OIL STATES INTERNATIONAL, INC 10-Q

ITEM 1. Financial Statements UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended March 31, 2022 2021 Revenues: Products $ 85,761 $ 61,445 Services 78,283 64,144 164,044 125,589 Costs and expenses: Product costs 64,801 49,463 Service costs 61,803 52,847 Cost of revenues (exclusive of depreciation and amortization expense presented below) 126,604 102,310 Selling, general and administrative expense 23,833 21,225 Depreciation and amortization expense 17,817 21,520 Impairments of fixed assets — 650 Other operating (income) expense, net 126 ( 354 ) 168,380 145,351 Operating loss ( 4,336 ) ( 19,762 ) Interest expense, net ( 2,672 ) ( 2,325 ) Other income, net 1,025 3,960 Loss before income taxes ( 5,983 ) ( 18,127 ) Income tax (provision) benefit ( 3,441 ) 2,317 Net loss $ ( 9,424 ) $ ( 15,810 ) Net loss per share: Basic $ ( 0.16 ) $ ( 0.26 ) Diluted ( 0.16 ) ( 0.26 ) Weighted average number of common shares outstanding: Basic 60,498 60,098 Diluted 60,498 60,098 The accompanying notes are an integral part of these financial statements. 3 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Three Months Ended March 31, 2022 2021 Net loss $ ( 9,424 ) $ ( 15,810 ) Other comprehensive income (loss): Currency translation adjustments 861 ( 1,529 ) Comprehensive loss $ ( 8,563 ) $ ( 17,339 ) The accompanying notes are an integral part of these financial statements. 4 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) March 31, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 39,158 $ 52,852 Accounts receivable, net 194,257 186,080 Inventories, net 180,886 168,573 Prepaid expenses and other current assets 20,238 19,222 Total current assets 434,539 426,727 Property, plant, and equipment, net 330,118 338,583 Operating lease assets, net 26,202 25,388 Goodwill, net 76,179 76,412 Other intangible assets, net 180,639 185,749 Other noncurrent assets 30,288 32,889 Total assets $ 1,077,965 $ 1,085,748 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 44,047 $ 18,262 Accounts payable 60,650 63,343 Accrued liabilities 41,541 43,401 Current operating lease liabilities 6,143 6,481 Income taxes payable 4,857 2,564 Deferred revenue 47,560 43,236 Total current liabilities 204,798 177,287 Long-term debt 134,790 160,488 Long-term operating lease liabilities 24,169 23,452 Deferred income taxes 2,897 3,637 Other noncurrent liabilities 23,203 25,058 Total liabilities 389,857 389,922 Stockholders' equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 74,573,660 shares and 73,900,160 shares issued, respectively 746 739 Additional paid-in capital 1,106,963 1,105,135 Retained earnings 272,143 281,567 Accumulated other comprehensive loss ( 65,170 ) ( 66,031 ) Treasury stock, at cost, 12,682,668 and 12,521,834 shares, respectively ( 626,574 ) ( 625,584 ) Total stockholders' equity 688,108 695,826 Total liabilities and stockholders' equity $ 1,077,965 $ 1,085,748 The accompanying notes are an integral part of these financial statements. 5 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended March 31, 2022 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2021 $ 739 $ 1,105,135 $ 281,567 $ ( 66,031 ) $ ( 625,584 ) $ 695,826 Net loss — — ( 9,424 ) — — ( 9,424 ) Currency translation adjustments (excluding intercompany advances) — — — ( 3,580 ) — ( 3,580 ) Currency translation adjustments on intercompany advances — — — 4,441 — 4,441 Stock-based compensation expense: Restricted stock 7 1,828 — — — 1,835 Surrender of stock to settle taxes on restricted stock awards — — — — ( 990 ) ( 990 ) Balance, March 31, 2022 $ 746 $ 1,106,963 $ 272,143 $ ( 65,170 ) $ ( 626,574 ) $ 688,108 Three Months Ended March 31, 2021 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2020 $ 733 $ 1,122,945 $ 329,327 $ ( 71,385 ) $ ( 623,989 ) $ 757,631 Net loss — — ( 15,810 ) — — ( 15,810 ) Currency translation adjustments (excluding intercompany advances) — — — 1,068 — 1,068 Currency translation adjustments on intercompany advances — — — ( 2,597 ) — ( 2,597 ) Stock-based compensation expense: Restricted stock 5 2,815 — — — 2,820 Surrender of stock to settle taxes on restricted stock awards — — — — ( 1,500 ) ( 1,500 ) Adoption of ASU 2020-06 — ( 25,683 ) 16,233 — — ( 9,450 ) Balance, March 31, 2021 $ 738 $ 1,100,077 $ 329,750 $ ( 72,914 ) $ ( 625,489 ) $ 732,162 The accompanying notes are an integral part of these financial statements. 