Advanced Micro Devices Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2023

There are 9 speakers on the call.

Operator

Welcome to the Oil States International Incorporated First Quarter 2023 Earnings Call. My name is Brent, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I will now turn the call over to Ellen Pennington.

Operator

Ellen, you may begin.

Speaker 1

Thank you, Brent. Good morning, and welcome to Oil States' Q1 2023 earnings conference call. Our call today will be led by our President and CEO, Cindy Taylor and Lloyd Hajduk, 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.

Speaker 1

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 ks along with Other SEC filings. This call is being webcast and can be accessed at Oil States' website. A replay of the conference call will be available 2 hours after The completion of this call and will continue to be available for 12 months. I will now turn the call over to Cindy.

Speaker 2

Thank you, Ellen. Good morning, and thank you for joining our conference call today, where we will discuss our Q1 2023 results and provide our thoughts on market trends in addition to our outlook comments. During the Q1 of 2023, The company generated EBITDA of $21,000,000 representing a sequential increase of 4% On revenues of $196,000,000 we generated net income for the 3rd consecutive quarter driven by growth And a favorable demand mix in our Downhole Technologies and Well Site Services segments, along with strong Contributions from our Offshore Manufactured Products segment. Backlog at our Offshore Manufactured Products segment increased 6% sequentially, totaling $326,000,000 as of March 31, driven by quarterly bookings of $118,000,000 which yielded a quarterly book to bill ratio of 1.2 times. Our first quarter bookings included 3 notable project awards exceeding $5,000,000 each.

Speaker 2

We are also pleased to report the receipt of our first two contract awards for our newly developed managed pressure drilling equipment. In our Well Site Services segment, we achieved a 6% sequential increase in segment EBITDA driven by higher U. S. Completions related along with enhanced customer penetration and better equipment utilization despite a sequential decrease in the average U. S.

Speaker 2

In our Downhole Technologies segment, revenues increased 4% sequentially, while segment EBITDA 164 percent due primarily to contributions from higher margin international perforating product sales Coupled with improved integrated gun product sales mix domestically, international perforating product sales tend to be somewhat lumpy and can vary from quarter to quarter depending on customer activities. Our investments in technology and innovation were once more highlighted by the Offshore Technology Conference with the announcement that we are the recipient of 2 2023 Spotlight on new technology awards for our floating wind platform design and our active seat gate valve technology. We were also recognized with a 2023 Meredith Engineering Award from Hart Energy for our MPD ready riser system designed for jackup applications. Finally, last night, the National Ocean Industries Association presented Oil States with the 2023 Safety and Seas Culture of Safety Award, Recognizing our sustained commitment to safety in the field. Lloyd will now review our consolidated results of

Speaker 3

Thanks Cindy and good morning everyone. During the Q1, we generated revenues of $196,000,000 Adjusted consolidated EBITDA of $21,000,000 and net income of $2,200,000 or $0.03 per share. We achieved our 3rd sequential quarter of positive net income reflective of the continued improvement in our operations and the overall strength of market activity. During the quarter, we repaid in full the remainder of our 1.5% convertible senior notes Plus accrued interest totaling $17,400,000 In addition, we invested $26,000,000 in working capital And also spent $6,000,000 to fund net capital expenditures. Given customary working capital builds in the Q1, Our free cash flow will be weighted to the second half of twenty twenty three similar to what we experienced in 2022.

Speaker 3

Given the above debt repayment and corporate investments, dollars 5,000,000 in borrowings were outstanding Under our revolving credit facility at March 31. We expect to repay these borrowings during the Q2. Availability under the revolving credit facility totaled $93,000,000 which together with cash on hand of $16,000,000 Resulted in available liquidity of $109,000,000 at March 31. At March 31, our net debt totaled $123,000,000 Yielding a net debt to total capitalization ratio of 15%. On a leverage ratio basis, Net debt to adjusted consolidated EBITDA remains at 1.4 times at March 31.

