Oil States International, Inc.

Pennington, VP of Human Resources. You may begin.

Thank you, JL. Good morning and welcome to Oil State's second quarter 2025 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor, Lloyd Hodgick, Oil State's Executive Vice President and Chief Financial Officer, and Scott Moses, our Executive Vice President and Chief Operating Officer. Before we begin, we would like to 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 2024 Form 10-K, along with other recent SEC filings. This call is being webcast and can be accessed at Oil State's website. A replay of the conference call will be available two hours after the completion of this call and will continue to be available for 12 months. I will now turn the call over to Cindy.

Thank you, Ellen. Good morning and thank you for joining our conference call today. We're going to be discussing our second quarter 2025 results and provide our thoughts on market trends in addition to discussing our company-specific strategy and outlook. In a quarter marked by geopolitical instability, lower crude oil prices, and fluctuating U.S. trade policies, offshore and international markets demonstrated resilience. With this backdrop, the company performed well, achieving the midpoint of our guided EBITDA range for the second quarter of 2025 due to our product and service mix. Our consolidated results in the second quarter were driven by continued strength of international and offshore activity supported by backlog growth over recent quarters. Oil States remains well positioned to benefit going forward as oil and gas operators favor capital allocation to offshore projects with higher production, slower decline curves, and lower break evens. During the second quarter, 72% of our consolidated revenues were generated from offshore and international projects up significantly sequentially and year over year. This shift in revenue mix reflects our strategic actions to grow our international project-driven revenues as well as our continuing initiative to optimize our U.S. land operations given lower industry activity levels and competitive market dynamics. U.S. land drilling and completion activity declined significantly during the period with the quarter end rig count down 8% and the frac spread count down 14% from March 31, 2025. These U.S. activity reductions stem from weaker crude oil prices driven by ongoing macroeconomic uncertainty and OPEC plus' decision to rapidly unwind over 2 million barrels per day of previous production cuts. The sustained margin benefits stemming from our U.S. land-based optimization efforts which were initiated in 2024 and have continued into 2025 are reflected in our results albeit tempered by the significant decline in U.S. oil-directed activities during the second quarter. Driven by strong demand across our international and offshore markets, our offshore manufacturer product segment delivered strong performance. Revenues increased 15% sequentially while adjusted segment EBITDA rose 18%. Backlog increased to 363 million, again allowing us to achieve our highest level since September 2015. Robust bookings of $112 million reflective of continued strength and offshore project activity yielded a quarterly book to bill ratio of 1.1 times and a year to date ratio of 1.2 times, reinforcing our sustained backlog build. The strength and diversity of our backlog supports our outlook for total company incremental revenue and earnings growth over the balance of 2025. Our completion and production services and down-hole technology segments which represent a smaller portion of our business mix experienced sequential quarter revenue declines of 15% and 10% respectively, primarily due to the significant industry-wide reduction in U.S. land-based activity levels. Responsive to market conditions, we made the strategic decision to exit three additional land-based facilities during the second quarter and to further reduce our U.S. land-focused workforce. During the second quarter, we grew our cash flow from operations 61% sequentially and we generated $8 million of free cash flow. Free cash flow together with cash on hand was used during the quarter to repurchase $7 million of our common stock and $15 million of our convertible senior notes. Our deleveraging efforts should unlock additional equity value to our stockholders as we approach net-deck zero and pay off our convertible senior notes at their maturity in April 2026. Our capital expenditures in the second quarter were elevated by the ongoing construction of our new manufacturing facility in Batam, Indonesia, which will complete in the third quarter along with the manufacture of our low-impact, work-over rental riser equipment built pursuant to contracts. We are committed to optimizing our operations and making targeted investments in our highest-performing operations while leveraging cutting-edge technologies to drive growth. Our commitment to technology and innovation was once again honored with a 2025 Meritorious Engineering Award from Heart Energy recognizing our low-impact, work-over package, which I mentioned earlier. This solution integrates proven field technologies to enhance subsea plug and abandonment operations while ensuring the integrity of aging wells. Lloyd will now review our operating results along with our financial position in more detail.