6 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 9,424 ) $ ( 15,810 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 17,817 21,520 Impairments of fixed assets — 650 Stock-based compensation expense 1,835 2,820 Amortization of debt discount and deferred financing costs 469 895 Deferred income tax benefit ( 174 ) ( 2,710 ) Gains on extinguishment of 1.50 % convertible senior notes — ( 3,637 ) Gains on disposals of assets ( 543 ) ( 307 ) Other, net 550 285 Changes in operating assets and liabilities: Accounts receivable ( 9,086 ) ( 10,701 ) Inventories ( 13,090 ) ( 3,890 ) Accounts payable and accrued liabilities ( 4,555 ) 1,648 Deferred revenue 4,324 ( 206 ) Other operating assets and liabilities, net 1,142 1,026 Net cash flows used in operating activities ( 10,735 ) ( 8,417 ) Cash flows from investing activities: Capital expenditures ( 2,858 ) ( 4,120 ) Proceeds from disposition of property and equipment 869 1,851 Other, net ( 67 ) ( 95 ) Net cash flows used in investing activities ( 2,056 ) ( 2,364 ) Cash flows from financing activities: Revolving credit facility borrowings 367 12,220 Revolving credit facility repayments ( 367 ) ( 24,220 ) Issuance of 4.75 % convertible senior notes — 135,000 Purchases of 1.50 % convertible senior notes — ( 120,000 ) Other debt and finance lease repayments, net ( 165 ) ( 145 ) Payment of financing costs ( 68 ) ( 7,961 ) Shares added to treasury stock as a result of net share settlements due to vesting of stock awards ( 990 ) ( 1,500 ) Net cash flows used in financing activities ( 1,223 ) ( 6,606 ) Effect of exchange rate changes on cash and cash equivalents 320 ( 111 ) Net change in cash and cash equivalents ( 13,694 ) ( 17,498 ) Cash and cash equivalents, beginning of period 52,852 72,011 Cash and cash equivalents, end of period $ 39,158 $ 54,513 Cash paid for: Interest $ 522 $ 1,842 Income taxes, net 119 577 The accompanying notes are an integral part of these financial statements. 7 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Oil States International, Inc. and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. Certain information in footnote disclosures normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair statement of the results of operations for the interim periods covered and for the financial condition of the Company at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. As further discussed in Note 11, "Commitments and Contingencies," the impact of the Coronavirus Disease 2019 ("COVID-19") pandemic and the related economic, business and market disruptions continue to evolve and their future effects remain uncertain. The actual impact of these developments on the Company will depend on numerous factors, many of which are beyond management's control and knowledge. It is therefore difficult for management to assess or predict with precision the broad future effect of this health crisis on the global economy, the energy industry or the Company. During 2020 and 2021, the Company recorded asset impairments, severance and restructuring charges in response to these developments as further discussed in Note 2, "Asset Impairments and Other Restructuring Items." As additional information becomes available, events or circumstances change and strategic operational decisions are made by management, further adjustments may be required which could have a material adverse impact on the Company's consolidated financial position, results of operations and cash flows. The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, goodwill and long-lived asset impairments, revenue and income recognized over time, valuation allowances recorded on deferred tax assets, reserves on inventory, allowances for doubtful accounts, settlement of litigation and potential future adjustments related to contractual indemnification and other agreements. Actual results could materially differ from those estimates. From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by the Company as of the specified effective date. Management believes that recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. The financial statements included in this report should be read in conjunction with the Company's audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2021. 2. Asset Impairments and Other Restructuring Items In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50 % in response to actual and forecasted reductions in global demand for crude oil due to the COVID-19 pandemic, coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production. As demand for most of the Company's products and services depends substantially on the level of capital expenditures by the oil and natural gas industry, these conditions caused rapid reductions to most of the Company's customers' drilling, completion and production activities and their related spending on the Company's products and services, particularly those supporting activities in the U.S. shale play regions, until the supply/demand imbalances eased. Following these March 2020 events, the Company immediately implemented significant cost reduction initiatives, which continued into 2021. 