Speaker 3

In 2023, we expect to invest approximately $25,000,000 in capital expenditures, dependent on market conditions prevailing at the time the capital investments are made. For the Q1, Our net interest expense totaled $2,400,000 of which $400,000 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 Q1. In terms of our Q2 2023 consolidated guidance, we expect depreciation and amortization expense to total $15,400,000 net interest expense to total $2,400,000 And our corporate expenses are projected to total $10,700,000 At this time, I'd like to turn the call back over to Cindy, We'll take you through the operating results for each of our business segments.

Speaker 2

Thanks, Lloyd. Our Offshore Manufactured Product Segment generated revenues of $98,000,000 segment EBITDA of $15,900,000 and operating income of $11,100,000 in the first Quarter of 2023. Revenues in the Q1 decreased 7% sequentially, driven primarily by an 11% decrease And project driven revenues due to timing on certain project schedules, partially offset by the impact of higher customer demand for our short cycle products. Segment EBITDA margin in the Q1 of 2023 was 16.2% compared to 16.9% in the Q4 of 2022. Backlog totaled 3 26,000,000 at March 31, 2023, reaching its highest level since the Q4 of 2015.

Speaker 2

1st quarter 2023 bookings totaled $118,000,000 yielding a quarterly book to bill ratio of 1.2 times. Our first quarter bookings were broad based across many product lines and regions. Our Offshore Manufactured The product 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 expansion and investments in alternative energy sources Continues to increase exponentially, we will be working diligently to translate our core competencies into the renewable and cleantech energy space. Our core competencies are well entrenched in the markets we serve, And 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 sub The minerals gathering, fixed and floating offshore wind developments and other renewable and cleantech energy systems globally.

Speaker 2

These opportunities create the potential for us to expand our product offerings and revenue base. In our Well Site Services segment, we generated revenues of $67,000,000 segment EBITDA of $13,200,000 And operating income of $7,000,000 in the Q1 of 2023. Segment EBITDA margin was 20% in the first quarter of 2023 compared to 18% in the Q4 of 2022. Our revenues were essentially flat with the Q4 of 2022, notwithstanding typical seasonality we experienced in the United Thanks. Service offering revenue mix and a continued focus on cost discipline led to a higher segment EBITDA margin sequentially.

Speaker 2

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 United States 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 completion service offerings. In our Downhole Technologies segment, we reported revenues of $31,000,000 with much Segment EBITDA of $2,800,000 in the Q1 of 2023 compared to revenues $30,000,000 in segment EBITDA of $1,000,000 reported in the Q4 of 2022. Strengthening revenues and margins in the quarter were driven by increased international perforating sales and a favorable Global oil and gas inventories have recovered and are now within their 5 year seasonal averages for crude oil, but are now significantly above the 5 year averages for natural gas, which has led to lower gas prices year over year, Tempering expectations somewhat for growth in drilling and completion spending on U. S.

Speaker 2

Land activities. However, we have begun to see an inflection upward in international and offshore markets, which will further support our product and service offerings in Global Regions. Given the steady levels of frac spread utilization over the last several quarters, we expect our Well Site Services and Downhole Technologies segments to continue to perform in line with or better than market activity indicators. Revenues in our Offshore Manufactured Products segment are expected to continue to grow, especially in the second half of twenty twenty three, Given strong order flow and increased levels of backlog, along with ongoing short cycle product demand, Given these market trends and indicators, we believe that we will achieve the upper end of our prior annual guidance range. Now I'd like to offer some concluding comments.

Speaker 2

Softening demand and concerns over the stability of the global banking system caused oil and gas process to drop during the Q1 of 2023. This was followed by a strong reaction by the OPEC plus Countries with a production cut, which rallied the market. However, commodity prices have retrenched since the announcement on demand concerns with WTI and Brent Crude spot prices currently at $75 $79 per barrel, respectively. Natural gas prices remain range bound at lower levels due to high storage. However, relatively Flat U.