Thanks, Cindy. Good morning, everyone. During the second quarter, we generated revenues of $165 million and adjusted consolidated EBITDA of $21 million. Net income totaled $3 million for 5 cents per share, which included facility exit, severance, and other charges and credits totaling $3 million. Our adjusted net income totaled $5 million, or 9 cents per share, after excluding these charges and credits. Our offshore manufactured product segment generated revenues of $107 million and adjusted segment EBITDA of $21 million in the second quarter. Adjusted segment EBITDA margin was 20 percent in the second quarter compared to 19 percent in the first quarter. In our completion and production services segment, we generated revenues of $29 million and adjusted segment EBITDA of $8 million in the second quarter. Adjusted segment EBITDA margin was 28 percent benefiting from facility and equipment sale gains in the second quarter compared to 25 percent in the first quarter. During the quarter, the segment recorded facility exit and other restructuring charges totaling $2 million. In our down-hole technology segment, we generated revenues of $29 million and $1 million of adjusted segment EBITDA in the second quarter. During the quarter, the segment recorded a non-cash operating lease and asset impairment charge of $1 million as well as severance charges. We generated $15 million of cash flow from operations in the second quarter. Our cash flows were used to fund $10 million of CAPEX, which was offset by $3 million in proceeds from the sale of idle properties and equipment. During the quarter, we repurchased $7 million of our common stock under our current share repurchase authorization. In addition, we purchased $15 million of our convertible senior notes as a slight discount. As a testament to our strong financial position as of June 30th, we maintained a solid cash on hand position with no borrowings outstanding the company's asset-based revolving credit facility to provide for additional borrowing availability to lower interest charges in the plan for the retirement of our remaining convertible senior notes at maturity in April 2026. We intend to remain opportunistic with additional purchases of our common stock and convertible senior notes given our solid free cash flow outlook and will continue to prioritize returns to stockholders. Now Cindy will offer some market outlook including concluding comments.

Despite recent economic volatility and the imposition and uncertainty around new trade tariffs, we continue to see strong demand for our offshore and international products and services. Our backlog remains at a decade high level and we anticipate continued strength in future bookings and have confidence in our offshore project execution. Industry analysts have suggested that while US land-based activity may remain subdued, offshore and international markets are expected to lead upstream growth. Analysts have also highlighted a global pivot towards exploration and offshore development driven by the need for lower-cost lower-carbon resources. As it relates to guidance based on what we know today, we are maintaining our full-year EBITDA guidance in a range between $88 to $93 million. However, our revenue guidance needs to be updated for the streamlining of our US land operations which will reduce our full-year revenue range to $685 to $700 million. Our margins will improve for the next two years with the high grading of our business mix along with cost reduction initiatives. Our third quarter guidance calls for revenues in a range of $165 to $170 million and EBITDA of $21 to $23 million. Strong projected cash flow from operations which are still expected to be in a range of $65 to $75 million for the full year underscores oil state's free cash flow yields which is one of the most attractive across our peer group. Our business mix and capital allocation strategies are purpose driven. We are investing in innovation that provides meaningful advancements to customer operations driving solid results through project execution, generating significant cash flow that strengthens our balance sheet while unlocking equity value for our stockholders. At the same time, we're building solutions that help our customers thrive in a dynamic world. These decisions we make are focused on building a stronger, more resilient company that drives meaningful results for those we serve. That

is the end of our presentation. Thank you. The next question comes from the line of Jim Rolison of Raymond James. Your line is open.

