to $420.5 million from the $385.8 million reported as of June 30, 2008.
Tubular Services
In the third quarter of 2008, Tubular Services generated record quarterly revenues and EBITDA of $445.6 million and $68.8 million, respectively, compared to revenues of $215.6 million and EBITDA of $10.2 million in the third quarter of 2007. These increases were due to price increases implemented by the domestic OCTG mills during the quarter coupled with a 33% increase in tons shipped. Tubular Services shipped a quarterly record of 168,100 tons, in the third quarter of 2008, up from 126,800 tons shipped in the third quarter of 2007. Gross margin percentages improved significantly to 16.6% in the third quarter of 2008 from 6.0% in the corresponding quarter of 2007. The Company's OCTG inventories totaled $276.9 million at September 30, 2008 which was a $49.7 million increase from the June 30, 2008 level of $227.2 million.
Oil States International, Inc. is a diversified oilfield services company. With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is organized in three business segments -- Offshore Products, Tubular Services and Well Site Services, and is publicly traded on the New York Stock Exchange under the symbol OIS. For more information on the Company, please visit Oil States International's website at http://www.oilstatesintl.com/.
The foregoing contains forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the oilfield service industry and other factors discussed within the "Business" section of the Form 10-K for the year ended December 31, 2007 filed by Oil States with the SEC on February 22, 2008, and Form 10-Q for the quarter ended September 30, 2008 filed with the SEC on October 31, 2008.
Oil States International, Inc. Unaudited Condensed Consolidated Statements of Income (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Revenues $814,790 $527,440 $2,047,401 $1,507,264 Costs and expenses: Cost of sales 609,354 403,369 1,532,874 1,145,882 Selling, general and administrative expenses 37,494 30,884 105,577 86,433 Depreciation and amortization expense 27,325 18,788 75,741 49,320 Other operating income (893) (374) (659) (516) Operating income 141,510 74,773 333,868 226,145 Interest expense (4,129) (4,217) (13,917) (12,798) Interest income 940 890 2,756 2,599 Equity in earnings of unconsolidated affiliates 431 753 3,167 2,043 Other income (B) 2,897 243 5,569 13,369 Income before income taxes 141,649 72,442 331,443 231,358 Income tax provision (52,594) (21,964) (115,758) (76,186) Net income $89,055 $50,478 $215,685 $155,172 Net income per share Basic $1.79 $1.02 $4.35 $3.14 Diluted $1.70 $0.97 $4.15 $3.05 Weighted average number of common shares outstanding Basic 49,811 49,661 49,622 49,423 Diluted 52,322 51,822 51,949 50,883 Oil States International, Inc. Consolidated Balance Sheets (in thousands) September 30, June 30, December 31, 2008 2008 2007 Assets (unaudited) (unaudited) (audited) Current assets Cash and cash equivalents $55,621 $45,999 $30,592 Accounts receivable, net 502,807 442,389 450,153 Inventories, net 463,086 402,715 349,347 Prepaid expenses and other current assets 13,475 33,417 35,575 Total current assets 1,034,989 924,520 865,667 Property, plant and equipment, net 723,626 694,082 586,910 Goodwill, net 399,151 401,652 391,644 Investments in unconsolidated affiliates 6,255 5,945 24,778 Other non-current assets 56,940 71,185 60,627 Total assets $2,220,961 $2,097,384 $1,929,626 Liabilities and stockholders' equity Current liabilities Current portion of long-term debt $179,941 $179,930 $4,718 Accounts payable and accrued liabilities 347,450 276,805 239,119 Income taxes 24,392 978 43 Deferred revenue 83,585 62,874 60,910 Other current liabilities 1,220 1,595 121 Total current liabilities 636,588 522,182 304,911 Long-term debt (C) 236,574 288,965 487,102 Deferred income taxes 52,966 54,151 40,550 Other liabilities 14,293 12,212 12,236 Total liabilities 940,421 877,510 844,799 