Speaker 2

S. Production and increased demand for natural gas for LNG feedstock and for use in the power sector should lift natural gas Prices over the longer term. Initially, the industry responded to higher commodity prices with accelerated shorter cycle investments In the United States, which the industry clearly benefited from in 2022, We are now experiencing an increase in investments in long lead time projects as well, including those in international markets and deepwater basins around the world. 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 expansion in energy transition opportunities.

Speaker 2

That completes our prepared comments. Brent, would you open up the call for questions and answers at this time, please?

Operator

Your first question is from the line of Stephen Gengaro with Stifel. Your line is open.

Speaker 4

Thanks. Good morning, everybody.

Speaker 2

Hi, Stephen.

Speaker 4

Cindy, can you talk a little bit about What you're seeing on the offshore order flow side, I know your book to bill is good. You mentioned a little bit, thinking in your prepared remarks. I'm just curious About the conversations you're having and the visibility that you think you have as you go over the next few quarters as far as order flow?

Speaker 2

No, that's a great question, Stephen. Thanks for posing it. Our bookings outlook is very strong. I'm trying to look think back to our 2022 bookings and I think the bookings were up about 29% or so. What's happening, revenue is growing.

Speaker 2

And so a book to bill of north of 1 implies Obviously growing bookings, our bidding activity has been robust and broad. Of course, there's a lot of bidding activity around our conventional sub The proprietary technology in both Brazil, Guyana and other basins, but obviously those two basins are very, very strong. And again, we're very pleased with some of our new product introductions, particularly our high pressure riser Systems and our MPD equipment, both of which are getting good market attention, and we're beginning to see some order flow there. And then I'll just kind of end with, also a bit on the unique side of course is our mineral riser systems and we can continue to bid Opportunities around that as well, those are obviously just a bit lumpier because there's not it's a very immature play at this point in time. But again, just a robust order outlook with strong expectations for continued book to bill ratios Even on higher revenues.

Speaker 4

Great. Thank you. And my other just quick question, your confidence At the higher end of the guidance range, I imagine just based on what looks like a kind of a stable U. S. Market, maybe not growing quite as fast as we had thought Couple of months back, is the upper end because of the offshore piece or is it are there other elements to it that give you comfort?

Speaker 2

We're performing well relative to the market dynamics that you have described very appropriately. But definitely we have a strong outlook particularly in the second half around our offshore manufactured products driven. Again it's a backlog driven business And I mentioned in my comments that those major project awards should lift our overall Revenue and EBITDA generation for that segment. That is not to say that we are negative on U. S.

Speaker 2

Land, but I acknowledge You need to do better than the market, and that's going to be driven by customer market share and penetration, increased utilization, and in our case, Some new product introductions that if there is this softening around gas, first of all, I don't think it will be that significant. But 2, we hope to counter that with new product introductions and better market share penetration. But The simple answer to your question is most of the lift towards the upper end of that range does in fact come from offshore manufacturer products.

Speaker 4

Great. That's very helpful, Cindy. Thank you.

Speaker 2

Thank you, Steven.

Operator

Your next question comes from the line of Luc Lamoine with Piper Sandler. Your line is open.

Speaker 5

Hey, good morning.

Speaker 4

Hello.

Speaker 5

Hi. Maybe just a comment first, but your stock should not be down 12%. But then on your book to bill, it's been strong in the past couple of years and fairly consistently above 1x. Question might be a little tough since bookings can be pretty diverse, but could you talk about the margin profile you're seeing in your backlog versus maybe 12 to 18 months ago?

Speaker 2

For sure. Thank you, Luke. Stock trading in this space is a mystery. I always say the gift that keeps on giving because we actually entered this Morning thinking our stock would be up 5% to 7% on a 5% beat on EBITDA. So It's a bit confusing, but certainly what we are booking in the backlog is more oriented to our Semi proprietary equipment and therefore does carry strong margins number 1, but also Great expertise around the manufacturer of that, meaning we have a great history in these product lines, particularly On the subsea side that includes our SCR, flex joints and other equipment.

