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

Thank you, Mark. Good morning, and welcome to Oil States third quarter 2024 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor; and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. No one should assume these forward-looking statements remain valid later in the quarter or beyond. Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our 2023 Form 10-K, along with other recent SEC filings. This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available two hours after the completion of this call and will continue to be available for 12 months. I'll now turn the call over to Cindy.

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our third quarter 2024 results and provide our thoughts on market trends in addition to discussing our company-specific outlook. During the third quarter, we reported strong results in our Offshore/Manufactured Products segment and achieved our largest bookings quarter of the year. On a consolidated basis, our offshore and international revenues constituted 65% of our consolidated total for the quarter, while U.S. land-driven revenues represented 35%. As we have discussed in prior quarters, we are in the process of strategically streamlining our operations in the United States through the exit of underperforming locations and business lines. We continued our efforts around business mix optimization during the third quarter with the sale of our remaining drilling rigs, which generated some cash and also frees up working capital previously dedicated to the business. Following the sale of our drilling rigs and the exit of our flowback and well testing operation, the segment previously named Well Site Services was changed to Completion and Production Services in line with our future go-to-market strategy. During the quarter, our Offshore/Manufactured Products segment revenues totaled $102 million, while adjusted segment EBITDA totaled $23 million. Bookings totaled $112 million, up 11% sequentially, yielding a backlog of $313 million as of September 30th and a quarterly book-to-bill ratio of 1.1x. Our segment results are gaining incremental benefits from customer adoption of our newer technologies with a particular focus on our managed pressure drilling and Mineral Riser technologies during the quarter. Together with Seadrill Limited, a global leader in offshore oil and gas drilling, we announced a strategic non-exclusive collaborative relationship aimed at increasing the safety and efficiency of offshore MPD operations. This strategic initiative combines our award-winning MPD Integrated Riser Joint technology with Seadrill's high-spec fleet of floating drilling vessels to enhance operational safety and efficiency, while simplifying and standardizing MPD systems operating in the offshore drilling market. During the quarter, our first Integrated Riser Joints were delivered to Seadrill for use on their West Polaris deepwater rig, which is expected to begin MPD operations in Brazil later this year. As market acceptance of our MPD product line continues, we expect to generate between $35 million and $45 million annually in associated revenue going forward. With ongoing concerns about potentially reduced oil demand in China and the possibility of OPEC+ ceasing voluntary production cuts in 2025, crude oil pricing declined during the quarter. With this macro backdrop, coupled with record U.S. production, completion activity on U.S. land as measured by the average quarterly U.S. frac spread count declined 8% sequentially leading to a weaker U.S. market. Our Completion and Production Services segment revenues decreased 14% on a sequential quarter basis, given the impact of these trends, along with the segment's consolidation and exit over the past nine months of underperforming locations. Adjusted segment EBITDA decreased at a proportionately higher rate from the second quarter of 2024 due to weaker offshore activity in the Gulf of Mexico. The drop in offshore activity resulted in part from hurricanes in the Gulf of Mexico during the third quarter, but the pause in activity is considered transitory. In our Downhole Technologies segment, revenues and adjusted segment EBITDA also decreased from the second quarter of 2024 driven by similar macro issues leading to weaker completion product sales. We continue to focus on improving operations and allocating capital to our most differentiated businesses, while efficiently and safely providing our customers with advanced technologies and services, enhancing returns, reducing debt and returning cash to our stockholders. During the quarter, we generated cash flows from operations totaling $29 million, leading to a net debt reduction of $20 million. Over the last three years, we have made significant progress in our deleveraging journey, and we expect to be net debt zero during 2025, which should serve as a catalyst for stock price improvement. Lloyd will now review our operational results, along with our financial position in more detail.

