OIL STATES INTERNATIONAL, INC 10-Q

ITEM 1. Financial Statements UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Products $ 102,636 $ 99,743 $ 295,106 $ 284,537 Services 91,653 89,651 278,911 250,735 194,289 189,394 574,017 535,272 Costs and expenses: Product costs 80,188 81,576 231,524 225,765 Service costs 70,239 69,723 211,668 194,294 Cost of revenues (exclusive of depreciation and amortization expense presented below) 150,427 151,299 443,192 420,059 Selling, general and administrative expense 24,241 23,374 71,785 70,964 Depreciation and amortization expense 15,416 16,413 46,209 51,469 Other operating income, net ( 1,985 ) ( 6,750 ) ( 2,503 ) ( 6,852 ) 188,099 184,336 558,683 535,640 Operating income (loss) 6,190 5,058 15,334 ( 368 ) Interest expense, net ( 1,928 ) ( 2,637 ) ( 6,378 ) ( 7,947 ) Other income, net 186 491 672 1,892 Income (loss) before income taxes 4,448 2,912 9,628 ( 6,423 ) Income tax provision ( 236 ) ( 769 ) ( 2,700 ) ( 6,002 ) Net income (loss) $ 4,212 $ 2,143 $ 6,928 $ ( 12,425 ) Net income (loss) per share: Basic $ 0.07 $ 0.03 $ 0.11 $ ( 0.20 ) Diluted 0.07 0.03 0.11 ( 0.20 ) Weighted average number of common shares outstanding: Basic 62,651 62,674 62,760 61,292 Diluted 63,060 62,676 63,135 61,292 The accompanying notes are an integral part of these financial statements. 3 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income (loss) $ 4,212 $ 2,143 $ 6,928 $ ( 12,425 ) Other comprehensive income (loss): Currency translation adjustments ( 5,749 ) ( 11,939 ) 1,670 ( 23,758 ) Comprehensive income (loss) $ ( 1,537 ) $ ( 9,796 ) $ 8,598 $ ( 36,183 ) The accompanying notes are an integral part of these financial statements. 4 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 52,904 $ 42,018 Accounts receivable, net 189,249 218,769 Inventories, net 206,541 182,658 Prepaid expenses and other current assets 36,015 19,317 Total current assets 484,709 462,762 Property, plant, and equipment, net 279,146 303,835 Operating lease assets, net 22,002 23,028 Goodwill, net 79,399 79,282 Other intangible assets, net 157,077 169,798 Other noncurrent assets 25,687 25,687 Total assets $ 1,048,020 $ 1,064,392 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 589 $ 17,831 Accounts payable 58,489 73,251 Accrued liabilities 49,138 49,057 Current operating lease liabilities 6,461 6,142 Income taxes payable 2,593 2,605 Deferred revenue 50,370 44,790 Total current liabilities 167,640 193,676 Long-term debt 135,437 135,066 Long-term operating lease liabilities 18,768 20,658 Deferred income taxes 7,386 6,652 Other noncurrent liabilities 20,425 18,782 Total liabilities 349,656 374,834 Stockholders' equity: Common stock, $ .01 par value, 200,000,000 shares authorized, 77,218,035 shares and 76,587,920 shares issued, respectively 772 766 Additional paid-in capital 1,127,443 1,122,292 Retained earnings 278,955 272,027 Accumulated other comprehensive loss ( 77,271 ) ( 78,941 ) Treasury stock, at cost, 13,328,859 and 12,684,101 shares, respectively ( 631,535 ) ( 626,586 ) Total stockholders' equity 698,364 689,558 Total liabilities and stockholders' equity $ 1,048,020 $ 1,064,392 The accompanying notes are an integral part of these financial statements. 5 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended September 30, 2023 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, June 30, 2023 $ 772 $ 1,125,647 $ 274,743 $ ( 71,522 ) $ ( 631,535 ) $ 698,105 Net income — — 4,212 — — 4,212 Currency translation adjustments (excluding intercompany advances) — — — ( 4,429 ) — ( 4,429 ) Currency translation adjustments on intercompany advances — — — ( 1,320 ) — ( 1,320 ) Stock-based compensation expense — 1,796 — — — 1,796 Stock repurchases — — — — — — Surrender of stock to settle taxes on stock awards — — — — — — Balance, September 30, 2023 $ 772 $ 1,127,443 $ 278,955 $ ( 77,271 ) $ ( 631,535 ) $ 698,364 Nine Months Ended September 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 — — 6,928 — — 6,928 Currency translation adjustments (excluding intercompany advances) — — — 1,774 — 1,774 Currency translation adjustments on intercompany advances — — — ( 104 ) — ( 104 ) Stock-based compensation expense 6 5,151 — — — 5,157 Stock repurchases — — — — ( 3,001 ) ( 3,001 ) Surrender of stock to settle taxes on stock awards — — — — ( 1,948 ) ( 1,948 ) Balance, September 30, 2023 $ 772 $ 1,127,443 $ 278,955 $ ( 77,271 ) $ ( 631,535 ) $ 698,364 The accompanying notes are an integral part of these financial statements. 