Speaker 2

So, the mix in backlog is a good mix. We do hope to see continued ongoing demand for the short cycle products. If that happens, our margins will perform well going forward.

Speaker 5

Okay. All right. Thanks, Cindy.

Speaker 2

Thanks,

Operator

Your next question is from the line of Kurt Hallead with Benchmark. Your line is open.

Speaker 6

Hey, good morning.

Speaker 1

Hey, Kurt.

Speaker 6

Hey, just a quick to kind of follow-up here, Cindy. You made an interesting point about the EBITDA beat for the quarter, And you made a reference to your conviction about achieving the higher end of your guidance. And maybe given the stock Being down the way it is, could you just kind of remind us what that guidance range was?

Speaker 2

I believe it was a revenue increase year over year of 15 plus percent with an EBITDA range of 92,000,000 to 100,000,000

Speaker 6

Okay, great. I appreciate that. Yes, I'd say the consensus EBITDA is out there at $90,000,000 $95,000,000 So clearly nothing's changed. And I'd echo Luke's point, your point, it's a head scratcher for sure today. All right.

Speaker 6

So the dynamics, the focal point here at least initially is you kind of referenced some new MPD Equipment and demand for that equipment, MPDC is beginning a lot of airtime On a number of different conference calls that I've listened to so far this quarter, I would say just in some instances when some of these technologies are being discussed at a broad level, it's Clearly, a demand pull kind of concept, but then it kind of begs the question around What's the market penetration opportunity? Are we going to see situations where is demand pull greater than supply? Because when a number of different players start entering a market, always beg the question around how aggressive players have to be on pricing. So Just wondering if you could just give us as much color as you can around that without giving up any state secrets.

Speaker 2

Well, no, I think your comments are very Appropriate. I will say that we are not trying to compete with standard NPD equipment that is in the market. We have designed ours To be both lighter, lower cost, easier to change out pressure control components. So think of this as what we believe is a More suitable better alternative than the standard NPD equipment that's out in the market. And therefore, don't think about Equipment on equipment, competition and therefore lower pricing, I don't look at it that way.

Speaker 2

I look at this as Offering enhanced technology to the marketplace that is a better mousetrap if you want to call it that and Much like we just got an OTC award around our active seat gate valve, you can say, well, that's just another valve to go in frac equipment. It is a much more differentiated and enhanced valve that is gaining rapid market acceptance. So again, I don't think of these as

Speaker 6

And then maybe circling back around to your offshore manufactured products And you kind of referenced, generally speaking, that you look to outperform whatever market dynamics are in play For your variant product line, so I think some of the data that we've seen recently suggests that offshore SIDs will be up Something along the lines of 50% or so over the course of the next couple of years and going to be at their highest level in over 10 years or Just want to kind of put it down to a framework is could your business sort of track That FID kind of increase is kind of an overarching question. And then the sub Said to that question would be, look, FTIs out there talking about $25,000,000,000 order book over the next few years And we've seen substantial increase in deepwater drilling activity. Can you just remind us what the kind of lead lag dynamics are around deepwater drilling activity and subsea

Speaker 2

I think we are highly correlated to the trends that Technique FMC seeing because they are more weighted to the subsea infrastructure side of the business as we have selected things, I. E. Our risers and our MPD equipment that will go on increased drilling, if you will, for new fields, but More weighted on the subsea infrastructure development side, production side of the equation. So I always say with Doug's business at TechnipFMC is doing well, we will proportionately perform well also.

Speaker 6

Okay. Awesome. And maybe if I could add one more just on Wellsite Services. Yes, there is churn taking place as you referenced So on the natural gas side of the business, but looks like the oil basins are stable to Taking up at the margin at the very least, land drillers and frac companies have both basically said they're going to hold the line on pricing. Just kind of curious as to what you may be seeing in your product lines in terms of how some of your competitors are acting from a price standpoint?