Hey, good morning Cindy and Lloyd. How are you guys today? Good, Jim. Jim, well. Cindy, maybe circling back to offshore, listening to some of the commentary through this earnings season so far, generally most people seem to have suggested everything still seems to be on the same track there and most of the uncertainty seems to be hitting the shorter cycle markets like the U.S. Landmark that you mentioned. Just love to hear the kind of color from conversations you've had because you made a comment that everything seems to be on track. That fits with what everybody is saying. There have been some talking about some decisions getting pushed into next year just from a timing and because of the uncertainty, but it doesn't sound like that's impacting you. Just love to get whatever you can expand on that if you don't mind.

No, I'd be happy to and, you know, it's hard for me to speak for other companies on the pushing of projects, but my supposition is likely that this is discretionary type investments could be for drilling, offshore drilling rig equipment or a number of other kind of new opportunity sets, whereas ours is much more weighted to production infrastructure associated with these large fields that have already been drilled and discovered. And so this tends to be these are multi-year, multi-decade type developments and we have a lot of individual project visibility that these don't really derail on short-term, you know, macroeconomic issues. I think that's the real difference is probably discretionary, likely more upgrades drilling rig equipment, consumables versus, you know, large project production infrastructure, which has really been the driver, primary driver of our backlog growth, although we've had several different products, including new products come into our backlog such as our new MPD system. So it's probably a combination of the type of equipment we offer the market and benefits of new technology brought to market. Got it. And before I leave, I should take the opportunity too to say that our bookings outlook remains robust and we do fully expect that the balance of the year will continue to lead to a book to build north of one.

Yep, that's great to hear. And Cindy, any updated view or Lloyd, any updated view on the tariff impacts given a few changes since last quarter?

I'm happy. Right now we just don't anticipate a material impact from the tariff situation given our variety of global supply sourcing, number one, and two, the fact that a lot of our projects can be manufactured anywhere in the world and then they are shipped into international locations. The one area that will probably have modest cost increases is actually in the down hole, the perforating side of the business, which as you know is rather small for us.

Yep, absolutely. And last one, just on the cash flow, free cash flow outlook, Lloyd, you mentioned kind of reiterated the 65 to 75 million of cash flow from operations and your capex obviously in two queue was a little more heavy relative to one queue and my recollection was your kind of annual capex guidance was somewhere in the 25 million ballpark. Just trying to circle back on what your capex view is so we can back into where free cash flow should come out for the full year.

Yeah, great, Jim. We're going to guide to capex about 30 million because we're a little higher in the second quarter for the completion of the baton and some specific belt riser equipment for customer contracts.

Yeah, and the baton spending was in our plans, but what's new is this low impact work over riser and again this is equipment built for future revenue streams. So perfectly logical that we would up that guided capex range for this special spending pursuant to contracts.

Right, but also what wasn't in your guide necessarily was some additional proceeds from asset sales which have been at least partially offsetting that incremental 5 million, right?

That's correct and that's likely to continue as we can exit some of these land based operations will have excess equipment, excess inventory and facilities to monetize. As you know, a lot of that monetization will take time and so we don't have that in our forward guidance.

Yep, perfect. Thank you guys. Appreciate it.

Your next question comes from the line of Patrick Ouellette of Stiefel. Your line is open.

Hey, it's Pat Ouellette on for Steve and Jagira. Thanks for taking the questions. Your revenue mix was about 72% offshore and international during the quarter. Do you have any idea what maybe a normalized mix is given the high grading of the U.S. product lines?

Yeah, it's going, that's a great question and I probably will break that down a little bit for you in saying that of the 28% current land based mix, about half of that comes from our downhole technology segment. A portion is military so it's kind of not what we would think and then the reality is the completion and production services segment, which if you all recall, has Gulf of Mexico activity, land based activity and international activity. The land pace piece was really only about 11 or 12% for CPNS, which is really the area that we have done restructuring around. And so it's a much smaller piece of U.S. land driven service activity than probably people recognize.

All right, great. That's really helpful. Thank you. As you continue to streamline the U.S. land operations, could you give us maybe any guidance on the place it takes of soft current market conditions and your improving cost structure and how that impacts 2H25 margins?

