Good morning. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Oil States 3Q Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the call over to Ellen Pennington, Senior Counsel. Ellen, please go ahead.

Thank you, Mark. Good morning, and welcome to Oil States third quarter 2024 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' 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 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 2023 Form 10-K, along with other recent SEC filings. This call is being webcast and can be accessed at Oil States' 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'll now turn the call over to Cindy.

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our third quarter 2024 results and provide our thoughts on market trends in addition to discussing our company-specific outlook. During the third quarter, we reported strong results in our Offshore/Manufactured Products segment and achieved our largest bookings quarter of the year. On a consolidated basis, our offshore and international revenues constituted 65% of our consolidated total for the quarter, while U.S. land-driven revenues represented 35%. As we have discussed in prior quarters, we are in the process of strategically streamlining our operations in the United States through the exit of underperforming locations and business lines. We continued our efforts around business mix optimization during the third quarter with the sale of our remaining drilling rigs, which generated some cash and also frees up working capital previously dedicated to the business. Following the sale of our drilling rigs and the exit of our flowback and well testing operation, the segment previously named Well Site Services was changed to Completion and Production Services in line with our future go-to-market strategy. During the quarter, our Offshore/Manufactured Products segment revenues totaled $102 million, while adjusted segment EBITDA totaled $23 million. Bookings totaled $112 million, up 11% sequentially, yielding a backlog of $313 million as of September 30th. and a quarterly book-to-bill ratio of 1.1x. Our segment results are gaining incremental benefits from customer adoption of our newer technologies with a particular focus on our managed pressure drilling and Mineral Riser technologies during the quarter. Together with Seadrill Limited, a global leader in offshore oil and gas drilling, we announced a strategic non-exclusive collaborative relationship aimed at increasing the safety and efficiency of offshore MPD operations. This strategic initiative combines our award-winning MPD Integrated Riser Joint technology…

Thanks, Cindy. Good morning, everyone. During the third quarter, we generated revenues of $174 million, adjusted consolidated EBITDA of $22 million and adjusted net income of $2.7 million or $0.04 per share. Our reported third quarter results included pre-tax intangible and lease asset impairment charges of $13 million, facility consolidation and exit charges of $3.5 million and patent defense charges of $1.3 million. Our Offshore/Manufactured Products segment generated revenues of $102 million, and adjusted segment EBITDA of $23 million in the third quarter. Adjusted segment EBITDA margin was 23% in the third quarter compared to 20% in the second quarter. We own one remaining U.S. facility that was classified as a held-for-sale asset at September 30. We are under contract to close the sale of this facility in November with net proceeds expected to total approximately $25 million. In our Completion and Production Services segment, we generated revenues of $40 million and adjusted segment EBITDA of $5.4 million in the third quarter. During the third quarter, the segment recognized $13 million in non-cash intangible and operating lease asset impairment charges as well as $3 million in costs associated with the consolidation and exit of underperforming locations and workforce reductions. Additionally, the segment recorded charges of $1 million associated with the enforcement of patents related to its proprietary technologies. Excluding these charges, adjusted segment EBITDA margin was 13% in the third quarter compared to 18% in the second quarter. We have included information in our earnings release to assist investors and analysts in understanding the combined historical results of the segment's U.S. land-based service offerings and facilities exited in 2024 for the three and nine months ended September 30. In our Downhole Technologies segment, we reported revenues of $32 million and adjusted segment EBITDA of $1 million for the third quarter. During the third quarter, Oil States generated $29 million in cash flows from operations and invested $5 million in net CapEx. Cash was used to buy back $3 million of our common stock. On October 24th, our Board of Directors terminated our existing share repurchase program and replaced it with a new $50 million authorization, which expires in October 2026. Now Cindy will offer some market outlook and concluding comments.

The long-term outlook for oil, natural gas, LNG and global energy demand should support sustained high levels of capital investment in offshore and international field developments over the longer-term, led by the United States, Latin America, Asia and Africa, with major subsea OEMs continuing to experience backlog growth as a result of orders for subsea production systems, we expect to see support for increased bidding and quoting activity, future bookings and revenue growth across a number of our product lines. In addition to solid macro fundamentals for production-related systems, we are enthusiastic about the potential for our global collaboration with Seadrill as well as our previously announced collaboration with Halliburton, both of which will further support market penetration of our managed pressure drilling technology, while increasing offshore drilling efficiency and safety across more subsea wells. We expect our Completion and Production Services and Downhole Technologies segments to improve with the consolidation and exit of underperforming locations, along with the implementation of additional cost control measures. These restructuring actions are expected to provide tangible margin benefits in subsequent quarters as capital is allocated to our more differentiated product and service lines. Our Completion and Production Services segment's Active Seat Valve technology, combined with automation and digital offerings should also provide further technological differentiation. In parallel, the recent introduction of our EPIC portfolio of perforating systems within our Downhole Technologies segment will provide our customers with increased flexibility for their completions operations while expanding our revenue opportunities. Further, our initiative to secure long-term contracts with our international customers for the supply of perforating products is gaining traction with recent awards in Latin America and the Eastern Hemisphere commencing in 2025. Considering current market dynamics, along with our internal restructuring initiatives, we expect our fourth quarter adjusted EBITDA to range between $20 million…