6 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Three Months Ended September 30, 2022 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity Balance, June 30, 2022 $ 747 $ 1,108,631 $ 266,999 $ ( 77,850 ) $ ( 626,586 ) $ 671,941 Net income — — 2,143 — — 2,143 Currency translation adjustments (excluding intercompany advances) — — — ( 10,363 ) — ( 10,363 ) Currency translation adjustments on intercompany advances — — — ( 1,576 ) — ( 1,576 ) Issuance of common stock in connection with settlement of disputes with seller of GEODynamics, Inc. 19 10,313 — — — 10,332 Stock-based compensation expense — 1,663 — — — 1,663 Surrender of stock to settle taxes on stock awards — — — — — — Balance, September 30, 2022 $ 766 $ 1,120,607 $ 269,142 $ ( 89,789 ) $ ( 626,586 ) $ 674,140 Nine Months Ended September 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 — — ( 12,425 ) — — ( 12,425 ) Currency translation adjustments (excluding intercompany advances) — — — ( 23,571 ) — ( 23,571 ) Currency translation adjustments on intercompany advances — — — ( 187 ) — ( 187 ) Issuance of common stock in connection with settlement of disputes with seller of GEODynamics, Inc. 19 10,313 — — — 10,332 Stock-based compensation expense 8 5,159 — — — 5,167 Surrender of stock to settle taxes on stock awards — — — — ( 1,002 ) ( 1,002 ) Balance, September 30, 2022 $ 766 $ 1,120,607 $ 269,142 $ ( 89,789 ) $ ( 626,586 ) $ 674,140 The accompanying notes are an integral part of these financial statements. 7 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 6,928 $ ( 12,425 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 46,209 51,469 Stock-based compensation expense 5,157 5,167 Amortization of deferred financing costs 1,344 1,416 Deferred income tax provision (benefit) ( 66 ) 1,295 Gains on disposals of assets ( 3,335 ) ( 1,538 ) Settlement of disputes with seller of GEODynamics, Inc. — 620 Other, net ( 614 ) 459 Changes in operating assets and liabilities, net of effect from acquired business: Accounts receivable 29,538 ( 27,745 ) Inventories ( 23,754 ) ( 18,680 ) Accounts payable and accrued liabilities ( 17,515 ) 8,873 Deferred revenue 5,580 7,496 Other operating assets and liabilities, net 2,905 2,586 Net cash flows provided by operating activities 52,377 18,993 Cash flows from investing activities: Capital expenditures ( 23,370 ) ( 13,263 ) Proceeds from disposition of property and equipment 4,374 2,211 Acquisition of business, net of cash acquired — ( 8,125 ) Other, net ( 120 ) ( 168 ) Net cash flows used in investing activities ( 19,116 ) ( 19,345 ) Cash flows from financing activities: Revolving credit facility borrowings 35,693 9,830 Revolving credit facility repayments ( 35,693 ) ( 9,830 ) Repayment of 1.50 % convertible senior notes ( 17,315 ) ( 6,272 ) Payment of promissory note to seller of GEODynamics, Inc. — ( 10,000 ) Other debt and finance lease repayments ( 340 ) ( 541 ) Payment of financing costs ( 101 ) ( 81 ) 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 ( 22,705 ) ( 17,896 ) Effect of exchange rate changes on cash and cash equivalents 330 ( 1,501 ) Net change in cash and cash equivalents 10,886 ( 19,749 ) Cash and cash equivalents, beginning of period 42,018 52,852 Cash and cash equivalents, end of period $ 52,904 $ 33,103 Cash paid (received) for: Interest $ 4,353 $ 4,605 Income taxes, net ( 34 ) ( 67 ) 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 10, "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. Charges and Benefits During the third quarter of 2023, the Offshore/Manufactured Products segment recognized facility consolidation charges totaling $ 1.6 million in connection with the ongoing consolidation and relocation of certain manufacturing and service facilities and the relocation of related equipment. In the third quarter of 2022, the Offshore/Manufactured Products segment recognized a gain of $ 6.1 million associated with the settlement of outstanding litigation against certain service providers. 3. Details of Selected Balance Sheet Accounts Additional information regarding selected balance sheet accounts as of September 30, 2023 and December 31, 2022 is presented below (in thousands): September 30, 2023 December 31, 2022 Accounts receivable, net: Trade $ 137,020 $ 145,540 Unbilled revenue 26,973 29,679 Contract assets 26,005 42,599 Other 4,310 6,177 Total accounts receivable 194,308 223,995 Allowance for doubtful accounts ( 5,059 ) ( 5,226 ) $ 189,249 $ 218,769 Allowance for doubtful accounts as a percentage of total accounts receivable 3 % 2 % 9 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2023 December 31, 2022 Deferred revenue (contract liabilities) $ 50,370 $ 44,790 As of September 30, 2023, accounts