OIL STATES INTERNATIONAL, INC 10-Q

ITEM 1. Financial Statements UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues: Products $ 92,630 $ 99,033 $ 192,470 $ 184,794 Services 90,899 82,801 187,258 161,084 183,529 181,834 379,728 345,878 Costs and expenses: Product costs 72,659 79,388 151,336 144,189 Service costs 69,371 62,768 141,429 124,571 Cost of revenues (exclusive of depreciation and amortization expense presented below) 142,030 142,156 292,765 268,760 Selling, general and administrative expense 23,528 23,757 47,544 47,590 Depreciation and amortization expense 15,537 17,239 30,793 35,056 Other operating income, net ( 835 ) ( 228 ) ( 518 ) ( 102 ) 180,260 182,924 370,584 351,304 Operating income (loss) 3,269 ( 1,090 ) 9,144 ( 5,426 ) Interest expense, net ( 2,059 ) ( 2,638 ) ( 4,450 ) ( 5,310 ) Other income, net 210 376 486 1,401 Income (loss) before income taxes 1,420 ( 3,352 ) 5,180 ( 9,335 ) Income tax provision ( 862 ) ( 1,792 ) ( 2,464 ) ( 5,233 ) Net income (loss) $ 558 $ ( 5,144 ) $ 2,716 $ ( 14,568 ) Net income (loss) per share: Basic $ 0.01 $ ( 0.08 ) $ 0.04 $ ( 0.24 ) Diluted 0.01 ( 0.08 ) 0.04 ( 0.24 ) Weighted average number of common shares outstanding: Basic 62,803 60,704 62,814 60,601 Diluted 63,174 60,704 63,161 60,601 The accompanying notes are an integral part of these financial statements. 3 Tabl e of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income (loss) $ 558 $ ( 5,144 ) $ 2,716 $ ( 14,568 ) Other comprehensive income (loss): Currency translation adjustments 3,270 ( 12,680 ) 7,419 ( 11,819 ) Comprehensive income (loss) $ 3,828 $ ( 17,824 ) $ 10,135 $ ( 26,387 ) The accompanying notes are an integral part of these financial statements. 4 Tabl e of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) June 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 42,420 $ 42,018 Accounts receivable, net 180,917 218,769 Inventories, net 205,132 182,658 Prepaid expenses and other current assets 28,217 19,317 Total current assets 456,686 462,762 Property, plant, and equipment, net 296,015 303,835 Operating lease assets, net 23,266 23,028 Goodwill, net 79,778 79,282 Other intangible assets, net 161,476 169,798 Other noncurrent assets 27,799 25,687 Total assets $ 1,045,020 $ 1,064,392 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 513 $ 17,831 Accounts payable 56,726 73,251 Accrued liabilities 42,987 49,057 Current operating lease liabilities 6,750 6,142 Income taxes payable 2,740 2,605 Deferred revenue 53,027 44,790 Total current liabilities 162,743 193,676 Long-term debt 135,273 135,066 Long-term operating lease liabilities 20,027 20,658 Deferred income taxes 8,601 6,652 Other noncurrent liabilities 20,271 18,782 Total liabilities 346,915 374,834 Stockholders' equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 77,231,725 shares and 76,587,920 shares issued, respectively 772 766 Additional paid-in capital 1,125,647 1,122,292 Retained earnings 274,743 272,027 Accumulated other comprehensive loss ( 71,522 ) ( 78,941 ) Treasury stock, at cost, 13,328,859 and 12,684,101 shares, respectively ( 631,535 ) ( 626,586 ) Total stockholders' equity 698,105 689,558 Total liabilities and stockholders' equity $ 1,045,020 $ 1,064,392 The accompanying notes are an integral part of these financial statements. 5 Tabl e of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended June 30, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, March 31, 2023 $ 771 $ 1,123,876 $ 274,185 $ ( 74,792 ) $ ( 628,522 ) $ 695,518 Net income — — 558 — — 558 Currency translation adjustments (excluding intercompany advances) — — — 2,709 — 2,709 Currency translation adjustments on intercompany advances — — — 561 — 561 Stock-based compensation expense 1 1,771 — — — 1,772 Stock repurchases — — — — ( 3,001 ) ( 3,001 ) Surrender of stock to settle taxes on stock awards — — — — ( 12 ) ( 12 ) Balance, June 30, 2023 $ 772 $ 1,125,647 $ 274,743 $ ( 71,522 ) $ ( 631,535 ) $ 698,105 Six Months Ended June 30, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, December 31, 2022 $ 766 $ 1,122,292 $ 272,027 $ ( 78,941 ) $ ( 626,586 ) $ 689,558 Net income — — 2,716 — — 2,716 Currency translation adjustments (excluding intercompany advances) — — — 6,203 — 6,203 Currency translation adjustments on intercompany advances — — — 1,216 — 1,216 Stock-based compensation expense 6 3,355 — — — 3,361 Stock repurchases — — — — ( 3,001 ) ( 3,001 ) Surrender of stock to settle taxes on stock awards — — — — ( 1,948 ) ( 1,948 ) Balance, June 30, 2023 $ 772 $ 1,125,647 $ 274,743 $ ( 71,522 ) $ ( 631,535 ) $ 698,105 The accompanying notes are an integral part of these financial statements. 