Sure. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Jim Rollyson with Raymond James. Jim, your line is now open.

Hi, good morning everyone. You've been on this kind of interesting journey over the past couple of years of continually having to rightsize your U.S. land-oriented businesses, just given what the market -- how the market dynamics have changed. I'm curious, as you've taken more measures this quarter and 4Q, I realize may not be the best barometer given some of the budget exhaustion comments we've heard around this earnings season. But maybe just a little bit of context of how you're thinking about the margin profile of both the Completion and Production Services and Downhole Technologies as we just move forward, given what you've done, given some of the new technology introductions, et cetera? Like how are you thinking about that in the context of what we've seen over the last few quarters?

Jim, that's just a great question, and I appreciate you asking that. We are doing a lot of the pro forma modeling going into our budgets for next year and feel pretty comfortable with, I'd say, fairly material increases in our EBITDA margins coming out of Completion and Production Services. And just realize the businesses we are exiting were either not generating returns or generating negative returns. And so, we also put in the 10-Q, and I believe in the press release information to allow you to model. You've got to obviously reduce the top line. And I'd just say, it varied by quarter and that mostly because of our Gulf of Mexico mix, which is a higher margin business, always suffers in Q3, but particularly this particular quarter. And so that mix was a little off. But I'd say, generally speaking, you're talking about 2024 in the mid-teens kind of range for EBITDA margins. And again, a decent amount of variation by quarter, some of them high teens. As we go into -- and to your point, it's correct, one of the keys for us is seeing that offshore pickup, which will commence in Q4, but it won't be as strong as possibly it was earlier in the year just yet. But with the mix we anticipate both International, Gulf of Mexico and a much more streamlined U.S. land piece of the business, we're looking for EBITDA margins more like 23% to 25% in 2025. Again, just you got to crop off the revenue a bit to reflect the exit of these business lines. So that is Completion and Production Services. And again, if you'll recall that, when it comes to Downhole Technologies, there's really a dual strategy. Domestically, it is the rollout of the new EPIC technology that we have taken to market. It is being field tested and has been field tested over the last quarter or so. Now I will acknowledge this market has not been the best to bring new technology to market because activity has been down. However, the initial customer reception is good for the new technology domestically. And then the second leg of the stool has been international penetration on the completion side of the business. And recall that historically, most of our international perforating work was P&A driven, not completions driven. And again, as Lloyd mentioned, we're getting some early success, one with work in Brazil, and the other one in the Eastern Hemisphere. And so, while it's early days, we are expecting to see improvement on the Downhole Technologies side. And I'm looking to Lloyd for kind of a range of 2025 EBITDA margins for the business.

Low double-digits.

Kind of low double-digits compared to very little contribution this year. Hope that's helpful.

In that business -- yes, very helpful. And I presume in Downhole Technologies, you might actually see revenue improvement as well just because of the new product kind of uptake in international markets.

International markets, correct.

Yes. And then my follow-up question, I guess, we've heard kind of through this earnings season, some varying commentary, but one of the bottom lines I've heard is kind of with this pullback in oil prices, some of the shorter cycle activity, not just in the U.S., but even international, that's had a little more shaky ground, maybe the longer duration projects seem to be generally going forward. Just kind of as you talk to customers, especially this probably relates as much as anything to your Offshore/Manufactured Products business, but just kind of how the conversations are going, and you guys had a great bookings quarter and backlog bounced back up to the highest level in four quarters. But just kind of trying to figure out how you're seeing the backdrop given what's kind of happened on the macro front.