Yeah, I'll look to Lloyd to kind of look to that and realize that the margin progression will accrete throughout the second half and be higher, quite frankly, into 2026. Again, for the reasons I just talked about, these are recent decisions to exit three facilities, severance costs, some have been accrued, some will still come, and then we've got some move, relocation, sale of equipment, blah, blah, blah. So there'll be some ongoing drag on margins, but the go forward margins, I'll look more towards 2026, should be in a range of what, Lloyd? Upper

20s to low 30s.

Yeah. Notable, almost a doubling of our EVDA margins by these actions.

Great. Thanks for the outlook there. I'll turn it back.

Thanks, Pat.

Your next question comes from John Daniel of Daniel Energy Partners. Your line is open.

Good morning, Cindy and Lloyd. Thanks for having me. The first one is just a housekeeping. Cindy, can you remind me what percent of the U.S. land-based business is tied to production versus DNC activity?

I'm going to say I attribute virtually everything we do to completions. Remember, we are completely out of flow back and well testing, which you might have said is I can put that in completions too, but we're completely out of that line. So I'd say everything we have left is really focused on completion activity, zero drilling.

Got it. Okay. And the second one, if you could wave a magic wand and get whatever land-based business you wanted, what would that be today and why?

Well, we have our down-hole technologies, which you can think perforating and plugs. These are down-hole consumables, and while the market has been under competitive pressure, that is a really good long-term business to be in, again, because you consume it down-hole, you can manage your cost structure a bit more readily than others. Our Temporis product line is absolutely a market-leading technology for the drill-out of plugs during completion operations, and I would put my money right there.

Okay. Got it. And then it's pretty easy for us to see, like, when a frat company shuts down or a work-over company shuts down, I don't always see what happens on some of the niche tool businesses, if you will. I'm curious, are you seeing any type of headaches with some of your competitors on those product lines? What do

you mean, clarify niche tools?

I'm just saying, like, it's just any type of small tool rental businesses. When you drive around, I don't know if we write about it, you'll see a rig yard shut down, a frat yard shut down, cool to be the person shut down, but I don't often hear about some of the smaller rental companies. I'm just curious, like, within some of the markets you compete, are you seeing maybe the competitive dynamics potentially getting more favorable to you because some of your less well capitalized competitors maybe don't

fit? Yeah, well, remember, this is only about 11 or 12% of my revenue mix today. Oh, I know. And no, I'm just going to throw that out there, so I'm going to put the reverse in. You ought to look at what we are doing, which will firm up the market, but it'll firm it up for someone else.

Right. Okay. It's our focus more international and offshore.

Correct.

No, I know. I'm just stuck as an old man, not here. Sorry. Just digging in. Okay.

The market will firm up, and there's lots of discussion about consolidating the land-based market, which is overdue. All I'm saying is that's not going to be what we do.

No, fair enough. I just thought I'd get you guys your wise and experience. I figured I'd test you with the questions. So thank you for having me. Okay. Thank you, John. Bye.

Your next question comes from the line of Chuck Mendovino of Susquehanna. Your line is

open. Hi. Good morning. Morning, Chad. Good morning. So just a couple of questions. Number one, the guidance for the full year, it kind of implies a step up in revenues in the fourth quarter and also EBITDA. So I was just wondering if you could kind of touch on what's happening there to kind of get to that full year number.

No, that's a very astute observation, and it's absolutely correct. It is going to be led by our offshore manufactured product segment, and most of it is based on backlog build. And we've had a 1.2 -to-date -to-bill ratio. And so while you can always worry a little bit of whether they come in the fourth quarter or flip to the first based on material receipts, these are generally POC contracts, and they are generally in backlog. But you're right. There is a step up in Q4 based on that.

