Hello. And welcome to the Oil States International Incorporated Fourth Quarter 2022 Earnings Conference. My name is Michelle and I will be your operator for today’s call. At this time, all participant lines are in listen-only, but we will be accepting questions later. As a note, this presentation is being recorded. I will now turn the meeting over to Ellen Pennington. Ma’am, you may begin.

Thank you, Michelle. Good morning. And welcome to Oil States fourth quarter 2022 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the Safe Harbor protections afforded by federal law. No one should assume that these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K, along with other SEC filings. This call is being webcasted and can be accessed at Oil States website. A replay of the conference call will be available one and half hours after the completion of this call, and we will continue to be available for one month. I will now turn the call over to Cindy.

Thank you, Ellen. Good morning. And thank you for joining our conference call today, where we will discuss our fourth quarter 2022 results and provide our thoughts on the market outlook. During the fourth quarter of 2022, the company continued to show improvement as the industry expands activity to support growing energy demand, generating revenues of $202 million and EBITDA of $21 million, representing sequential increases of 7% and 30% respectively, after excluding a third quarter 2022 litigation-related settlement gain of $6.1 million. We were net income positive for the quarter, driven by strong activity levels in our traditional project-driven businesses, as well as from increased demand in the U.S. for our completions-oriented service offerings. We generated $14 million in cash flow from operations during the fourth quarter, with $11 million of free cash flow after deducting net investments in CapEx. Our Offshore Manufactured Products segment’s revenues rose 9% sequentially with adjusted segment EBITDA totaling $18 million. Backlog increased 19% sequentially, totaling $308 million as of December 31st, driven by quarterly bookings of $152 million, which yielded a quarterly book-to-bill ratio of 1.5 times. Our fourth quarter bookings increased 32% from the third quarter and included two notable production facility project awards exceeding $20 million each with increased broad-based bookings across most product and service offerings. Further in early February, we are pleased to report the receipt of our first contract award on our newly developed managed pressure drilling riser equipment. In our Wellsite Services segment, we achieved a 12% sequential increase in revenues and an impressive 29% sequential increase in segment EBITDA, driven by higher U.S. completion and production activity, along with enhanced customer penetration and better equipment utilization. Although the average U.S. frac spread count was flat sequentially, the average increased 9% when compared to the fourth quarter of 2021. In our Downhole Technology segment revenues decreased 10% sequentially, while segment EBITDA decreased 75% due to the timing of international perforating products sales, lower integrated gun product sales mix domestically as several key customers delayed light quarter startups, and supply chain challenges in inventory and receivable write-off; many of these issues are deemed to be transitory. Notable technological achievements realized in the fourth quarter included the successful test of OSI minerals deep sea riser system at a water depth of over 13,000 feet and testing of a prototype model of our tension leg platform design for offshore floating wind installations in water depths beyond the normal limits suitable for fixed installations. Given significant reductions in our debt, our Board of Directors approved a $25 million stock repurchase program, which extends through February 2025. Lloyd will now review our consolidated results of operations and financial position in more detail before I go into a discussion of each of our segments.