6 Tabl e of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended June 30, 2022 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, March 31, 2022 $ 746 $ 1,106,963 $ 272,143 $ ( 65,170 ) $ ( 626,574 ) $ 688,108 Net loss — — ( 5,144 ) — — ( 5,144 ) Currency translation adjustments (excluding intercompany advances) — — — ( 9,628 ) — ( 9,628 ) Currency translation adjustments on intercompany advances — — — ( 3,052 ) — ( 3,052 ) Stock-based compensation expense 1 1,668 — — — 1,669 Surrender of stock to settle taxes on stock awards — — — — ( 12 ) ( 12 ) Balance, June 30, 2022 $ 747 $ 1,108,631 $ 266,999 $ ( 77,850 ) $ ( 626,586 ) $ 671,941 Six Months Ended June 30, 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 — — ( 14,568 ) — — ( 14,568 ) Currency translation adjustments (excluding intercompany advances) — — — ( 13,208 ) — ( 13,208 ) Currency translation adjustments on intercompany advances — — — 1,389 — 1,389 Stock-based compensation expense 8 3,496 — — — 3,504 Surrender of stock to settle taxes on stock awards — — — — ( 1,002 ) ( 1,002 ) Balance, June 30, 2022 $ 747 $ 1,108,631 $ 266,999 $ ( 77,850 ) $ ( 626,586 ) $ 671,941 The accompanying notes are an integral part of these financial statements. 7 Tabl e of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 2,716 $ ( 14,568 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense 30,793 35,056 Stock-based compensation expense 3,361 3,504 Amortization of deferred financing costs 892 944 Deferred income tax provision 997 2,584 Gains on disposals of assets ( 561 ) ( 1,185 ) Settlement of disputes with seller of GEODynamics, Inc. — 620 Other, net ( 267 ) 360 Changes in operating assets and liabilities, net of effect from acquired business: Accounts receivable 39,042 ( 20,469 ) Inventories ( 21,197 ) ( 14,664 ) Accounts payable and accrued liabilities ( 25,924 ) ( 5,994 ) Deferred revenue 8,237 4,647 Other operating assets and liabilities, net 653 ( 870 ) Net cash flows provided by (used in) operating activities 38,742 ( 10,035 ) Cash flows from investing activities: Capital expenditures ( 17,338 ) ( 6,453 ) Proceeds from disposition of property and equipment 690 1,652 Acquisition of business, net of cash acquired — ( 8,125 ) Other, net ( 66 ) ( 85 ) Net cash flows used in investing activities ( 16,714 ) ( 13,011 ) Cash flows from financing activities: Revolving credit facility borrowings 35,592 9,725 Revolving credit facility repayments ( 35,592 ) ( 9,725 ) Repayment of 1.50 % convertible senior notes ( 17,315 ) ( 6,272 ) Other debt and finance lease repayments ( 226 ) ( 359 ) Payment of financing costs ( 95 ) ( 74 ) Purchases of treasury stock ( 3,001 ) — Shares added to treasury stock as a result of net share settlements due to vesting of stock awards ( 1,948 ) ( 1,002 ) Net cash flows used in financing activities ( 22,585 ) ( 7,707 ) Effect of exchange rate changes on cash and cash equivalents 959 147 Net change in cash and cash equivalents 402 ( 30,606 ) Cash and cash equivalents, beginning of period 42,018 52,852 Cash and cash equivalents, end of period $ 42,420 $ 22,246 Cash paid (received) for: Interest $ 4,060 $ 4,105 Income taxes, net ( 1,475 ) 291 The accompanying notes are an integral part of these financial statements. 8 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED 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. 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. The Company revised its presentation of supplemental disclosure of disaggregated revenue information in Note 9, "Segments and Related Information," in the second quarter of 2023. Prior-period disclosures of disaggregated revenue information were conformed with the current-period presentation. 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, 2022. 2. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of June 30, 2023 and December 31, 2022 is presented below (in thousands): June 30, 2023 December 31, 2022 Accounts receivable, net: Trade $ 131,726 $ 145,540 Unbilled revenue 26,796 29,679 Contract assets 23,714 42,599 Other 3,754 6,177 Total accounts receivable 185,990 223,995 Allowance for doubtful accounts ( 5,073 ) ( 5,226 ) $ 180,917 $ 218,769 Allowance for doubtful accounts as a percentage of total accounts receivable 3 % 2 % June 30, 2023 December 31, 2022 Deferred revenue (contract liabilities) $ 53,027 $ 44,790 As of June 30, 2023, accounts receivable, net in the United States and the United Kingdom represented 73 % and 10 %, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of June 30, 2023. 