receivable, net in the United States and the United Kingdom represented 68 % and 11 %, respectively, of the total. No other country or single customer accounted for more than 10% of the Company's total accounts receivable as of September 30, 2023. For the nine months ended September 30, 2023, the $ 16.6 million net decrease in contract assets was attributable to $ 39.9 million transferred to accounts receivable during the period, which was partially offset by $ 23.3 million in revenue recognized. Deferred revenue (contract liabilities) increased by $ 5.6 million in the first nine months of 2023, reflecting $ 20.7 million in new customer billings which were not recognized as revenue during the period, partially offset by the recognition of $ 15.1 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 nine months ended September 30, 2023 and 2022 (in thousands): Nine Months Ended September 30, 2023 2022 Allowance for doubtful accounts – January 1 $ 5,226 $ 4,471 Provisions 23 1,237 Write-offs ( 208 ) ( 1,581 ) Other 18 272 Allowance for doubtful accounts – September 30 $ 5,059 $ 4,399 September 30, 2023 December 31, 2022 Inventories, net: Finished goods and purchased products $ 105,009 $ 90,443 Work in process 31,258 32,079 Raw materials 110,401 97,817 Total inventories 246,668 220,339 Allowance for excess or obsolete inventory ( 40,127 ) ( 37,681 ) $ 206,541 $ 182,658 September 30, 2023 December 31, 2022 Property, plant and equipment, net: Property, plant and equipment $ 886,920 $ 1,128,834 Accumulated depreciation ( 607,774 ) ( 824,999 ) $ 279,146 $ 303,835 During 2023, certain facilities in the Offshore/Manufactured Products segment were reclassified as held for sale assets, and transferred from property, plant and equipment to prepaid and other current assets. The carrying value of these facilities totaled $ 17.2 million as of September 30, 2023. For the three months ended September 30, 2023 and 2022, depreciation expense was $ 11.1 million and $ 11.3 million, respectively. Depreciation expense was $ 33.3 million and $ 35.9 million, respectively, for the nine months ended September 30, 2023 and 2022. 10 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 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 $ 141,215 $ 54,268 $ 86,947 $ 141,179 $ 47,629 $ 93,550 Patents/Technology/Know-how 69,971 33,188 36,783 69,830 29,214 40,616 Tradenames and other 52,492 19,145 33,347 52,488 16,856 35,632 $ 263,678 $ 106,601 $ 157,077 $ 263,497 $ 93,699 $ 169,798 For the three months ended September 30, 2023 and 2022, amortization expense was $ 4.3 million and $ 5.1 million, respectively. Amortization expense was $ 12.9 million and $ 15.5 million for the nine months ended September 30, 2023 and 2022, respectively. September 30, 2023 December 31, 2022 Other noncurrent assets: Deferred compensation plan $ 19,477 $ 17,551 Deferred financing costs 1,317 1,893 Deferred income taxes 2,274 1,517 Other 2,619 4,726 $ 25,687 $ 25,687 September 30, 2023 December 31, 2022 Accrued liabilities: Accrued compensation $ 24,783 $ 33,659 Accrued taxes, other than income taxes 5,142 1,865 Insurance liabilities 3,653 4,640 Accrued interest 3,288 1,784 Accrued commissions 3,226 2,302 Other 9,046 4,807 $ 49,138 $ 49,057 4. Long-term Debt As of September 30, 2023 and December 31, 2022, long-term debt consisted of the following (in thousands): September 30, 2023 December 31, 2022 Revolving credit facility (1) $ — $ — 2026 Notes (2) 132,817 132,164 2023 Notes — 17,303 Other debt and finance lease obligations 3,209 3,430 Total debt 136,026 152,897 Less: Current portion ( 589 ) ( 17,831 ) Total long-term debt $ 135,437 $ 135,066 ____________________ (1) Unamortized deferred financing costs of $ 1.3 million and $ 1.9 million as of September 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 September 30, 2023 and December 31, 2022. 11 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 September 30, 2023, the Company had no borrowings outstanding under the ABL Facility and $ 16.4 million of outstanding letters of credit. The total amount available to be drawn as of September 30, 2023 was $ 84.5 million, calculated based on the current borrowing base less outstanding borrowings and letters of credit. As of September 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 September 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. 12 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 2026 Notes, on the accompanying consolidated balance sheets approximate their fair values. The estimated fair value of the 2026 Notes as of September 30, 2023 was $ 151.0 million based on quoted market prices (a Level 2 fair value measurement), which compares to the principal amount of $ 135.0 million. 