Got it. And then in the completion and production segment, I thought it was interesting that such a small piece of that is U.S. land business, just given the decline year over year in revenues in that segment. So I was just wondering what other aspect of that business kind of saw a sharp decline, or if you could just explain a little bit what's going on there. It sounds like it maybe was more than just the U.S. land piece that may have declined.

Well, I think the big point that I fear that maybe the street has missed a little bit is we are in a continual mode of exiting these commoditized product lines started last year, where we had a decent flowback and well-testing business. Certainly contributed to revenue, but contributed very little to EBITDA and maybe negative cash flow, probably was. That is no longer in our revenue mix. We have also announced, I can't remember if it's late last year or early this year, closure of various regions on our CPNS segment in the Northeast, in East Texas, and other regions, and we just announced three more. When you do that, yes, revenues come down, but given how marginal these operations were, they're not damaging our EBITDA, and they're actually improving our free cash flow.

Yes, I did notice the substantial margin improvement there as well. Okay, that's all for me. Thank you.

Thanks, Chad. Your next question comes from Steven Gingaro of Stiefel. Your line is open.

Thanks. Good morning, everybody. I apologize if I missed this because I joined late, but I was curious. On the offshore side and on the order flow side, it's obviously been a very good year to date. It sounds like from talking to others, there's a potential for a pretty solid uptick in offshore activity in 26 plus. Are you seeing that and any thoughts on how we should be thinking about order flow for the next several quarters?

No, absolutely, and I think you did miss the comment I made that we are looking at a booked bill north of one throughout the balance of this year and do have optimism as we go into 2026. We actually had some very good clarifying questions. I think it came from Jim in terms of why are you different, meaning a lot of companies are kind of guiding down, but we're more long cycle, project-driven, production infrastructure driven, not less so on shorter term upgrades, refurb of rig equipment and the like. I think the rig equipment exposure we have is very strategic and it's new technology to market, particularly our MPV type assets, and that was a new basically product introduction made early last year. It's the new drill in particular, which we have some joint marketing videos out there that really talk about the differentiation of the equipment in the market. We have recently introduced a low impact system for P&A operations that we think is unique and improved technology. For older wellheads, and it could be any wellhead, but certainly it has an advantage for older wellheads that elevated our capex, but that investment was made pursuant to contracts with customers, and that's why we upped our capex guided from 25 to 30. But a large proportion of our spending, probably 50%, is unique and expansionary, i.e. the Batam facility as well as this new intervention riser that we plan to take to market on a rental basis.

Great, thanks. And the other quick question that's a little scary because I just look back at my model and it goes back to 2001, I think, at the offshore products margins over the years. Is that range, like when you think about sort of you had a nice uptick in the second quarter, is that kind of give or take 20% range something that we should probably be modeling in for the next year or two? Or do you think there's potential with upside to that as absorption maybe a little higher? I would

probably model in 20 to 22. We have a five-year model and obviously what a real driver for improved margin is steady, consistent throughput through our facilities. But as backlog builds, we should get that. There's always some mixed issues depending on which product has the higher weighting in a given quarter. But overall, and you've been with us a long, long time, probably our historical margins over two decades in that segment were somewhere from about 13 to 17. And now we, and if you look at over the last five years, our revenue growth, our EBITDA growth, and our margin progression has been very favorable in that segment. And now we're more sustained and have been around kind of 19 to 20%. But if revenue continues to grow and expand as we think it will, those could accrete up to 21 to 22% over time.

Great. That's a great color. Thank you.

Thank you.

Thanks, David. That concludes our Q&A session. I'll now turn the conference back over to Cindy for closing remarks.

All right. JL, thank you so much for helping us host the call today. And I do thank all of you for your time and joining us. We attempted to communicate during this call is that we are focused on the right-end markets. We're getting leaner by design and we're being more selective about our capital allocation strategies. With that backdrop, we expect to see higher EBITDA margins and enhanced cash flows, all efforts that should benefit our stockholders. Thanks and have a great day.

This concludes today's conference call. You may now disconnect.