9 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six months ended June 30, 2023, the $ 18.9 million net decrease in contract assets was attributable to $ 37.3 million transferred to accounts receivable during the period, which was partially offset by $ 18.4 million in revenue recognized. Deferred revenue (contract liabilities) increased by $ 8.2 million in the first six months of 2023, reflecting $ 20.6 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $ 12.4 million of revenue that was deferred at the beginning of the period. The following provides a summary of activity in the allowance for doubtful accounts for the six months ended June 30, 2023 and 2022 (in thousands): Six Months Ended June 30, 2023 2022 Allowance for doubtful accounts – January 1 $ 5,226 $ 4,471 Provisions 14 1,044 Write-offs ( 204 ) ( 629 ) Other 37 280 Allowance for doubtful accounts – June 30 $ 5,073 $ 5,166 June 30, 2023 December 31, 2022 Inventories, net: Finished goods and purchased products $ 103,641 $ 90,443 Work in process 33,431 32,079 Raw materials 107,781 97,817 Total inventories 244,853 220,339 Allowance for excess or obsolete inventory ( 39,721 ) ( 37,681 ) $ 205,132 $ 182,658 June 30, 2023 December 31, 2022 Property, plant and equipment, net: Property, plant and equipment $ 1,054,155 $ 1,128,834 Accumulated depreciation ( 758,140 ) ( 824,999 ) $ 296,015 $ 303,835 During the second quarter of 2023, a facility held for sale by the Offshore/Manufactured Products segment was reclassified from property, plant and equipment to prepaid and other current assets. The estimated fair value of the facility exceeded its net carrying value of $ 6.9 million and, thus no impairment charge was recognized. For the three months ended June 30, 2023 and 2022, depreciation expense was $ 11.2 million and $ 12.0 million, respectively. Depreciation expense was $ 22.2 million and $ 24.6 million, respectively, for the six months ended June 30, 2023 and 2022. June 30, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Other intangible assets: Customer relationships $ 141,313 $ 52,069 $ 89,244 $ 141,179 $ 47,629 $ 93,550 Patents/Technology/Know-how 69,977 31,863 38,114 69,830 29,214 40,616 Tradenames and other 52,502 18,384 34,118 52,488 16,856 35,632 $ 263,792 $ 102,316 $ 161,476 $ 263,497 $ 93,699 $ 169,798 For the three months ended June 30, 2023 and 2022, amortization expense was $ 4.3 million and $ 5.3 million, respectively. Amortization expense was $ 8.6 million and $ 10.4 million for the six months ended June 30, 2023 and 2022, respectively. 10 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2023 December 31, 2022 Other noncurrent assets: Deferred compensation plan $ 19,231 $ 17,551 Deferred financing costs 1,543 1,893 Deferred income taxes 2,351 1,517 Other 4,674 4,726 $ 27,799 $ 25,687 June 30, 2023 December 31, 2022 Accrued liabilities: Accrued compensation $ 21,742 $ 33,659 Accrued taxes, other than income taxes 3,762 1,865 Insurance liabilities 4,150 4,640 Accrued interest 1,685 1,784 Accrued commissions 2,475 2,302 Other 9,173 4,807 $ 42,987 $ 49,057 3. Long-term Debt As of June 30, 2023 and December 31, 2022, long-term debt consisted of the following (in thousands): June 30, 2023 December 31, 2022 Revolving credit facility (1) $ — $ — 2026 Notes (2) 132,597 132,164 2023 Notes — 17,303 Other debt and finance lease obligations 3,189 3,430 Total debt 135,786 152,897 Less: Current portion ( 513 ) ( 17,831 ) Total long-term debt $ 135,273 $ 135,066 ____________________ (1) Unamortized deferred financing costs of $ 1.5 million and $ 1.9 million as of June 30, 2023 and December 31, 2022, respectively, are presented in other noncurrent assets. (2) The outstanding principal amount of the 2026 Notes was $ 135.0 million as of June 30, 2023 and December 31, 2022. Revolving Credit 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. 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. 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. 