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 nine months of 2023 (in thousands): Shares of common stock outstanding – December 31, 2022 63,904 Restricted stock awards, net of forfeitures 630 Shares withheld for taxes on vesting of stock awards ( 206 ) Purchases of treasury stock ( 439 ) Shares of common stock outstanding – September 30, 2023 63,889 As of September 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 September 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 $ 77.3 million at September 30, 2023. For the three and nine months ended September 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 nine months ended September 30, 2023, the exchange rates for the British pound and the Brazilian real strengthened by 1 % and 4 %, respectively, compared to the U.S. dollar, contributing to other comprehensive income of $ 1.7 million. During the nine months ended September 30, 2022, the exchange rate for the British pound weakened by 18 % compared to the U.S. dollar while the Brazilian real strengthened by 3 % compared to the U.S. dollar, contributing to other comprehensive loss of $ 23.8 million. 7. Income Taxes The income tax expense for the three and nine months ended September 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 September 30, 2023, the Company's income tax expense was $ 0.2 million on pre-tax income of $ 4.4 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $ 0.8 million on pre-tax income of $ 2.9 million, which which was negatively impacted by valuation allowances recorded against deferred tax assets as well as certain non-deductible expenses and discrete tax items, for the three months ended September 30, 2022. 13 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended September 30, 2023, the Company's income tax expense was $ 2.7 million on pre-tax income of $ 9.6 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets. This compares to an income tax expense of $ 6.0 million on a pre-tax loss of $ 6.4 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 nine months ended September 30, 2022. 8. 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 nine months ended September 30, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerators: Net income (loss) $ 4,212 $ 2,143 $ 6,928 $ ( 12,425 ) Less: Income attributable to unvested restricted stock awards ( 82 ) ( 41 ) ( 135 ) — Numerator for basic net income (loss) per share 4,130 2,102 6,793 ( 12,425 ) Effect of dilutive securities: Unvested restricted stock awards 1 3 1 — Numerator for diluted net income (loss) per share $ 4,131 $ 2,105 $ 6,794 $ ( 12,425 ) Denominators: Weighted average number of common shares outstanding 63,892 63,896 64,007 62,490 Less: Weighted average number of unvested restricted stock awards outstanding ( 1,241 ) ( 1,222 ) ( 1,247 ) ( 1,198 ) Denominator for basic net income (loss) per share 62,651 62,674 62,760 61,292 Effect of dilutive securities: Unvested restricted stock awards — 2 — — Unvested performance share units 409 — 375 — Denominator for diluted net income (loss) per share 63,060 62,676 63,135 61,292 Net income (loss) per share: Basic $ 0.07 $ 0.03 $ 0.11 $ ( 0.20 ) Diluted 0.07 0.03 0.11 ( 0.20 ) The calculation of diluted net income per share for the three and nine months ended September 30, 2023 excluded 159 thousand shares and 177 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 nine months ended September 30, 2022 excluded 249 thousand shares and 287 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. 14 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. 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 nine months ended September 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 — 645 211 Vested and distributed — ( 618 ) — Forfeited ( 87 ) ( 15 ) — Outstanding – September 30, 2023 158 1,234 705 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 September 30, 2023. Performance-based stock unit 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 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 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 nine months ended September 30, 2023 totaled $ 1.8 million and $ 5.2 million, respectively. Stock-based compensation expense recognized during the three and nine months ended September 30, 2022 totaled $ 1.7 million and $ 5.2 million, respectively. As of September 30, 2023, there was $ 8.8 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. 