8 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In this regard, during the first quarter of 2021, the Company continued its restructuring efforts, closed additional facilities in the United States and continued to assess the carrying value of its assets based on management actions and the industry outlook regarding demand for and pricing of its products and services, and recorded the following charges (in thousands): Offshore/ Manufactured Products Well Site Services Downhole Technologies Corporate Pre-tax Total Tax After-tax Total Impairments of fixed assets (Note 3) $ — $ 650 $ — $ — $ 650 $ 137 $ 513 Severance and restructuring costs 282 1,306 275 1,555 3,418 717 2,701 Additionally, during the first quarter of 2021, the Company recognized $ 4.8 million in aggregate reductions to payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program. Should, among other events and circumstances, the ongoing war between Russia and Ukraine escalate or spread, global economic and industry conditions deteriorate, the COVID-19 pandemic business, supply chain and market disruptions worsen, the outlook for future operating results and cash flow for any of the Company's segments decline, income tax rates increase or regulations change, climate and environmental regulations or rules change, costs of equity or debt capital increase, valuation for comparable public companies or comparable acquisition valuations decrease, or management implements strategic decisions based on industry conditions, the Company may need to recognize additional impairment losses and/or other costs in future periods. 3. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of March 31, 2022 and December 31, 2021 is presented below (in thousands): March 31, 2022 December 31, 2021 Accounts receivable, net: Trade $ 124,692 $ 116,434 Unbilled revenue 24,368 24,389 Contract assets 39,937 39,755 Other 10,039 9,973 Total accounts receivable 199,036 190,551 Allowance for doubtful accounts ( 4,779 ) ( 4,471 ) $ 194,257 $ 186,080 Allowance for doubtful accounts as a percentage of total accounts receivable 2 % 2 % March 31, 2022 December 31, 2021 Deferred revenue (contract liabilities) $ 47,560 $ 43,236 As of March 31, 2022, accounts receivable, net in the United States and the United Kingdom represented 78 % and 12 %, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of March 31, 2022. For the three months ended March 31, 2022, the $ 0.2 million net increase in contract assets was attributable to $ 15.3 million in revenue recognized during the period, which was substantially offset by $ 15.1 million transferred to accounts receivable. Deferred revenue (contract liabilities) increased by $ 4.3 million in the first three months of 2022, reflecting $ 10.9 million in new customer billings which were not recognized as revenue during the period, offset by the recognition of $ 6.6 million of revenue that was deferred at the beginning of the period. 9 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following provides a summary of activity in the allowance for doubtful accounts for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, 2022 2021 Allowance for doubtful accounts – January 1 $ 4,471 $ 8,304 Provisions 943 214 Write-offs ( 635 ) ( 116 ) Other — 143 Allowance for doubtful accounts – March 31 $ 4,779 $ 8,545 March 31, 2022 December 31, 2021 Inventories, net: Finished goods and purchased products $ 91,215 $ 87,934 Work in process 30,706 24,722 Raw materials 98,285 96,357 Total inventories 220,206 209,013 Allowance for excess or obsolete inventory ( 39,320 ) ( 40,440 ) $ 180,886 $ 168,573 March 31, 2022 December 31, 2021 Property, plant and equipment, net: Property, plant and equipment $ 1,140,743 $ 1,151,533 Accumulated depreciation ( 810,625 ) ( 812,950 ) $ 330,118 $ 338,583 For the three months ended March 31, 2022 and 2021, depreciation expense was $ 12.7 million and $ 16.4 million, respectively. During the first quarter of 2021, the Well Site Services segment recognized non-cash impairment charges of $ 0.7 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value. March 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Other intangible assets: Customer relationships $ 168,276 $ 69,509 $ 98,767 $ 168,284 $ 66,734 $ 101,550 Patents/Technology/Know-how 78,815 34,679 44,136 78,821 33,151 45,670 Tradenames and other 53,682 15,946 37,736 53,708 15,179 38,529 $ 301,299 $ 120,660 $ 180,639 $ 300,813 $ 115,064 $ 185,749 For the three months ended March 31, 2022 and 2021, amortization expense was $ 5.2 million and $ 5.2 million, respectively. 10 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 2022 December 31, 2021 Other noncurrent assets: Deferred compensation plan $ 21,607 $ 23,348 Deferred financing costs 2,525 2,674 Deferred income taxes 1,341 1,878 Other 4,815 4,989 $ 30,288 $ 32,889 March 31, 2022 December 31, 2021 Accrued liabilities: Accrued compensation $ 16,586 $ 20,904 Accrued taxes, other than income taxes 6,758 5,130 Insurance liabilities 5,231 6,361 Accrued interest 5,337 3,629 Accrued commissions 2,502 2,194 Other 5,127 5,183 $ 41,541 $ 43,401 4. Long-term Debt As of March 31, 2022 and December 31, 2021, long-term debt consisted of the following (in thousands): March 31, 2022 December 31, 2021 Revolving credit facilities (1) $ — $ — 2026 Notes (2) 131,506 131,291 2023 Notes (3) 25,839 25,802 Promissory note 17,534 17,534 Other debt and finance lease obligations 3,958 4,123 Total debt 178,837 178,750 Less: Current portion ( 44,047 ) ( 18,262 ) Total long-term debt $ 134,790 $ 160,488 ____________________ (1) Unamortized deferred financing costs of $ 2.5 million and $ 2.7 million as of March 31, 2022 and December 