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

The long-term outlook for oil, natural gas, LNG and global energy demand should support sustained high levels of capital investment in offshore and international field developments over the longer-term, led by the United States, Latin America, Asia and Africa, with major subsea OEMs continuing to experience backlog growth as a result of orders for subsea production systems, we expect to see support for increased bidding and quoting activity, future bookings and revenue growth across a number of our product lines. In addition to solid macro fundamentals for production-related systems, we are enthusiastic about the potential for our global collaboration with Seadrill as well as our previously announced collaboration with Halliburton, both of which will further support market penetration of our managed pressure drilling technology, while increasing offshore drilling efficiency and safety across more subsea wells. We expect our Completion and Production Services and Downhole Technologies segments to improve with the consolidation and exit of underperforming locations, along with the implementation of additional cost control measures. These restructuring actions are expected to provide tangible margin benefits in subsequent quarters as capital is allocated to our more differentiated product and service lines. Our Completion and Production Services segment's Active Seat Valve technology, combined with automation and digital offerings should also provide further technological differentiation. In parallel, the recent introduction of our EPIC portfolio of perforating systems within our Downhole Technologies segment will provide our customers with increased flexibility for their completions operations while expanding our revenue opportunities. Further, our initiative to secure long-term contracts with our international customers for the supply of perforating products is gaining traction with recent awards in Latin America and the Eastern Hemisphere commencing in 2025. Considering current market dynamics, along with our internal restructuring initiatives, we expect our fourth quarter adjusted EBITDA to range between $20 million and $23 million. Free cash flow generation is expected to remain relatively strong at approximately $20 million during the fourth quarter of 2024, which will be augmented by $25 million of anticipated facility sale proceeds, as we mentioned earlier. With these expected cash flows, net debt should fall below $45 million at year-end 2024. Our capital allocation priorities include growth CapEx and organic research and development opportunities to create sustained competitive advantages over the longer-term. We will also focus on share repurchases as a means to increase returns to our investors. Given our outlook and strong free cash flow generation, as Lloyd mentioned earlier, we have increased our share repurchase authorization to $50 million with a two-year expiration date. To support long-term profitability and growth, we remain dedicated to enhancing our operations and pursuing profitable ventures to support our global customer base. We will continue to capitalize on the strength of offshore and international markets, streamline our domestic operations to focus on our core areas of expertise, and further leverage our expanded portfolio of technologies and specialized services to generate increased returns for stockholders. Safety, quality, efficiency and cost-effective operations remain fundamental to all that we do, and are at the forefront of the value that we deliver to our customers' operations. We will continue to provide the market with innovative and new solutions to access energy across both traditional and new energy sources to meet increasing global demand. While major projects and traditional oil and gas developments remain an essential bedrock for long-term revenue visibility, we continue to pursue a broad range of energy expansion opportunities within deep sea minerals, offshore wind, geothermal and carbon capture and storage to further enhance long-term growth opportunities. That completes our prepared comments. Mark, would you open up the call for questions-and-answers at this time?

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

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

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

Low double-digits.

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

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

International markets, correct.

Yes. And then my follow-up question: we've heard through this earnings season some varying commentary, but one takeaway is that with this pullback in oil prices, some of the shorter-cycle activity, not just in the U.S., but even international, has had shakier ground, while longer duration projects seem to be generally going forward. Just as you talk to customers, especially relating to your Offshore/Manufactured Products business, you had a great bookings quarter and backlog bounced back up to the highest level in four quarters. How are you seeing the backdrop given what's happened on the macro front?

You're exactly right. Roughly 65% of our revenue mix is more offshore international. A lot of it is tied to production infrastructure. These are prospects that have already had the exploratory work that deepen the development profiles. You're logically going to spend the money to develop reserves that are already discovered. That is true for our specialized connectors, our FlexJoint technology and subsea applications. I think of that as the base recurring business that we believe will grow. As you see large EPIC contracts awarded around these field developments, that plays into our product line because that is the driver for the business. With backlog and bidding and quoting activity being more production-oriented and development-oriented for fields already in play, we feel pretty confident we'll see growth. We're not forecasting heroic growth on what I call the base business—kind of mid-single-digit type growth—although it could be better if our award profile is strong. What we're trying to communicate is we have brand new technology coming to market, largely the MPD offering that we have, and we quoted some go-forward annual revenue, which should be additive to the business. The Mineral Riser systems—we've deployed, to date, over the last 18 months about four systems—and we're seeing ongoing bidding activity around that. I think of that as incremental revenue opportunity over the base business. Our outlook is good. The headlines with crude oil aren't great right now, but where people are going to spend money is in these large field developments offshore internationally, where a lot of money has already been invested.

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

Yes, we do too, Jim. Thank you.

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

Good morning, everybody.

Hi, Stephen.

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

There is a little bit ongoing in the fourth quarter. As we have simplified the business, we'll be looking to internal efficiencies, particularly around SG&A. A lot of the work has been done on the operational product line basis. What we're left with on U.S. land is our frac and isolation business: our Active Seat Gate Valve, automation and digitization efforts, and our isolation tools, which have proprietary standing in the market. It really comes down to whether we have a decent level of activity to support a high-graded product offering across the basins that we're in. We are assuming that is the case at this point and are focusing only on the product lines that offer good EBITDA margins over the longer term.

As well as our extended-reach technology for years.