11 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Since December 13, 2022, borrowings under the ABL Agreement bear interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") rate (subject to a floor rate of 0 %) plus a margin of 2.75 % to 3.25 %, 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 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 (i) in the event that availability under the ABL Agreement is less than the greater of (a) 15 % of the borrowing base and (b) $ 14.1 million; (ii) to complete certain specified transactions; or (iii) if an event of default has occurred and is continuing. As of June 30, 2023, the Company had no borrowings outstanding under the ABL Facility and $ 15.1 million of outstanding letters of credit. The total amount available to be drawn as of June 30, 2023 was $ 90.9 million, calculated based on the current borrowing base less outstanding borrowings and letters of credit. As of June 30, 2023, the Company was in compliance with its debt covenants under the ABL Agreement. 2026 Notes The Company issued $ 135.0 million aggregate principal amount of its 4.75 % convertible senior notes due 2026 (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between the Company and Computershare Trust Company, National Association, as successor trustee. 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 $ 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 (if any) in shares of the Company's common stock. As of June 30, 2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met. 2023 Notes On February 15, 2023, the Company's 1.50 % convertible senior notes due 2023 (the "2023 Notes") matured and the outstanding $ 17.3 million principal amount was repaid in full. 4. 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 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2026 Notes as of June 30, 2023 was $ 143.9 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 135.0 million. 12 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. 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 six months of 2023 (in thousands): Shares of common stock outstanding – December 31, 2022 63,904 Restricted stock awards, net of forfeitures 644 Shares withheld for taxes on vesting of stock awards ( 206 ) Purchases of treasury stock ( 439 ) Shares of common stock outstanding – June 30, 2023 63,903 As of June 30, 2023 and December 31, 2022, the Company had 25,000,000 shares of preferred stock, $ 0.01 par value, authorized, with no shares issued or outstanding. On February 16, 2023, the Company's Board of Directors authorized $ 25.0 million for the repurchase of the Company's common stock, par value $ 0.01 per share, through February 2025. During the second quarter of 2023, the Company repurchased 438,563 shares of common stock under the program at a total cost of $ 3.0 million. The amount remaining under the Company's share repurchase authorization as of June 30, 2023 was $ 22.0 million. Subject to applicable securities laws, such purchases will be at such times and in such amounts as the Company deems appropriate. 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 $ 78.9 million at December 31, 2022 to $ 71.5 million at June 30, 2023. For the three and six months ended June 30, 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the six months ended June 30, 2023, the exchange rates for the British pound and the Brazilian real strengthened by 5 % and 8 %, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $ 7.4 million. During the six months ended June 30, 2022, the exchange rate for the British pound weakened by 10 % compared to the U.S. dollar while the Brazilian real strengthened by 7 % compared to the U.S. dollar, contributing to other comprehensive loss of $ 11.8 million. 6. Income Taxes The income tax expense for the three and six months ended June 30, 2023 was calculated using a discrete approach. This methodology was used because changes in the Company's results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the three months ended June 30, 2023, the Company's income tax expense was $ 0.9 million on pre-tax income of $ 1.4 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $ 1.8 million on a pre-tax loss of $ 3.4 million, which included the impact of changes in valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items, for the three months ended June 30, 2022. For the six months ended June 30, 2023, the Company's income tax expense was $ 2.5 million on pre-tax income of $ 5.2 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $ 5.2 million on a pre-tax loss of $ 9.3 million, which included the impact of valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items, for the six months ended June 30, 2022. 