31, 2021, respectively, are presented in other noncurrent assets. (2) The outstanding principal amount of the 2026 Notes was $ 135.0 million as of March 31, 2022 and December 31, 2021. (3) The outstanding principal amount of the 2023 Notes was $ 26.0 million as of March 31, 2022 and December 31, 2021. Revolving Credit Facilities ABL Facility On February 10, 2021, the Company entered into a senior secured credit facility with certain lenders, which provides for a $ 125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. Concurrent with entering into this facility, the Company's former senior secured revolving credit facility was terminated. On March 16, 2021, the Company entered into an amendment to the ABL Facility that permitted the Company to incur the indebtedness represented by the 2026 Notes discussed below. 11 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $ 17.5 million (excluding the unsecured promissory note discussed below). The ABL Agreement provides funding based on a borrowing base calculation that includes eligible U.S. customer accounts receivable and inventory and provides for a $ 50.0 million sub-limit for the issuance of letters of credit. Borrowings under the ABL Agreement are secured by a pledge of substantially all of the Company's domestic assets (other than real property) and the stock of certain foreign subsidiaries. Borrowings under the ABL Agreement bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin of 2.75 % to 3.25 % and subject to a LIBOR floor rate of 0.50 %, or at a base rate plus a margin of 1.75 % to 2.25 %, in each case based on average borrowing availability. Quarterly, the Company must also pay a commitment fee of 0.375 % to 0.50 % per annum, based on unused commitments under the ABL Agreement. The ABL Agreement places restrictions on the Company's ability to incur additional indebtedness, grant liens on assets, pay dividends or make distributions on equity interests, dispose of assets, make investments, repay other indebtedness (including the 2023 Notes and the 2026 Notes discussed below), engage in mergers, and other matters, in each case, subject to certain exceptions. The ABL Agreement contains customary default provisions, which, if triggered, could result in acceleration of repayment of all amounts then outstanding. The ABL Agreement also requires the Company to satisfy and maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 for specified periods of time: in the event that availability under the ABL Agreement is less than the greater of 15 % of the borrowing base and $ 14.1 million; to complete certain specified transactions; or if an event of default has occurred and is continuing. As of March 31, 2022, the Company had $ 19.6 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of March 31, 2022 was $ 51.0 million, calculated based on the current borrowing base less outstanding borrowings, if any, and letters of credit. As of March 31, 2022, the Company was in compliance with its debt covenants under the ABL Agreement. 2026 Notes On March 19, 2021, the Company issued $ 135.0 million aggregate principal amount of its 4.75 % senior convertible notes (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $ 130.6 million. The Company used $ 120.0 million of the cash proceeds to purchase $ 125.0 million principal amount of the outstanding 2023 Notes at a discount, with the balance added to cash on-hand. The 2026 Notes bear interest at a rate of 4.75 % per year and will mature on April 1, 2026, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest and special interest may accrue on the 2026 Notes under certain circumstances as described in the 2026 Indenture. The initial conversion rate is 95.3516 shares of the Company's common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of approximately $ 10.49 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2026 Indenture. The Company's intent is to repay the principal amount of the 2026 Notes in cash and settle the conversion feature in shares of the Company's common stock. As of March 31, 2022, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met. 12 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2023 Notes On January 30, 2018, the Company issued $ 200.0 million aggregate principal amount of its 1.50 % senior convertible notes (the "2023 Notes") pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. The 2023 Notes bear interest at a rate of 1.50 % per year and will mature on February 15, 2023, unless earlier repurchased, redeemed or converted. The initial conversion rate is 22.2748 shares of the Company's common stock per $1,000 principal amount of the 2023 Notes (equivalent to an initial conversion price of approximately $ 44.89 per share of common stock). The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the 2023 Indenture. The Company's intent is to repay the principal amount of the Notes in cash and settle the conversion feature, if any, in shares of the Company's common stock. As of March 31, 2022, $ 26.0 million principal amount of the 2023 Notes remained outstanding. The