Oil States International, Inc.

Welcome to the Oil States International Inc's fourth quarter 2020 earnings conference call. My name is James, and I'll be your operator for today's call. All participants are in a listen-only mode. Later, we will conduct a question and answer session. During the Q&A session, if you have a question, please put star 1 on your phone. And I'd now like to turn the call over to Ellen Pennington. Ellen, you may begin.

Thanks, James. Good morning and welcome to Oil State's fourth quarter 2020 earnings conference call. Our call today will be led by our CEO, Cindy Taylor, and Lloyd Hodgick, 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. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K, along with other SEC filings. This call is being webcast and can be accessed at Oil State's website. A replay of the conference call will be available one and a half hours after the completion of this 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 fourth quarter 2020 earnings conference call. First, I would like to extend my sincere hope that all of you have been able to safely navigate the horrendous weather that we've had over the last week, along with the associated power outages and impacted water supplies. Our prayers are extended to you for a speedy return to normalcy. December 31st marks the end of a year that will go down into the record books for the oil and gas industry. Energy companies face the dawning challenges of excess supply, a demand crisis triggered by COVID, an OPEC supply management problem, and investor apathy toward the sector. Already six years into an extended downturn, the industry took a notable turn for the worst in 2020 with the onset of the COVID-19 pandemic leading to epic levels of demand destruction for crude oil and associated products. With commodity prices in dangerous territory coupled with deteriorating activity and financial results, energy companies had to respond quickly. Rig counts and customer CapEx spending collapsed in the second and third quarters of 2020. In response to these events, we took immediate action to shore up liquidity and stabilize cash flows. We will update you on these matters, give you our thoughts on near-term market conditions, and summarize our continued efforts to mitigate costs, both capital and operating, as we navigate the early stages of a U.S.-led market recovery. As we discussed on our third quarter earnings call, we believed that U.S. Shell-driven activity, while at historic low levels, was improving as we entered the fourth quarter with stronger crude oil prices. Activity in the U.S. Shell basins has historically been the first market to decline in a downturn, but it is also the first to recover. As a result, U.S. completions activity steadily improved during the fourth quarter, albeit off a low base, ending the quarter up 67% sequentially in terms of the average frack spread count as reported by Primary Vision. Our fourth quarter results reflected 2% sequential growth in revenues and a significant 55% improvement in gross profits before DD&A, reflecting the cost mitigation measures implemented earlier in the year. Partially offsetting these benefits was $2.7 million of severance and restructuring charges. During the fourth quarter, our well site services revenues were up 3% sequentially and adjusted segment EBITDA margins improved. Our completion services incremental adjusted EBITDA margins came in at 89%. In our downhole technology segment, revenues continued their recovery and were up 24% sequentially, with adjusted segment EBITDA margins also up nicely. In contrast, revenues in our offshore manufactured product segment, which is a later stage business, decreased 4% sequentially due primarily to weaker connector product sales. Segment backlog at December 31, 2020 totaled $219 million, a decrease of 4% sequentially. Our segment bookings totaled $65 million for the quarter, yielding what appears to be an industry-leading book-to-bill ratio of 0.9 times for the fourth quarter and 0.8 times for the year. 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 had an exceptional year in 2020, generating $133 million of cash flow from operations. With our significant free cash flow, we materially delevered during the year, reducing our total net debt by $128 million. In addition, Despite capital being extremely tight in the U.S. for banks lending to the industry, we successfully syndicated a new four-year asset-based credit facility with our key banking relationships last week. Lloyd will review additional details with you shortly. We believe that we have managed the company effectively during a very difficult period and will continue to closely manage our debts, 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.