Thanks, Cindy, and good morning everyone. During the fourth quarter, we generated revenues of $202 million, adjusted consolidated EBITDA of $21 million, and net income of $2.9 million or $0.05 per share. We achieved our second quarter in a row of positive net income, reflective of the improvement in our operations and the overall strength of market activity. We ended the fourth quarter with $42 million of cash and generated $14 million of cash flows from operating activities. We used $3 million to fund net capital expenditures. All of our business segments were free cash flow positive in 2022, and on a consolidated basis, we have been free cash flow positive for 30 quarters of the last 36 quarters, dating back to the beginning of 2014. As a reminder, we define free cash flow as cash flow generated from operating activities less capital expenditures, plus proceeds from the disposition of property and equipment. As of December 31st, no borrowings were outstanding under our revolving credit facility and amounts available to be drawn totaled $92 million, which together with cash on hand of $42 million resulted in available liquidity of $134 million. At December 31, our net debt totaled $111 million, yielding a net debt to total capitalization ratio of 14%. On a leverage ratio basis, net debt to adjusted consolidated EBITDA has been materially reduced to 1.4 times at December 31. Further on February 15, we repaid $17.3 million in principal amount along with accrued interest of our 1.5% convertible senior notes with cash on hand. With this repayment, we have no significant maturities of long-term debt until 2026. For the fourth quarter, our net interest expense totaled $2.3 million, of which $0.5 million was non-cash amortization of debt issuance costs. Our cash interest expense as a percentage of average total debt outstanding was approximately 5% in the fourth quarter. In terms of our first quarter 2023 consolidated guidance, we expect depreciation and amortization expense to total $15.3 million, net interest expense to total $2.6 million, and our corporate expenses are projected to total $10.3 million. For the full year 2023, we expect to invest approximately $25 million in capital expenditures. Given customary seasonality and working capital builds in the first quarter, our free cash flow will be weighted to the second half of 2023 comparable to what we experienced in 2022 when we generated $33 million in free cash flow in the second half of the year. At this time, I’d like to turn the call back over to Cindy, who will take you through the operating results for each of our business segments.

Our Offshore Manufactured Products segment generated revenues of $105 million, segment EBITDA of $17.8 million, and operating income of $12.3 million in the fourth quarter of 2022. Revenues in the fourth quarter were up 9% sequentially due to incremental production facility revenues, stemming from recent project awards, along with service revenue growth. Segment EBITDA margin in the fourth quarter of 2022 was 16.9%, compared to 13% when adjusted to exclude the $6.1 million litigation gain reported in the third quarter of 2022. Backlog totaled $308 million at December 31, 2022, an increase of $50 million or 19% from September 30, 2022. Fourth quarter 2022 bookings totaled $152 million, yielding a quarterly book-to-bill ratio of 1.5 times. Our fourth quarter bookings were broad-based across many product lines and regions with approximately 9% of our 2022 bookings tied to non-oil and gas projects. During the fourth quarter this segment was awarded two notable production facility project awards exceeding $20 million each. This segment has endeavored to develop leading-edge technologies while cultivating the specific expertise required for working in highly technical, deepwater and offshore environments. As the world expands investment in alternative energy sources, we will be working diligently to translate our core competencies into the renewable and clean tech energy space. Recent product developments should help us leverage our capabilities and support a more diverse base of customers going forward. We continue to bid on potential opportunities supporting our traditional subsea floating and fixed production systems drilling and military customers, while also bidding to support multiple new customers and projects involved in developments such as subsea minerals gathering, fixed and floating offshore wind developments, and other renewable and clean tech energy systems globally. These opportunities create the potential for us to expand our product offerings and revenue base. In our Wellsite Services segment, we generated revenues of $68 million, segment EBITDA of $12.5 million, and operating income of $5.3 million in the fourth quarter of 2022. Segment EBITDA margin was 18% in the fourth quarter of 2022, compared to 16% in the third quarter of 2022. Our revenue growth and strong incremental margins were driven by higher U.S. completion and production activity, along with enhanced customer penetration and better equipment utilization. We remain focused on optimizing our operations and pursuing profitable activity in support of our global customer base. As market expansion opportunities continue to unfold, both in the U.S. and in international markets, we will continue to focus on core areas of expertise in this segment and the deployment of our recently enhanced completions equipment to further differentiate our completions service offerings. In our Downhole Technologies segment, we reported revenues of $13 million and segment EBITDA of $1 million in the fourth quarter of 2022, compared to revenues of $33 million and segment EBITDA of $4.1 million reported in the third quarter of 2022. Weaker revenues and margins in the quarter resulted from the timing of international perforating products sales, which can be lumpy from quarter to quarter, lower integrated gun product sales mix, manufacturing labor constraint, supply chain challenges, along with inventory and receivable write-offs totaling $600,000. Now I’d like to turn our attention to market outlook. Supply chain challenges, access to available labor, and rising inflation have challenged our industry and many others over the last year or two, with our commodity prices demand took a hit over the last few months in 2022 and early 2023. Global oil and gas inventories recovered and are now within their five-year seasonal averages, which has led to lower commodity prices year-over-year tempering expectations for growth in drilling and completion spending on U.S. land activities. However, we are beginning to see an inflection upward and international and offshore markets, which should further support our product and service offerings. Given improvements in the frac spread count over the last several quarters, albeit with growth slowing somewhat recently, we expect our Wellsite Services and Downhole Technologies segments to continue to perform in line with our better-than-market activity indicators. Revenues in our Offshore Manufactured Products segment are expected to continue to grow, given increased levels of backlog and strong short-cycle product demand. Considering these market drivers, we project that our annual revenues will grow about 15% on a consolidated year-over-year basis, with EBITDA ranging from $92 million to $100 million. Given cyclical seasonality, the first quarter is likely to be the weakest. Now I’d like to offer some concluding comments. Crude oil and natural gas prices corrected to the downside from the highs reached in early summer 2022 due to ongoing recession concerns, tightening global monetary policies, and the associated impact on commodity demand. However, despite these factors, WTI and Brent crude oil spot prices remain above $76 per barrel and $83 per barrel, respectively, with natural gas currently trading at approximately $2.30 per MMBtu. These prices, while lower than the average commodity prices realized in 2022, are likely to support demand increases in 2023. Initially, the industry responded to higher commodity prices with accelerated shorter-cycle investments in the United States, which we experienced in 2022. We now expect to see investments pick up for long lead-time projects as well, including those in international markets and deepwater basins around the world. However, global monetary policies and the resulting increases in interest rates by the various Reserve banks in an attempt to rein in inflation will likely have a continuing impact on demand in the near term. Oil States will continue to conduct safe operations and will remain focused on providing technology leadership in our various product and service offerings with value-added products and services available to meet customer demands globally. In addition, we will continue our product development efforts in support of emerging renewable and clean tech energy investment opportunities. That completes our prepared comments. Michelle, would you open up the call for questions and answers at this time?