following table provides a summary of the Company's purchases of outstanding 2023 Notes during the three months ended March 31, 2021, with non-cash gains reported within other income, net (in thousands): Principal Amount Carrying Value of Liability Cash Paid Non-cash Gains Recognized Three Months Ended March 31, 2021 $ 125,000 $ 123,637 $ 120,000 $ 3,637 Promissory Note In connection with the 2018 acquisition of GEODynamics, Inc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), the Company issued a $ 25.0 million promissory note that bears interest at 2.50 % per annum (subject to adjustment) and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to the GEODynamics Acquisition. The Company has provided notice to and asserted indemnification claims against the seller of GEODynamics (the "Seller"), and the Seller has filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. The Company has incurred settlement costs and expenses of $ 7.5 million related to such indemnification claims, and believes that the maturity date of such note is extended until the resolution of such indemnity claims and that it is permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, the Company has reduced the carrying amount of such note in the consolidated balance sheet to $ 17.5 million as of March 31, 2022, which is its current best estimate of what is owed after set-off for such indemnification matters. See Note 11, "Commitments and Contingencies." 5. Fair Value Measurements The Company's financial instruments consist of cash and cash equivalents, investments, receivables, payables and debt instruments. The Company believes that the carrying values of these instruments, other than the 2023 Notes and 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2023 Notes as of March 31, 2022 was $ 24.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 26.0 million. The estimated fair value of the 2026 Notes as of March 31, 2022 was $ 146.7 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 135.0 million. 13 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Stockholders' Equity Common and Preferred Stock The following table provides details with respect to the changes to the number of shares of common stock, $ 0.01 par value, outstanding during the first three months of 2022 (in thousands): Shares of common stock outstanding – December 31, 2021 61,378 Restricted stock awards, net of forfeitures 674 Shares withheld for taxes on vesting of stock awards ( 161 ) Shares of common stock outstanding – March 31, 2022 61,891 As of March 31, 2022 and December 31, 2021, the Company had 25,000,000 shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, reported as a component of stockholders' equity, primarily relates to fluctuations in currency exchange rates against the U.S. dollar as used to translate certain of the international operations of the Company's operating segments. Accumulated other comprehensive loss decreased from $ 66.0 million at December 31, 2021 to $ 65.2 million at March 31, 2022. For the three months ended March 31, 2022 and 2021, currency translation adjustments recognized as a component of other comprehensive loss due to exchange rate movements were primarily attributable to the United Kingdom and Brazil. During the three months ended March 31, 2022, the exchange rate for the British pound weakened by 3 % compared to the U.S. dollar and the Brazilian real strengthened by 17 % compared to the U.S. dollar, contributing to other comprehensive income of $ 0.9 million. During the three months ended March 31, 2021, the exchange rate for the British pound strengthened by 1 % compared to the U.S. dollar while the Brazilian real weakened by 8 % compared to the U.S. dollar, contributing to other comprehensive loss of $ 1.5 million. 7. Income Taxes For the three months ended March 31, 2022, the Company's income tax expense was $ 3.4 million on a pre-tax loss of $ 6.0 million. Income tax expense in the first quarter of 2022 included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses and discrete tax items. This compares to an income tax benefit of $ 2.3 million on a pre-tax loss of $ 18.1 million, which included certain non-deductible expenses and discrete tax items, for the three months ended March 31, 2021. 14 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Net Loss Per Share The table below provides a reconciliation of the numerators and denominators of basic and diluted net loss per share for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts): Three Months Ended March 31, 2022 2021 Numerators: Net loss $ ( 9,424 ) $ ( 15,810 ) Less: Income attributable to unvested restricted stock awards — — Numerator for basic net loss per share ( 9,424 ) ( 15,810 ) Effect of dilutive securities: Unvested restricted stock awards — — Numerator for diluted net loss per share $ ( 9,424 ) $ ( 15,810 ) Denominators: Weighted average number of common shares outstanding 61,627 61,169 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,129 ) ( 1,071 ) Denominator for basic and diluted net loss per share 60,498 60,098 Net loss per share: Basic $ ( 0.16 ) $ ( 0.26 ) Diluted ( 0.16 ) ( 0.26 ) The calculation of diluted net loss per share for the three months ended March 31, 2022 and 2021 excluded 298 thousand shares and 500 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of both the 2023 Notes and the 2026 Notes were excluded due to, among other factors, their antidilutive effect. 