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

Thanks. And then on the Offshore/Manufactured Products business, I have two questions. One is any guidance on the turn of the backlog and how to think about that? Also, the margins in the quarter were very good — one of the higher levels ever. How should we think about those margins in general? I always think of them as sort of high teens to low-20s. Is there any change to that based on what's in the backlog and pricing, et cetera?

Stephen, you've been with us a long time, and you know that the product mix shipped out the door in a given quarter really does matter. Our internal goal this year was 19% EBITDA margins, and clearly, we can exceed that as you've seen. But I look annually, not quarter-by-quarter. These margins are sustainably higher than they were a couple of years ago, and there's room to go, but the key will be quality throughput through all of our various manufacturing facilities around the world. As revenue grows, cost absorption improves, and we could see a baseline improvement in those EBITDA margins. Quarter-by-quarter, it can vary. I stick with the 19% to 20% range at least right now. Lloyd, if you feel any different, tell me.

That's correct.

Okay. And about backlog conversion?

Backlog conversion: generally, about 75% of the backlog turns in the forward 12 months based on history. Also remember we have a decent amount of service, repair, inspection and spare parts work that's not really backlog driven. That can be anywhere from 15% to 20% of our revenue over time. With a large installed base, you have to support that installed base with service and repair work.

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

Your next question comes from the line of Sean Mitchell with Daniel Energy Partners. Sean, your line is now open.

Hey, good morning team. Thanks for taking my questions. You guys highlighted some Gulf of Mexico weakness in Q3 and the related storms that's returning — it will be returning in Q4. Could you speak to your outlook for the Gulf in 2025, Cindy?

I'll just generally say our offshore business, we've been in it for decades, and it is a very high margin, good contributor for us. A lot of this work is around completions and intervention work. Some of it is call-out work, and we saw a soft Q3 last year as well; when you have the optionality, particularly around intervention workover type activity, you can defer that to avoid the risk of storms. That's really what happened there. Our outlook next year for the business is very solid, and our margins are very good with that piece of the business. For modeling purposes, analysts should probably model a softer Q3 in 2025 based on history. But on balance, we see modestly improving activity in the Gulf of Mexico, with customers returning to that level of activity. Workover and intervention work is expected to remain solid throughout the period.

Got it. And then you mentioned Brazil earlier, but could you walk us through international markets today — where you're seeing potential softness and where you're seeing opportunities for the business to grow in 2025? I think you mentioned Brazil earlier, but is there anything else to add around international?

We've been in Brazil for quite a long time and have a very solid base of operations. Industry data suggests Brazil is a significant contributor to deepwater activity, and you aren't really participating in deepwater if you're not in Brazil. That has been a very good opportunity for us vis-à-vis production facilities and infrastructure, and Guyana is also important. These are production facilities for discoveries that are already in place, and they're continually looking at new step-out fields. It's going to be a multi-decade resource play for us and we are well positioned with Petrobras and other operators in the region. Generally, it has been around production infrastructure, but with the introduction of our MPD equipment, we hope to capture more drilling equipment opportunities, particularly riser-type opportunities and connectors. There is a broad base that we can opportunistically take advantage of. It's hard for me to say I've seen weakness per se in any of the offshore basins where we operate; where we see weakness is on U.S. land, and we've taken actions accordingly.

Third-party data suggests the largest contributors for EPIC-type spending are Latin America, Asia and Africa.

And Africa, quite frankly, is a new emerging area. We've been in West Africa for decades, but it took a big pause and now it's getting renewed interest.

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

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

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

Caveat: it's not where we are today simply because of the softness in the Gulf in Q3. If I pro forma out Q3 softness and streamline it with Q1 or Q2, we're getting pretty close. In this market, we are not counting on price improvement.

Okay. Great. That's helpful. The other quick one: there's a little bit tied together, but outside of that, I think like $1.3 million of D&A that's coming out of the C&P segment—is 4Q D&A pretty flattish with the third quarter?

We really do expect DD&A to decline because of two things. Number one, the exit of some businesses; number two, we are focusing capital allocation toward higher-performing businesses. When you do that, completion services DD&A starts to run out because we had heavy CapEx over the last decade and much lighter CapEx now. Particularly, our active seat valve technology protects and reduces wear on frac equipment. These things lead to lower sustained CapEx going forward, which translates into lower DD&A and enhanced free cash flow.

DD&A is going down in the fourth quarter in line with the reduction from the exited businesses, about a million dollars.

Yes, Lloyd and Cindy. Thanks for the details.

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

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

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