Speaker 2

Yes. Well, first of all, we're not as exposed to the Haynesville. I really think that this conversation around the Haynesville and there's been Projections by analysts that we might drop as many as, I don't know, 30 gas oriented rigs in the Haynesville, that's a pretty big number for that market. I personally believe that the Northeast gas market holds up pretty well. But in totality, the gas rig count in total is about 20 We're just not that exposed necessarily to the natural gas basins that we're talking about, Particularly the Haynesville.

Speaker 2

And so I'm not minimizing this conversation, but our business is different than the more capital intensive Businesses that are out there, I. E. Land drilling, pressure pumpers, and obviously that And you realize I've worked for a trucker in my past lifetime, a normal increase in the rate can have a pretty significant hit Revenues and EBITDA, that's really not the business we have and our equipment is easily mobilized between locations just given the size That's there. I just don't see a material impact to our land based business at this point in time. And again, I'm one of the ones, like I'm very bullish on natural gas for the long term, particularly with the LNG facilities that are Going to come in and even just Freeport LNG back being back online helps pretty significantly with this Supply demand balance, that was in balance while they were down.

Speaker 2

I mean that's a lot and a warm winter. There's a number of factors there. But Again, bullish for the long term and I just don't see a major degradation in activity here.

Speaker 6

Great. Thanks Cindy. Always appreciate the color.

Speaker 2

Thank you, Kurt.

Operator

Your next question is from the line of John Daniel with Daniel Energy Partners. Your line is open.

Speaker 7

Good morning, Cindy and Lloyd. How are you?

Speaker 2

Hi, John. Hi, John.

Speaker 7

First, I appreciate your comments on trying to understand stock prices. I wasn't very good at it, which is why I quit. Question for you on product development with respect to energy transition. This is more of an educational one for me. But Cindy, when you guys try to Bring a new product or service to market, can you speak to, broadly speaking, the time to do so?

Speaker 7

And then When you come up with the idea generation for the new sort of transition related products and services, is that coming from The customer where they say, here's an idea, go execute on it? Or is it from your team that says, we've got an idea that might work? Just any color on that would be helpful.

Speaker 2

Yes. I mean, everything we do is responsive to our customers at the end of the day, but these are internally developed technology. We've got a longevity of our team globally quite frankly that knows the market very well and our Time to market varies and so that's going to be an answer I got to explain. But meaning if you're adapting An expertise you have I. E.

Speaker 2

In riser systems and you're adapting that from conventional oil and gas to deep sea minerals, You have a leg up just in terms of operating conditions and knowledge in deepwater environments. And so That was a bit quicker to market as an example. I can contrast that to an NPD system just because we didn't have NPD systems in our Portfolio before, even though we've been working in deepwater as long as deepwater has been around, quite frankly, We're well recognized for it, but that market introduction for NPD system is probably taking a little bit longer just because it's a new product for us. However, we've worked with all the deepwater drillers again for decades and they know our capabilities and so we're beginning to get Those products to market. And what you need to do is say we've improved that piece of equipment and can benefit your operations with it.

Speaker 2

The one that's going to take us longer and it's going to take the whole industry longer is the floating TLP system that we have designed around Offshore wind. Right now, there are virtually no floating wind systems anywhere in the world. So this is completely new technology. And even the leasing of the areas, as We can talk about it's in the very, very early stages. So we're not really talking about having contractual So revenue around floating wind until 2026.

Speaker 2

So those markets are very immature, and they've got to Develop, and as I said at certain conferences, the industry hasn't figured out yet. I always say we're aspirational. We're trying to get tactical. What does it take to deploy 26,500 wind turbines in the next 5 years or so? You bet, where's the engineering?