9. Long-Term Incentive Compensation The following table presents a summary of activity for stock options, service-based restricted stock awards and performance-based stock unit awards for the three months ended March 31, 2022 (in thousands): Stock Options Service-based Restricted Stock Performance-based Stock Units Outstanding – December 31, 2021 388 993 358 Granted — 686 233 Vested — ( 403 ) — Forfeited ( 122 ) ( 12 ) — Outstanding – March 31, 2022 266 1,264 591 Weighted average grant date fair value (2022 awards) $ — $ 6.53 $ 6.53 The restricted stock program consists of a combination of service-based restricted stock and performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over a term of three years . Performance-based stock awards generally vest at the end of a three-year period, with the number of shares ultimately issued under the program dependent upon achievement of predefined specific performance objectives. The performance objective for performance-based awards granted in 2022 and 2021 is the Company's cumulative EBITDA over a three-year period. The performance objective for outstanding awards granted in 2020 is the Company's EBITDA growth rate over a three-year period. In the event the predefined targets are exceeded for any performance-based award, additional shares up to a maximum of 200 % of the target award may be granted. Conversely, if actual performance falls below the predefined target, the number of shares vested is reduced. If the actual performance falls below the threshold performance level, no restricted shares will vest. 15 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the first quarters of 2022 and 2021, the Company issued conditional long-term cash incentive awards ("Cash Awards") of $ 1.5 million and $ 1.5 million, respectively, with the ultimate dollar amount to be awarded ranging from zero to a maximum of $ 3.1 million for both the 2022 and 2021 Cash Awards. The performance measure for these Cash Awards is relative total stockholder return compared to a peer group of companies measured over a three-year period. The ultimate dollar amount to be awarded for the 2022 and 2021 Cash Awards is limited to their targeted award value ($ 1.5 million) if the Company's total stockholder return is negative over the performance period. The obligations, if any, related to the Cash Awards are classified as liabilities and recognized over the vesting period. Stock-based compensation expense recognized during the three months ended March 31, 2022 and 2021 totaled $ 1.8 million and $ 2.8 million, respectively. As of March 31, 2022, there was $ 11.0 million of pre-tax compensation costs related to service-based and performance-based stock awards, which will be recognized in future periods as vesting conditions are satisfied. 10. Segments and Related Information The Company operates through three operating segments: Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Financial information by operating segment for the three months ended March 31, 2022 and 2021 is summarized in the following tables (in thousands). Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended March 31, 2022 Offshore/Manufactured Products $ 84,112 $ 5,330 $ 10,196 $ 902 $ 559,877 Well Site Services 48,172 7,932 ( 3,395 ) 1,548 197,077 Downhole Technologies 31,760 4,384 ( 1,505 ) 317 265,958 Corporate — 171 ( 9,632 ) 91 55,053 Total $ 164,044 $ 17,817 $ ( 4,336 ) $ 2,858 $ 1,077,965 Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended March 31, 2021 Offshore/Manufactured Products $ 60,609 $ 5,469 $ 1,071 $ 463 $ 534,819 Well Site Services (1) 39,550 11,468 ( 9,853 ) 3,330 229,968 Downhole Technologies 25,430 4,389 ( 1,615 ) 83 280,320 Corporate — 194 ( 9,365 ) 244 79,312 Total $ 125,589 $ 21,520 $ ( 19,762 ) $ 4,120 $ 1,124,419 ________________ (1) Operating loss included a non-cash fixed asset impairment charge of $ 0.7 million. See Note 2, "Asset Impairments and Other Restructuring Items," and Note 3, "Details of Selected Balance Sheet Accounts," for further discussion of these and other charges and benefits recognized in first three months of 2021. 