Yes, ma’am. The first question comes from Luke Lemoine with Piper Sandler. Your line is open, sir. Please proceed.

Yeah. Hey. Good morning, Cindy, Lloyd.

Good morning.

Hi, Luke.

Cindy, I think your consolidated guidance for 2023 makes a lot of sense. Just on a couple of the pieces. I guess, on the Wellsite, you have shown substantial improvement kind of throughout 2022 on the margin side, and I mean, this kind of level that you showed in 4Q, which we should be expecting kind of going forward?

Yeah. We are optimistic about changes and improvements enhancements that we have made within our completion services operation and in addition to that we are introducing some new technology, valve technology, particularly in some 15K equipment. And so I think my reaction to that is probably 60 days, there was less conversation about weak natural gas prices and the impact on both rig counts and completion counts, and we generally still remain fairly optimistic on activity broadly, particularly in the oilier plays. That’s number one. And then number two, just customer initiatives coupled with some new equipment that we are putting in the field helps us be more positive probably about land-based activity as we go into 2023.

Okay. And then in Offshore Manufactured Products, if you talk about the order outlook, I missed it, but kind of what are you expecting for orders in 2023 as far as growth and maybe the composition of what do you kind of see in the queue at this point?

As you can see, the book-to-bill ratio can fluctuate significantly from quarter to quarter. However, we have a clear projection for our growth and anticipate exceeding a book-to-bill ratio of 1.1 for 2022 as we move into 2023. In the third quarter of 2022, the book-to-bill ratio was slightly below 1, followed by a ratio of 1.5. I advise not to focus too much on the quarterly variations of this metric, as we generally take a longer-term view, especially on an annual basis. We do expect to surpass the 1.1 ratio achieved in 2022.

Okay. Got it. Thanks much, Cindy.

Thank you.

Thank you. And the next question comes from Stephen Gengaro from Stifel. Your line is open.

Thanks. Hi, Cindy and Lloyd.

Hi, Stephen.

Two things from me to start. The first, could you remind us on the Wellsite side, I think the U.S. land piece is about 70% from prior data we had. Is that roughly correct and should we be thinking about or you thinking about the international piece of Wellsite growing faster than the domestic piece in 2023?