You're exactly right. And again, as we kind of led off roughly 65% currently of our revenue mix is more offshore international. And I would take that even a step further to say a lot of it is tied to production infrastructure. And when you think of it in that vein, these are prospects that have already had the exploratory work that deepen the development profiles. And so you're logically going to spend, obviously, the money to develop the reserves that are already discovered. And that is true for our specialized connectors for our FlexJoint technology and any of our subsea type investments and applications. So in my mind, I think of that as kind of the base recurring business that we do believe will grow. And as you see these large EPIC contracts awarded around these field developments, that logically obviously plays into our product line given that, that is the driver for the business. And so with backlog, yes, but also bidding and quoting activity and the fact that it is more production-oriented, development-oriented for fields already in play, we feel pretty confident, we'll see growth. Now we're not forecasting heroic growth on what I call the base business, kind of mid-single-digit type growth, although it could be better if our award profile is good. But then remember, what we're trying to communicate is, we have brand new technology coming to market. And that has been the -- largely the MPD offering that we have, and we quoted some revenue -- go-forward annual revenue, which should be additive to the business. The mineral riser systems, I believe we've deployed to date over the last 18 months, about four systems, I believe, and we're seeing ongoing bidding activity around that. And again, I think of that as incremental revenue opportunity over the base business. So yes, our outlook is good. Now the headlines right now with crude oil aren't great. But I think where people are going to spend money is in these large field developments offshore internationally, where a lot of money has already been sunk.

Appreciate the color, and look forward to net debt zero.

Yes, we do too, Jim. Thank you.

Thank you.

Your next question comes from the line of Stephen Gengaro with Stifel. Stephen your line is now open.

Good morning, everybody.

Hi, Stephen.

So just to start, and I know you just gave some color on the margins in 2025. When we think about what you've done so far, is there more to come as far as some of these -- or is this sort of the bulk of the strategic initiatives on the different product lines?

Well, I mean, there's a little bit of this that's ongoing in the fourth quarter. But as we obviously have simplified the business, we'll be looking to internal efficiencies, particularly around SG&A, that shouldn't surprise anybody. But a lot of the work has been done on the operational product line basis. And what we're left with essentially on, if you're thinking about U.S. land, it's our frac and isolation business. That's our Active Seat Gate Valve. That's where we have the automation and digitization efforts underway and our isolation tools, as you know, has always had some proprietary standing in the market. And so, it really comes down to, do we have a decent level of activity to support a high graded product offering across the basins that we're in. And we're assuming that is the case at this point, and we're focusing only on the product lines that offer good EBITDA margins over the longer-term.

As well as our extended-reach technology for years.

Yes. Let's not forget our extended-reach technology.

Okay. Thanks. And then on the Offshore/Manufactured Products business, I guess there's two questions here for me. One is, any guidance on sort of the turn of the backlog and how to think about that? But also the margins in the quarter were very good. I think it was the highest level since the back half of last year, and I think one of the higher levels ever. How should we think about those margins in general? I mean, I always think about them as sort of high teens to low-20s. Is there any change to that based on what's in the backlog and pricing, et cetera?

Stephen, you've been with us a long time, and you know that the product mix shipped out the door in a given quarter really does matter. But I do think our internal goal this year, I believe, was 19% EBITDA margins. And clearly, we can exceed that as you've seen. But I think I look -- have to look annually, not quarter-by-quarter. And these are sustainably higher than they were a couple of years ago. And there's room to go, but the key there is going to be quality throughput through all of our various manufacturing facilities around the world. And we do feel good about that. But as revenue grows, your cost absorption improves, and we could see a baseline improvement in those EBITDA margins. But again, quarter-by-quarter, it can vary just a bit. So I kind of stick with the kind of 19% to 20% range at least right now. I'm looking for Lloyd for validation if you feel any different, tell me. Yes.

That's correct.

Okay. And any...

Stephen you had a question -- sorry, you had a question about backlog, I'm sorry. You had a...

You have a question about backlog. I'm sorry. So backlog conversion, I'm doing this off the cuff based on history, not a level of precision on the exact backlog. But generally, about 75% of the backlog turns in the forward 12 months. But I'd also remind you that we have a decent amount of service repair inspection, spare parts work that's not really backlog driven. And so -- and that can be anywhere from 15% to 20% of our revenue over time. Just you get a large installed base, you have to support that installed base with service and repair work.

Okay. That's very helpful. I'll get back in line. Thank you.

Thank you, Stephen.

[Operator Instructions]. Your next question comes from the line of Sean Mitchell with Daniel Energy Partners. Sean your line is now open.

Hey, good morning team. Thanks for taking my questions. You guys highlighted some Gulf of Mexico weakness in Q3 and the related storms that's returning -- it will be returning in Q4. But could you speak to kind of your outlook for the Gulf in '25, Cindy?