16 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 2022 and 2021 (in thousands): Offshore/Manufactured Products Well Site Services Downhole Technologies Total 2022 2021 2022 2021 2022 2021 2022 2021 Three Months Ended March 31 Major revenue categories - Project-driven products $ 33,844 $ 21,374 $ — $ — $ — $ — $ 33,844 $ 21,374 Short-cycle: Completion products and services 13,580 8,114 45,166 38,799 31,760 25,430 90,506 72,343 Drilling services — — 3,006 751 — — 3,006 751 Other products 7,044 4,136 — — — — 7,044 4,136 Total short-cycle 20,624 12,250 48,172 39,550 31,760 25,430 100,556 77,230 Other products and services 29,644 26,985 — — — — 29,644 26,985 $ 84,112 $ 60,609 $ 48,172 $ 39,550 $ 31,760 $ 25,430 $ 164,044 $ 125,589 Revenues from products and services transferred to customers over time accounted for approximately 62 % and 62 % of consolidated revenues for the three months ended March 31, 2022 and 2021, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of March 31, 2022, the Company had $ 152.0 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 35 % of this remaining backlog is expected to be recognized as revenue over the remaining nine months of 2022, with an additional 35 % recognized in 2023 and the balance thereafter. 11. Commitments and Contingencies During 2021 and the first quarter of 2022, the distribution of COVID-19 vaccines progressed and many government-imposed restrictions were relaxed or rescinded. However, the effects of the COVID-19 pandemic and related economic, business and market disruptions continue and the macro outlook remains uncertain. The most direct impacts that the Company continues to experience are decreased pricing for its products and services due to the timing and rate of activity increases, market pressures driving increased capital discipline by its customers, supply chain disruptions, labor market constraints and inflation in wages, materials, parts, equipment and other costs. While the prices of and demand for crude oil have recovered from the lows seen in the initial stages of the pandemic, further outbreaks or the emergence of new strains of the COVID-19 virus could result in the reimposition of domestic and international regulations directing individuals to stay at home, limiting travel, requiring facility closures and imposing quarantines. Widespread implementation of these or similar restrictions could result in commodity price volatility, reduced demand for the Company's products and services, as well as delays in or inability of the Company to fulfill its contractual obligations to customers, logistic constraints, increases in the Company's costs and workforce and raw material shortages. The Company continues to monitor the effect of the COVID-19 pandemic on its employees, customers, critical suppliers and other stakeholders. The ultimate duration of the COVID-19 pandemic, along with resulting governmental restrictions and related impacts on the prices of and demand for crude oil, the global economy and capital markets remains uncertain. The Company is a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of the Company's products or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses the Company has sold. In certain cases, the Company is entitled to indemnification from the sellers of businesses and, in other cases, the Company has indemnified the buyers of businesses. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on the Company, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 17 OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Following the GEODynamics Acquisition in January 2018, the Company determined that certain steel products historically imported by GEODynamics from China for use in its manufacturing process were potentially subject to anti-dumping and countervailing duties. Following an internal review, the Company voluntarily disclosed this matter to U.S. Customs and Border Protection ("CBP") and, in December 2020, reached an agreement with CBP to settle this matter for $ 7.3 million. The Company believes that the Seller is required to indemnify and hold the Company harmless against the amount of this and other settlements and related costs of $ 7.5 million, and the Company has provided notice to and asserted indemnification claims against the Seller. Additionally, the Company believes that its agreements with the Seller allow it to set-off such amounts against payments due under the $ 25.0 million promissory note and that, because the Company has asserted indemnification claims, the maturity date of such note is extended until the resolution of such claims. Accordingly, the Company reduced the carrying amount of such note in its consolidated balance sheet to $ 17.5 million as of March 31, 2022, which is the Company's current best estimate of what is owed after set-off for such indemnification matters, but without considering the outcome of the counterclaim described below. In August 2020, the Seller filed a breach of contract suit against the Company and one of its wholly-owned subsidiaries in federal court alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of the note. Additionally, the Seller alleged that it was entitled to approximately $ 19.0 million in U.S. federal income tax carryback claims received by the Company under the provisions of the CARES Act. On February 15, 2021, following the federal magistrate's report and recommendation that the federal district court dismiss the Seller's lawsuit for lack of federal jurisdiction, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, the state court denied the Seller's motion for partial summary judgement. In December 2021, the Company filed a counterclaim against the Seller alleging material misrepresentations and breaches of warranties by the Seller with respect to GEODynamics' liability for anti-dumping and countervailing duties. The Company denies the validity of the breach of contract claims asserted by the Seller and is vigorously defending against this lawsuit. 