15 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 and nine months ended September 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 September 30, 2023 Offshore/Manufactured Products (1) $ 111,043 $ 4,921 $ 17,804 $ 2,739 $ 536,263 Well Site Services 59,831 6,313 3,285 2,602 201,384 Downhole Technologies 23,415 4,030 ( 4,118 ) 541 246,329 Corporate — 152 ( 10,781 ) 150 64,044 Total (1) $ 194,289 $ 15,416 $ 6,190 $ 6,032 $ 1,048,020 ____________________ (1) Operating income included $ 1.6 million of facility consolidation charges. Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Three Months Ended September 30, 2022 Offshore/Manufactured Products (2) $ 96,037 $ 5,072 $ 13,373 $ 1,620 $ 540,940 Well Site Services 60,509 6,732 2,359 4,894 205,018 Downhole Technologies 32,848 4,442 ( 342 ) 273 257,676 Corporate — 167 ( 10,332 ) 23 46,736 Total (2) $ 189,394 $ 16,413 $ 5,058 $ 6,810 $ 1,050,370 ____________________ (2) Operating income included a $ 6.1 million gain on settlement of outstanding litigation against certain service providers. Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Nine Months Ended September 30, 2023 Offshore/Manufactured Products (3) $ 303,328 $ 14,236 $ 40,147 $ 7,936 $ 536,263 Well Site Services 191,425 19,023 14,983 14,046 201,384 Downhole Technologies 79,264 12,480 ( 8,173 ) 961 246,329 Corporate — 470 ( 31,623 ) 427 64,044 Total (3) $ 574,017 $ 46,209 $ 15,334 $ 23,370 $ 1,048,020 ____________________ (3) Operating income included $ 1.6 million of facility consolidation charges. Revenues Depreciation and amortization Operating income (loss) Capital expenditures Total assets Nine Months Ended September 30, 2022 Offshore/Manufactured Products (4) $ 276,616 $ 15,651 $ 33,010 $ 3,093 $ 540,940 Well Site Services 163,500 22,059 ( 435 ) 9,360 205,018 Downhole Technologies 95,156 13,249 ( 3,332 ) 657 257,676 Corporate — 510 ( 29,611 ) 153 46,736 Total (4) $ 535,272 $ 51,469 $ ( 368 ) $ 13,263 $ 1,050,370 _______________ (4) Operating income (loss) included a $ 6.1 million gain on settlement of outstanding litigation against certain service providers. 16 Table of Contents OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables provide supplemental disaggregated revenue from contracts with customers by operating segment for the three and nine months ended September 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 September 30 Project-driven: Products $ 45,527 $ 38,911 $ — $ — $ — $ — $ 45,527 $ 38,911 Services 30,391 23,421 — — — — 30,391 23,421 Total project-driven 75,918 62,332 — — — — 75,918 62,332 Military and other products 7,195 9,995 — — — — 7,195 9,995 Short-cycle: Products 27,930 23,710 — — 21,984 27,127 49,914 50,837 Services — — 59,831 60,509 1,431 5,721 61,262 66,230 Total short-cycle 27,930 23,710 59,831 60,509 23,415 32,848 111,176 117,067 $ 111,043 $ 96,037 $ 59,831 $ 60,509 $ 23,415 $ 32,848 $ 194,289 $ 189,394 Offshore/Manufactured Products Well Site Services Downhole Technologies Total 2023 2022 2023 2022 2023 2022 2023 2022 Nine Months Ended September 30 Project-driven: Products $ 116,869 $ 113,853 $ — $ — $ — $ — $ 116,869 $ 113,853 Services 79,867 71,714 — — — — 79,867 71,714 Total project-driven 196,736 185,567 — — — — 196,736 185,567 Military and other products 22,157 23,104 — — — — 22,157 23,104 Short-cycle: Products 84,435 67,945 — — 71,645 79,635 156,080 147,580 Services — — 191,425 163,500 7,619 15,521 199,044 179,021 Total short-cycle 84,435 67,945 191,425 163,500 79,264 95,156 355,124 326,601 $ 303,328 $ 276,616 $ 191,425 $ 163,500 $ 79,264 $ 95,156 $ 574,017 $ 535,272 Revenues from products and services transferred to customers over time accounted for approximately 66 % and 63 % of consolidated revenues for the nine months ended September 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 September 30, 2023, the Company had $ 225.9 million of remaining backlog related to contracts with an original expected duration of greater than one year . Approximately 19 % of this remaining backlog is expected to be recognized as revenue over the remaining three months of 2023, with an additional 51 % recognized in 2024 and the balance thereafter. 11. 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. 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 covered by 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 the ongoing military actions in Europe and the Middle East, 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 impact of disruptions in the bank and capital markets, including the four U.S. bank failures which occurred in March, May and July of 2023; • 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.