Well, I'll just generally say our offshore business, we've been in it for decades, and it is a very high margin, good contributor for us. Now a lot of this work is around completions and intervention work that as you think of it in that vein, some of it is call-out work and customers are -- and we saw a soft Q3 last year as well that when you have the optionality, particularly around intervention workover type activity, you can just defer that to get away from the risk of storms. And that's really what happened there. Our outlook next year for the business is very solid, and our margins are just very good with that piece of the business. But -- and I would say for anybody -- analysts on the call, modeling based on last year and this year, you should probably model a softer Q3 in 2025. But on balance, we see modestly improving activity in the Gulf of Mexico [Technical Difficulty] customers returning to that -- I'm sorry, we're getting a little bit of feedback, but some customers...

Yes, that was my fault, sorry.

No worries. Returning to the Gulf level of activity. And then again, workover and intervention work is pretty solid throughout the period.

Got it. And then you mentioned earlier in the call Brazil, but could you just walk us through international markets today, where you're seeing potential softness and where you're seeing opportunities for the business to grow in '25? I think you mentioned Brazil earlier, but is there anything else to add to any color around international?

We've been in Brazil for quite a long time and have a very, very solid base of operations. And if I go to all the industry data, I think they're probably 40% or more of deepwater activity. So you're not really participating in deepwater if you're not in Brazil. And that has been such a good opportunity for us vis-à-vis the production facilities and the infrastructure around that as is Guyana. But that's just where the dollars are being spent. And again, these are production facilities for discoveries that are already in place. But in addition to that, they're looking at new step-out fields continually. And so, it's going to be a multi-decade resource play for us that I think we're very well positioned with Petrobras and other operators in the region. I say generally, it has been really around production infrastructure, but with the introduction of our MPD equipment, we do hope to garner more drilling equipment, particularly riser type opportunities, some of our connectors. There is a broad base there that we can opportunistically take advantage of. It's hard for me to say that I've seen weakness per se in any of the offshore basins where we see weakness is on U.S. land, and we've taken actions accordingly.

Yes, Sean, sorry, just the third-party data would suggest that the largest contributors for EPIC type spending, Latin America, Asia and Africa.

And Africa quite frankly, is kind of a new emerging type. We've certainly been in West Africa for decades, but it took a big pause and now it's getting kind of a renewed interest, I'll call it.

Thank you so much for the color. And thanks for taking my

Your next question comes from the line of again, Stephen Gengaro with Stifel. Stephen, your line is now open?

Hi, Stephen. Is there any chance you're on mute?

Sorry, I was on mute, Cindy. I'm sorry. The two quick follow-ups, and I know you sort of, I'll call it, loosely guided on some C&P and Downhole margins next year. Are those kind of where you are today when you adjust for the businesses being sold? Or is there anything from a pricing activity or improvement perspective that you need to kind of get to those levels?

It's -- I will have to caveat, it's not where we are today simply because of the softness in the Gulf in Q3. But if I were to pro forma out Q3 softness, I streamline it with Q1 or Q2, I'd say we're getting pretty close to that as is. And in this market, we are not counting on price improvement.

Okay. Great. That's helpful. And then the other quick one was, I guess, they're a little bit tied together. But outside of that, I think, like $1.3 million of D&A that's coming out of the C&P segment, is 4Q D&A pretty flattish with the third quarter?

Lloyd will have that. As he looks for the specific number, Stephen, I will say that we really do need -- DD&A is going to be going down because of two things. Number one, the exit of some of these businesses, but then also just realize we are really focusing our capital allocation towards the higher performing businesses. And when you do that, our completion services DD&A is starting to run out, because we had heavy CapEx over the last decade, much lighter CapEx, and particularly our active seat valve technology really does protect and reduce some of the wear on the frac equipment. And so all these things kind of play into lower sustained CapEx going forward that translates into lower DD&A and enhanced free cash flow. That's really the message.

Yes. And to your point, DD&A is going down fourth quarter kind of in line with the reduction from the exited businesses about a million dollar.

Yes, Lloyd and Cindy. Thanks for the details.

Thanks, Stephen.

There is no further question at this time. I will now turn the conference back over to Cindy Taylor for closing remarks. Cindy?

Thank you, Mark. You did a great job today, and thanks to all of you who were able to join our call. We know it's a busy week of earnings, and we certainly appreciate your interest in Oil States. We will be available for follow-up questions should you have any. And I wish you success through the balance of the earnings season. Take care.

Thank you, Cindy. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.