It varies from quarter to quarter. I would estimate that the domestic share ranges from 75% to 80%, not 70%. There have been periods with weaker international activity, particularly a year ago, but we are starting to see an improvement, and our outlook for international in 2023 is more positive. I haven't performed a detailed growth comparison, but we expect both markets to grow, likely at similar rates. There has been some recent pressure on North American land due to lower gas prices, yet overall, we remain optimistic about U.S. land based on our service offerings, customer positioning, and the equipment we're deploying in the field. I believe both segments will perform better year-over-year and likely at comparable levels, indicating an improvement in both domestic and international markets.

Thank you. When we consider the Offshore Manufactured Products, it leads to a broader question. With the backlog and the recent strength in orders, will that business see growth, and how does it relate to the total revenue guidance you provided? Will it be similar, better, or worse? I'm also interested in your thoughts on margins for that business in 2023.

We are quite optimistic about seeing growth in all three segments. Offshore Manufactured Products is expected to have proportionately higher growth, especially since we achieved a book-to-bill ratio of 1.5 times in the fourth quarter. This will positively impact certain products, particularly our core production facility items, where we are confident in our performance, margin achievement, and delivery timeframes. The strong book-to-bill ratio reflects not only quantity but also quality in our order book, which gives me a positive outlook. Moreover, we finished the quarter with growth on the service side, and services generally maintain good margins. However, it's important to note that on a consolidated basis, the incremental gains might be slightly lower than they would be with just an isolated improvement in completion services, especially as we transition to a rental service model and consider manufactured product sales. Nevertheless, our margins have shown real improvement from the third to the fourth quarter, and with the right product mix and throughput, we do not anticipate any negative impact on our margins moving forward.

Thank you. And then just one final one from me, I guess, I am going by each segment. On Downhole Technologies, can you talk about the competitive landscape? As we have heard, I mean, I know you are aware of some of the lawsuits that were out there from one of your competitors, the management changes at that company. But what is the competitive landscape on kind of the newer integrated guns versus the machine shops buying components and how your business kind of fits into that dynamic?

I appreciate the question. While this is a smaller part of our business, there is strong customer acceptance of the integrated gun systems that many third-party providers offer. This trend is a significant focus for us. As you know, we are prioritizing the reliability aspect to ensure our products are exceptionally dependable for our customers. Regarding the industry landscape, recent legal decisions have clarified some uncertainties around the adoption and performance of perforating systems, making it a more even playing field going forward. The domestic market remains competitive, especially with wireline companies sourcing perforating gun systems. By focusing on our key products and the integrated gun system, we can improve manufacturing efficiency without constant development of new gun sizes or shooting panels for every customer. The market is stabilizing with reliable products that can be produced consistently, enhancing our efficiency. Additionally, international expansion is a major growth driver for us; historically, these markets have been linked to P&A, but we are now exploring opportunities in original completion, leveraging more proprietary equipment. In contrast, the U.S. market still consists of a significant amount of commoditized components, which yield lower margins. Thus, with the focus on integrated gun systems and a more balanced competitive landscape, we are identifying promising international expansion opportunities, which will be crucial for our business moving forward.

Great. No. That’s great color. Thank you, Cindy.

Thank you, Stephen.

Thank you. And the next question in the queue comes from Kurt Hallead with The Benchmark Company. Sir, you may proceed.

Hey. Good morning.

Hi, Kurt. Good to hear from you.

Yeah. Great. Great to be on again. Always appreciate the color. I just wanted to maybe circle back again just on the overall outlook for 2023 and you mentioned that the Offshore Manufactured Product business will probably have faster revenue growth than the Wellsite and Downhole. And then just kind of focusing maybe on Wellsite and Downhole, do you think those two would grow comparable on a year-on-year basis or won’t grow faster than the other based on your customer mix and product mix and everything else?

They are similar, but we have a modestly higher growth rate on completion services, partially due to some supply chain challenges that are unique to Downhole shortages of switches right now, and shortages of powder. There are number of headwinds, particularly in the late part of 2022, and early part of 2023 that, while we have growth in all three segments, the lower to the higher would be Downhole followed by Wellsite Services with the highest one Offshore Manufactured Products. And again, the blended average is an estimated 15% year-over-year increase in consolidated revenues, if that’s helpful.