Speaker 2

Where are the manufacturing facilities? Where are the key sides? Where are the installation vessels? Just a lot of work yet to develop. And so It can obviously span a long range, but what we're trying to do is develop existing technologies into new applications.

Speaker 2

We're not trying to create A think tank is something we've never done before. And so our time to market should be 1 faster and more efficient Dan, someone that doesn't have the expertise that we have.

Speaker 7

Fair enough. And as your team is trying to come up with ideas and solutions 3 to 5 years from now, and I guess, it's a guess here, Cindy, but are you focused on like 3 or 4 things? Or are there like 20 things on the drawing board in terms of opportunity sets?

Speaker 2

Given our size, we've been very focused on things that we can manage internally. And Obviously, we want to manufacture these long term, so we're positioning our facilities in key markets to be able to handle both Conventional work as well as any type of new emerging technology as well.

Speaker 7

Okay. Thank you for letting me ask you a few questions.

Speaker 2

No. Thank you, John. Your

Operator

next question is from the line of Doug Beka with Capital One. Your line is open.

Speaker 8

Thanks. So there's a story on Bloomberg that all states plummets on negative free cash flow results. From my perspective, I didn't think it was a surprise that free cash flow was negative in the Q1 given normal seasonality. Lloyd mentioned a similar growth trajectory on free cash flow as last year, which to me means free cash flow is probably up year over year. So I guess the question is, Could you just go into a little more detail about the free cash flow outlook this year?

Speaker 2

Yes, I'll let Lloyd finish, but we guided to this. We experience it every Q1. That's normally just relative to our size. We pay out incentive payments as much as anything. And then coupled with Growing revenue, which is what shareholders should want, you're going to have a working capital bill, but we've never had any material write off Working capital or anything else.

Speaker 2

So if you look at that, well, I will file our 10 Q first of all, it's in the press release, Full cash flow statement, follow our 10 Q tonight, but it's kind of, again, disappointing to me. This is one of the cleanest quarters. We don't do Add backs to EBITDA is one of the best results we've had. We have no debt maturities till 2026. And these little headlines don't Capture the fact that we performed extraordinarily well this quarter relative to expectations.

Speaker 2

And so I have no concerns. I'll sleep perfectly well tonight about the working capital and the net negative Free cash flow in Q1 and again we got into it. In fact we did a little bit better than what was in our internal budgets. We will be free cash flow positive for the year and Lloyd can give you more details on that. But again, I just think it's a misinterpretation of Where we are as a company?

Speaker 4

Yes.

Speaker 3

Doug, Cindy is exactly right. When I Look at free cash flow from quarter 1 of last year, quarter 1, we're exactly the same in negative free cash flow. 1st quarter heavy use with short term and long term incentives, Like she said, as well as working capital investments, not to mention the cash we use to fund the repayment of the converts, all of those things are positive in our view. And then the balance of the year expect to be significantly cash flow, free cash flow positive.

Speaker 2

Doug, the only other headline we saw this morning, Zacks came out and said we missed earnings 25%, I. E. We reported $0.03 a share rather than $0.04 a Chair, which we haven't tried it on EPS in a long time. I'm ready. I'm glad of that.

Speaker 2

And we had a higher effective tax rate with non cash terms that normalize over the year. So again, if we ever get a chance to really parse through, I think most people say this is a total overreaction to nothing on our spot.

Speaker 3

No question.

Speaker 8

Your comments make sense to me. I appreciate the time.

Speaker 2

Thank you, Doug.

Operator

There are no further questions at this time. I will now turn the call back to Cindy Taylor.

Speaker 2

Gosh, I just want to thank everybody for dialing in this morning. I know it's The heaviest week of earnings of the earnings season, and it's particularly important to us, I'd Say today just because we feel like there's some misinformation about the business and the company and we look forward to Obviously better stock price performance and our future conversations with you, but I hope the rest of the season goes well and we'll talk to all of you very soon. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Advanced Micro Devices Q1 2023
00:00 / 00:00
Remove Ads