12. Subsequent Events On April 14, 2022, the Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $ 8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand. 18 C autionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q and other statements we make contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including incorrect or changed assumptions. For a discussion of known material factors that could affect our results, please refer to "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 22, 2022. You can typically identify "forward-looking statements" by the use of forward-looking words such as "may," "will," "could," "project," "believe," "anticipate," "expect," "estimate," "potential," "plan," "forecast," "proposed," "should," "seek," and other similar words. Such statements may relate to our future financial position, budgets, capital expenditures, projected costs, plans and objectives of management for future operations and possible future strategic transactions. Actual results frequently differ from assumed facts and such differences can be material, depending upon the circumstances. While we believe we are providing forward-looking statements expressed in good faith and on a reasonable basis, there can be no assurance that actual results will not differ from such forward-looking statements. The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, us: • the ongoing impact of the Coronavirus Disease 2019 ("COVID-19") pandemic; • the ability and willingness of the Organization of Petroleum Exporting Countries ("OPEC") and other producing nations to set and maintain oil production levels and pricing; • the level of supply of and demand for oil and natural gas, which has been impacted by the ongoing war between Russia and Ukraine that began in February 2022; • fluctuations in the current and future prices of oil and natural gas; • the level of exploration, drilling and completion activity; • the cyclical nature of the oil and natural gas industry; • the level of offshore oil and natural gas developmental activities; • the financial health of our customers; • the impact of environmental matters, including executive actions and regulatory or legislative efforts to adopt environmental or climate change regulations that may result in increased operating costs or reduced oil and natural gas production or demand globally; • proposed new rules by the SEC relating to the disclosure of a range of climate-related information and risks; • political, economic and litigation efforts to restrict or eliminate certain oil and natural gas exploration, development and production activities due to concerns over the threat of climate change; • the availability of and access to attractive oil and natural gas field prospects, which may be affected by governmental actions or actions of other parties restricting drilling and completion activities; • general global economic conditions; • global weather conditions and natural disasters; • changes in tax laws and regulations; • supply chain disruptions; • the impact of tariffs and duties on imported materials and exported finished goods; • our ability to timely obtain and maintain critical permits for operating facilities; • our ability to attract and retain skilled personnel; • negative outcome of litigation, threatened litigation or government proceedings; • our ability to develop new competitive technologies and products; • inflation, including our ability to increase prices to our customers as our costs increase; • fluctuations in currency exchange rates; • physical, digital, cyber, internal and external security breaches and other incidents affecting information security and data privacy; • our ability to access and the cost of capital in the bank and capital markets; • our ability to protect and enforce our intellectual property rights; 19 • our ability to complete the integration of acquired businesses and achieve the expected accretion in earnings; and • the other factors identified in "Part I, Item 1A. Risk Factors" in our 2021 Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize or should the assumptions on which our forward-looking statements are based prove incorrect or change, actual results may differ materially from those expected, estimated or projected. In addition, the factors identified above may not necessarily be all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us, or on our behalf. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made. In addition, in certain places in this Quarterly Report on Form 10-Q, we refer to information and reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in better understanding the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.