Thank you for that. Cindy, you have always approached business dynamics and outlooks pragmatically. Natural gas currently does not favor investor psychology or perspective activity. I am curious, looking at the dynamics at play and the confidence in your oil basins performing better than natural gas, is there something specific about your customer base that might protect you from a potential decline in gas activity? That's my first question. Regarding my second question, you typically see some turnover in assets or business, and as natural gas activity declines, there will be a shift toward these oil basins. Historically, this has led to asset competition and pricing pressure. I would like to know your perspective on how you are protected and whether you anticipate asset competition similar to what we have experienced in previous cycles.

No. Those all are very valid and timely questions, Kurt. But, obviously, we are very attuned to our customers and to market concerns and the impact of pricing, which we all know very well. And so, I am going to echo some of what is on the street in saying that I think that, one given the growth in the rig count in the Haynesville in 2022 has set up power production in that basin, number one. It has a higher breakeven at least from all the research I have done than the Northeast market. And so I do think that basin is more sensitive to activity declines, that’s number one. There are plenty of analysts out there estimating what kind of decline we might be looking at. But with this massive switch over the last 15 years or so, but rig count dedicated to oil basins, the overall gas count is probably percentage wise about 20%. And I do think that the weakness we will see is likely in the Haynesville, a lot people are speculating maybe 20 rigs to 30 rigs off of a basis 73 rigs operating in that market. So that’s not a huge impact on total rig count. I do think that the Northeast holds up better, and it’s a narrow customer base up there that we know well, and typically our work there is highly complex multi-well pads. I really don’t see a significant change in that Northeast market as it relates to our operations. The next part of your question is, if in fact you do lose some 20 rigs or 30 rigs in the Haynesville, does that create downward price pressure in other basins? And I will just be honest, for the type of equipment that we have, we don’t believe that is the case. And I will also say, our equipment has been a bit different. We haven’t been pushing 90% utilization and pressing day rates materially in 2022, unlike maybe other product offerings where the equipment has been tighter. And for that reason you may have some market shifts, but you may also just have an improvement in certain other basins offset by some weakness in the Haynesville. But in totality, particularly with our international and our Gulf of Mexico exposure, I am not going to say, I am totally sanguine about it, but I am not heavily concerned either.

That’s great. Great color. Really appreciate it. Thanks.

Thank you.

Thank you. The next question in the queue comes from Sean Mitchell with Daniel Energy Partners. Sir, your line is open. Please proceed.

Hi, Cindy, Lloyd. Good morning and thanks for taking my question. You mentioned I think earlier in the comments or maybe in the Q&A just supply chain challenges with labor and materials. I think you alluded to the switches and powder on, but anything else on supply chain or labor that we should be concerned about in 2023, number one, or is anything really getting better on the margin?

Another fantastic question and I will say that we have been able, it’s been a lot of effort behind it, but we have been able to increase our headcount in the completion services side of the business, which helps us manage our work better. I am not necessarily have to move people from one geography to the other and alleviate some of the overtime pressures we have had on our workforce in completion services. So I’d say a little more favorable trend in completion services, we are still struggling to hire in our manufacturing facilities in the Downhole side, that’s been part of the challenge we are working on and facing at this point in time. And other than that, I’d say that, we like everybody else had the labor cost increases during 2022, but we don’t expect as necessarily the need to make proportionately the kind of increases that we saw in 2022 to attract and retain the labor that we have. So I feel like some of the pressure has moderated, but there are still pockets; we still are dealing with very low unemployment levels and just have to work through it.

As we consider some of your larger competitors in the industry, it's clear you've mentioned an inflection point in deepwater and international markets. One of the biggest competitors indicated that they believe you are entering a phase of resurgence and substantial growth in deepwater for 2023. It seems that your guidance of a 15% increase suggests a strong focus on the offshore and international markets.

