Oil States International, Inc.

Welcome to the Oil States International 2Q20 Earnings Conference Call. My name is Cheryl, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. I will now turn the call over to Ellen Pennington. You may begin.

Thank you, Cheryl. Good morning and welcome to Oil State's second quarter 2020 earnings conference call. Our call today will be led by Cindy Taylor, Oil State's President and Chief Executive Officer, and Lloyd Hajdik, Oil State's Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, Please note that we are relying on the safe harbor protections afforded by federal law. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K, along with other FCC filings. This call is being webcast and can be accessed at Oil State's website. A replay of the conference call will be available one and a half hours after the completion of the call and will be available for one month. I will now turn the call over to Cindy. Thank you, Ellen.

Good morning to each of you and thank you for joining us today to participate in our second quarter 2020 earnings conference call. As we projected on our first quarter earnings call, the market dislocations caused by the global response to the COVID-19 pandemic have been unprecedented. The impact on the energy industry has been extreme. due to the rapid demand destruction for crude oil and the resulting inventory bills across the globe that resulted. However, the demand destruction for crude oil proved to be less severe than was originally projected, U.S. Shell production shut-ins occurred sooner than expected, and OPEC Plus compliance with the announced production cuts has been fairly good. Additionally, the OPEC Plus cuts were extended for an additional month through July 2020, helping the industry manage through the crude oil demand destruction and associated inventory builds. With these factors, activity appears to be stabilizing and crude oil prices have improved with front month WTI approximately $40 per barrel. In conjunction with our discussion of the quarter, We plan to update you on initiatives undertaken to shore up liquidity, give you our thoughts on near-term market conditions, and summarize our efforts to mitigate costs, both capital and operating, as we navigate this difficult market. First, I would like to provide an update regarding COVID-19 and its impact on our global operations. We implemented stringent protocols early in the pandemic in an effort to protect our employees, customers, suppliers, and the broader communities within which we work. Measures applied include working remotely, we're able to do so, adhering to social distancing guidelines, limiting visitors to our work sites to essential personnel, adjusting shifts and work schedules to minimize close contact, implementing mandatory stay-at-home principles when employees show symptoms of illness, performing enhanced cleaning protocols along with other safety measures. Of the confirmed COVID-19 cases that we have been notified of in our global workforce, the majority were asymptomatic or have now recovered and are back to work. However, various states, including Texas, have seen significant spikes in new cases as they began to reopen nonessential businesses, risking a setback in the economic recovery that had begun to take place. Demand for oil and gas, and therefore our products and services, depends on a functional economy, and we intend to maintain our diligence, continue to work safely, and apply lessons learned throughout this pandemic. We reported a $25 million loss during the quarter. However, our second quarter results, excluding severance and downsizing charges, were generally in line with our internal forecast despite being weaker at the revenue line. During the second quarter, our completion services revenues were down 56% sequentially with EBITDA margins going negative. Similarly, in our Downhole Technology segment, revenues declined 64% sequentially with EBITDA margins also negative. In contrast, revenues in our Offshore Manufactured Products segment increased sequentially due to stronger project-driven sales. Segment backlog at June 30, 2020, totaled $235 million, a decrease of 12% sequentially. Our segment bookings total $64 million, yielding a book-to-bill ratio for the second quarter of 0.7 times, bringing our year-to-date ratio to 0.8 times. During stress periods in our business, we know that the immediate focus needs to be on the preservation of liquidity and the management of variable and fixed costs. To that end, we generated $39 million of cash flow from operations in the second quarter, secured an amendment to our credit facility providing for financial covenant holidays through March 30, 2021, and purchased $12 million face amount of our convertible notes during the quarter at a substantial discount. We have also taken significant actions on the cost side of our business to adjust to the expectations of these revenue declines, particularly those tied to shell completions in the United States, which were in three falls during the second quarter. We believe that we have stabilized the company during a very difficult period and will continue to closely manage our debt, working capital, and cash flow generation in the quarters to come. Lloyd will now review our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segments.