Stockholders' equity Common stock 526 526 522 Additional paid-in capital 422,044 417,926 402,091 Retained earnings 906,398 817,343 690,713 Accumulated other comprehensive income 37,854 66,381 73,036 Treasury stock (86,282) (82,302) (81,535) Total stockholders' equity 1,280,540 1,219,874 1,084,827 Total liabilities and stockholders' equity $2,220,961 $2,097,384 $1,929,626 Oil States International, Inc. Segment Data (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Revenues Accommodations $105,380 $65,894 $332,518 $221,311 Rental Tools 91,699 73,602 258,767 178,082 Drilling and Other 52,086 40,216 133,316 107,886 Well Site Services 249,165 179,712 724,601 507,279 Offshore Products 120,008 132,124 386,780 386,601 Tubular Services 445,617 215,604 936,020 613,384 Total Revenues $814,790 $527,440 $2,047,401 $1,507,264 EBITDA (A) Accommodations $33,917 $22,712 $120,888 $80,302 Rental Tools 30,029 26,393 80,689 67,869 Drilling and Other (B) 23,584 16,318 53,900 56,892 Well Site Services (B) 87,530 65,423 255,477 205,063 Offshore Products 22,853 24,687 74,759 72,102 Tubular Services 68,829 10,165 108,173 29,789 Corporate and Eliminations (7,049) (5,718) (20,064) (16,077) Total EBITDA (B) $172,163 $94,557 $418,345 $290,877 Operating Income / (Loss) Accommodations $23,695 $16,147 $93,761 $64,291 Rental Tools 21,003 19,825 54,926 51,437 Drilling and Other 14,833 12,908 31,679 34,719 Well Site Services 59,531 48,880 180,366 150,447 Offshore Products 20,273 22,074 66,656 63,889 Tubular Services 68,261 9,529 106,533 27,973 Corporate and Eliminations (6,555) (5,710) (19,687) (16,164) Total Operating Income $141,510 $74,773 $333,868 $226,145 Oil States International, Inc. Additional Quarterly Segment and Operating Data (unaudited) Three Months Ended September 30, 2008 2007 Supplemental Operating Data Land Drilling Operating Statistics Average Rigs Available 36 33 Utilization 91.8% 87.2% Implied Day Rate ($ in thousands per day) $17.1 $15.2 Implied Daily Cash Margin ($ in thousands per day) $6.9 $6.2 Offshore Products Backlog ($ in millions) $420.5 $396.0 Tubular Services Operating Data Shipments (Tons in thousands) 168.1 126.8 Quarter end Inventory ($ in thousands) $276,927 $208,551 (A) The term EBITDA consists of net income plus interest, taxes, depreciation and amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The Company uses EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan. The following table sets forth a reconciliation of EBITDA to net income, which is the most directly comparable measure of financial performance calculated under generally accepted accounting principles: (in thousands, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Net income $89,055 $50,478 $215,685 $155,172 Income tax expense 52,594 21,964 115,758 76,186 Depreciation and amortization 27,325 18,788 75,741 49,320 Interest income (940) (890) (2,756) (2,599) Interest expense 4,129 4,217 13,917 12,798 EBITDA $172,163 $94,557 $418,345 $290,877 Gain on sale of investment (3,452) - (6,160) (12,774) Adjusted EBITDA $168,711 $94,557 $412,185 $278,103 The Company is not in the business of trading public equity securities nor does it depend on gains from the sales of such securities for funding ongoing operations. The Company excludes the gain on the sale of its Boots & Coots stock in order to present a more meaningful comparison of the Company's results of operations from period to period as that gain is unrelated to the Company's ongoing business and operating results. (B) Includes a $3.5 million gain on sale of Boots & Coots common stock in the three months ended September 30, 2008 and $6.2 million gain on sale in the nine month period ended September 30, 2008. Includes no gain in the third quarter of 2007 and a $12.8 million gain on sale of Boots & Coots common stock in the nine months ended September 30, 2007. (C) As of September 30, 2008, the Company had approximately $257.7 million available under its revolving credit facility.