Yeah. We are seeing in our own product lines growth across all three year-over-year, but it is weighted more towards Offshore Manufactured Products. And to some degree, our visibility is pretty good on order flow and activity because its weighted towards production infrastructure, meaning we know what’s going on in the basins of Guyana, Brazil; a lot of those developments are already well underway. Now, it’s up to us to bid effectively and get our proportionate share of the awards that are there, and I think when you talk about more of the enthusiasm, you may be talking about actual drilling, new drilling and new prospects were, i.e., the deepwater drillers getting some improvement in both utilization and in rates. Number one. And we just had an absolute dart of exploratory drilling for five decades now in deepwater, and I think people are recognizing that even some of our politicians recognize that you actually need some crude oil and natural gas to supply the energy needs of the world. And whatever reason we can debate all day long about why activity has slowed as badly as it did, certainly transitional investments and other things took the front and center. And I think the Russia-Ukraine crisis and the shortages of energy going into the European continent created a different awareness and a different appreciation of the needs that we have not only in this country but in the world, and you are just seeing a resurgence of activity that had been really delayed for a long time, quite frankly. But as it relates to my business, the visibility around these development drilling profiles in kind of that Atlantic Basin area, particularly Brazil and Guyana are pretty visible at this point on time.

Great. That’s great color. Thanks, Cindy.

Thank you, Sean. Good to see you next week.

And the next question in the queue comes from Stephen Gengaro from Stifel. Your line is open, sir.

Thanks. Just one follow-up. You mentioned, I think, the buyback and I am just curious how do you think about utilizing it? Is it opportunistic, is it going to be some kind of programmed system and how are you thinking about that versus other capital allocation opportunities?

Yeah. I appreciate that question. We are going to start out slow, i.e., the quantum is not that big and we recognize that. We are at a net debt-to-EBITDA ratio at the end of 2022 of 1.4 times; so I’d say we are much more comfortable. You all know, we had a stub period on our first convert that matures this month, and in fact, we have already paid that off. It was about $17 million. So following that we have no maturity until the next convert comes up 2026. I can’t remember what month in 2026. But the point of that being the industry outlook, our backlog development, our free cash flow history, and our outlook for free cash flow suggests we can now begin a more thoughtful approach to cash return to shareholders. We do plan to be opportunistic. And I think in our comments, we always build significant working capital in the first quarter, and that is coupled with the fact that we just bought in the $17 million of the maturing convert. So in the early part, probably not going to see a lot of share repurchases; even last year the bulk of our free cash flow was generated in the second half of the year. I see the same trend occurring in this year and so I think it’s important to have authorization in place. We do want to be opportunistic, and as recently as four months ago, our stock was depressed for reasons unknown, and it’s done better over the last 90 days, I will call it. But I just think we are going to be thoughtful and smart and absolutely given is that smart organic investments will always be first. We feel like that’s factored in our CapEx program. Lloyd told you we are estimating an increase from $20 million to $25 million in 2023. We could flex that if the opportunities present themselves. And again, that will always be first and should be. Tuck-in acquisitions, we are just not seeing a whole lot right now, but just like we did the small ASC acquisition in the second quarter last year, that is performing very well compared to the acquisition economics. And if we have those opportunities, they too would be evaluated against share repurchases. So, long-winded way of saying we are in a better spot, in a much different spot than we were two years ago. We are confident in our liquidity position and we know our shareholders are interested in some path toward cash returns. So that’s our focus right now. But, again, long-winded way of answering, we are going to be opportunistic particularly in the first half of the year.

Great. Thank you, Cindy.

Thank you, Stephen.

And ma’am, we have no further questions at this time. So I will turn the call over to Cindy Taylor for closing remarks.

Thank you for hosting today, Michelle. And thanks to all of you for your continued interest in Oil States and your support for the company. We do look forward to future discussions as the year progresses and we are pleased to say there is actually going to be some Investor Conferences coming in the next three or four months, and so it will be great to see people in person. In the meantime, I hope you have a great weekend and the balance of the earnings season, and we will be in contact soon. Thank you.

Thank you, everyone. This concludes today’s presentation. Thank you for your participation. You may now disconnect.