13 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Net Income (Loss) Per Share The table below provides a reconciliation of the numerators and denominators of basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Numerators: Net income (loss) $ 558 $ ( 5,144 ) $ 2,716 $ ( 14,568 ) Less: Income attributable to unvested restricted stock awards ( 11 ) — ( 53 ) — Numerator for basic net income (loss) per share 547 ( 5,144 ) 2,663 ( 14,568 ) Effect of dilutive securities: Unvested restricted stock awards — — — — Numerator for diluted net income (loss) per share $ 547 $ ( 5,144 ) $ 2,663 $ ( 14,568 ) Denominators: Weighted average number of common shares outstanding 64,061 61,948 64,064 61,788 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,258 ) ( 1,244 ) ( 1,250 ) ( 1,187 ) Denominator for basic net income (loss) per share 62,803 60,704 62,814 60,601 Effect of dilutive securities: Unvested restricted stock awards — — — — Unvested performance share units 371 — 347 — Denominator for diluted net income (loss) per share 63,174 60,704 63,161 60,601 Net income (loss) per share: Basic $ 0.01 $ ( 0.08 ) $ 0.04 $ ( 0.24 ) Diluted 0.01 ( 0.08 ) 0.04 ( 0.24 ) The calculation of diluted net income per share for the three and six months ended June 30, 2023 excluded 163 thousand shares and 186 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. The calculation of diluted net loss per share for the three and six months ended June 30, 2022 excluded 264 thousand shares and 306 thousand shares, respectively, issuable pursuant to outstanding stock options, due to their antidilutive effect. Additionally, shares issuable upon conversion of the 2026 Notes were excluded due to, among other factors, the Company's share price. 8. Long-Term Incentive Compensation The following table presents a summary of activity for stock options, service-based restricted stock and stock unit awards, and performance-based stock unit awards for the six months ended June 30, 2023 (in thousands): Stock Options Service-based Restricted Stock Performance- and Service-based Stock Units Outstanding – December 31, 2022 245 1,222 494 Granted — 644 211 Vested and distributed — ( 617 ) — Forfeited ( 84 ) — — Outstanding – June 30, 2023 161 1,249 705 Weighted average grant date fair value (2023 awards) $ 8.81 $ 8.66 The restricted stock program consists of a combination of service-based restricted stock and stock units, as well as performance-based stock units. Service-based restricted stock awards generally vest on a straight-line basis over a term of three years . Service-based stock unit awards vest over one-year , with the underlying shares issued at a specified future date. Eighty-two thousand service-based stock units were outstanding as of June 30, 2023. Performance-based stock unit awards generally 14 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 based on the Company's cumulative EBITDA 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. The Company issued conditional long-term cash incentive awards ("Cash Awards") of $ 1.5 million in the first quarters of 2023 and 2022. The performance measure for each of these Cash Awards is relative total stockholder return compared to a peer group of companies over a three-year period. The ultimate dollar amount to be awarded for each annual grant may range from zero to a maximum of $ 3.1 million, limited to their targeted award value ($ 1.5 million) if the Company's total stockholder return were to be negative over the performance period. Obligations related to the Cash Awards are classified as liabilities and recognized over their respective vesting periods. Stock-based compensation expense recognized during the three and six months ended June 30, 2023 totaled $ 1.8 million and $ 3.4 million, respectively. Stock-based compensation expense recognized during the three and six months ended June 30, 2022 totaled $ 1.7 million and $ 3.5 million, respectively. As of June 30, 2023, there was $ 10.6 million of total compensation costs related to unvested restricted stock awards, which is expected to be recognized in future periods as vesting conditions are satisfied. 9. 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 and six months ended June 30, 2023 and 2022 is summarized in the following tables (in thousands). Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended June 30, 2023 Offshore/Manufactured Products $ 94,086 $ 4,647 $ 11,253 $ 4,662 $ 538,490 Well Site Services 64,536 6,564 4,732 5,672 204,437 Downhole Technologies 24,907 4,175 ( 2,536 ) 171 249,540 Corporate — 151 ( 10,180 ) 265 52,553 Total $ 183,529 $ 15,537 $ 3,269 $ 10,770 $ 1,045,020 Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended June 30, 2022 Offshore/Manufactured Products $ 96,467 $ 5,249 $ 9,441 $ 571 $ 552,091 Well Site Services 54,819 7,395 601 2,918 195,444 Downhole Technologies 30,548 4,423 ( 1,485 ) 67 257,174 Corporate — 172 ( 9,647 ) 39 47,594 Total $ 181,834 $ 17,239 $ ( 1,090 ) $ 3,595 $ 1,052,303 Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Six Months Ended June 30, 2023 Offshore/Manufactured Products $ 192,285 $ 9,315 $ 22,343 $ 5,197 $ 538,490 Well Site Services 131,594 12,710 11,698 11,444 204,437 Downhole Technologies 55,849 8,450 ( 4,055 ) 420 249,540 Corporate — 318 ( 20,842 ) 277 52,553 Total $ 379,728 $ 30,793 $ 9,144 $ 17,338 $ 1,045,020 15 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Six Months Ended June 30, 2022 Offshore/Manufactured Products $ 180,579 $ 10,579 $ 19,637 $ 1,473 $ 552,091 Well Site Services 102,991 15,327 ( 2,794 ) 4,466 195,444 Downhole Technologies 62,308 8,807 ( 2,990 ) 384 257,174 Corporate — 343 ( 19,279 ) 130 47,594 Total $ 345,878 $ 35,056 $ ( 5,426 ) $ 6,453 $ 1,052,303 The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three and six months ended June 30, 2023 and 2022 (in thousands): Offshore/Manufactured Products Well Site Services Downhole Technologies Total 2023 2022 2023 2022 2023 2022 2023 2022 Three Months Ended June 30 Project-driven: Products $ 32,210 $ 41,098 $ — $ — $ — $ — $ 32,210 $ 41,098 Services 24,846 23,995 — — — — 24,846 23,995 Total project-driven 57,056 65,093 — — — — 57,056 65,093 Military and other products 7,965 7,763 — — — — 7,965 7,763 Short-cycle: Products 29,065 23,611 — — 23,390 26,561 52,455 50,172 Services — — 64,536 54,819 1,517 3,987 66,053 58,806 Total short-cycle 29,065 23,611 64,536 54,819 24,907 30,548 118,508 108,978 $ 94,086 $ 96,467 $ 64,536 $ 54,819 $ 24,907 $ 30,548 $ 183,529 $ 181,834 Offshore/Manufactured Products Well Site Services Downhole Technologies Total 2023 2022 2023 2022 2023 2022 2023 2022 Six Months Ended June 30 Project-driven: Products $ 71,342 $ 74,942 $ — $ — $ — $ — $ 71,342 $ 74,942 Services 49,476 48,293 — — — — 49,476 48,293 Total project-driven 120,818 123,235 — — — — 120,818 123,235 Military and other products 14,962 13,109 — — — — 14,962 13,109 Short-cycle: Products 56,505 44,235 — — 49,661 52,508 106,166 96,743 Services — — 131,594 102,991 6,188 9,800 137,782 112,791 Total short-cycle 56,505 44,235 131,594 102,991 55,849 62,308 243,948 209,534 $ 192,285 $ 180,579 $ 131,594 $ 102,991 $ 55,849 $ 62,308 $ 379,728 $ 345,878 Revenues from products and services transferred to customers over time accounted for approximately 66 % and 64 % of consolidated revenues for the six months ended June 30, 2023 and 2022, respectively. The balance of revenues for the respective periods relates to products and services transferred to customers at a point in time. As of June 30, 2023, the Company had $ 210.7 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 33 % of this remaining backlog is expected to be recognized as revenue over the remaining six months of 2023, with an additional 47 % recognized in 2024 and the balance thereafter. 16 Table of Co ntents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Commitments and Contingencies 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 Table of Contents 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 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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 17, 2023, as well as to "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q. 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 impact of disruptions in the bank and capital markets, including the three U.S. bank failures which occurred in March and May of 2023; • the impact of the ongoing military action between Russia and Ukraine, that began in February 2022, including, but not limited to, energy market disruptions, supply chain disruptions and increased costs, government sanctions, and delays or potential cancellation of planned customer projects; • 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; • 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, including hurricanes in the Gulf of Mexico; • 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; 18 Table of Contents • 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; • the cost of capital in the bank and capital markets and our ability to access them; • our ability to protect and enforce our intellectual property rights; • 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 2022 Annual Report on Form 10-K, as well as in "Part II, Item 1A. Risk Factors" included in this Quarterly Report on Form 10-Q. 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.