Oil States: Forging a Leaner, High-Margin Future in Offshore Energy (NYSE:OIS) - OIS Stock Research Report

## Executive Summary / Key Takeaways * Strategic Pivot to High-Margin Offshore: Oil States International is undergoing a significant transformation, divesting underperforming U.S. land-based assets and focusing on its higher-margin, technology-driven offshore and international project-driven businesses, which now constitute 72% of consolidated revenues. * Robust Backlog and Technology-Driven Growth: The Offshore Manufactured Products segment achieved its highest backlog since September 2015 at $363 million, fueled by strong international demand and new technology adoption like Managed Pressure Drilling (MPD) and the low-impact workover package. * Enhanced Profitability and Strong Free Cash Flow: Strategic restructuring and business mix optimization are driving improved consolidated and segment-level EBITDA margins, with full-year 2025 EBITDA guidance maintained at $88 million to $93 million despite a revenue adjustment due to U.S. land exits. * Deleveraging and Shareholder Returns: The company is on track to achieve net debt zero in 2025, supported by projected strong cash flow from operations of $65 million to $75 million, enabling opportunistic share repurchases and unlocking equity value. * Resilience Amidst U.S. Land Headwinds: While U.S. land activity faces challenges from lower crude oil prices and tariffs, OIS's diversified global footprint and focus on long-cycle offshore projects provide resilience, with management expecting to pass on tariff-related cost increases in niche areas. ## The Strategic Re-Engineering of Oil States International Oil States International, incorporated in 1995 and headquartered in Houston, Texas, has long been a foundational provider of engineered capital equipment and consumable products to the energy sector. The company's journey has been marked by a recent, decisive strategic re-engineering, shifting its core focus towards higher-margin, longer-cycle offshore and international markets. This transformation, initiated in 2024 and accelerating into 2025, aims to unlock enhanced profitability, robust free cash flow, and superior shareholder returns. The company's business model is structured around three key segments: Offshore Manufactured Products, Completion and Production Services, and Downhole Technologies. Historically, OIS maintained a broader footprint across various oil and gas activities. However, recent market dynamics, particularly in the U.S. land sector, prompted a strategic streamlining. This involved divesting underperforming assets, such as the sale of drilling rigs and the exit of flowback and well testing operations in 2024, leading to a $41 million revenue impact from exited operations in 2024. The segment previously known as Well Site Services was consequently renamed Completion and Production Services, aligning with a refined go-to-market strategy. OIS's foundational strength lies in its differentiated technology and specialized services. The company designs, manufactures, and markets highly-engineered products crucial for offshore oil and natural gas production systems, subsea pipeline infrastructure, and drilling rigs. Its Managed Pressure Drilling (MPD) systems, for instance, have gained significant market acceptance, including key customer approval to operate in South America. Management anticipates MPD to generate between $35 million and $45 million annually in associated revenue going forward, representing a notable additive revenue stream to the core business. Further technological advancements include the low-impact workover package, which received a 2025 Meritorious Engineering Award from Hart Energy. This solution integrates proven field technologies to enhance subsea plug and abandonment operations while ensuring the integrity of aging wells. In the Downhole Technologies segment, the EPIC portfolio of perforating systems, along with the Active Seat Valve technology in Completion and Production Services, provides increased flexibility for completions operations and reduces wear on frac equipment, respectively. These innovations underscore OIS's commitment to providing advanced, efficient solutions that enhance customer operations and contribute to its competitive moat. ## Operational Excellence and Financial Performance The strategic pivot is clearly reflected in OIS's recent financial performance. In the second quarter of 2025, 72% of consolidated revenues were generated from offshore and international projects, a significant increase year-over-year. This shift highlights the success of strategic actions to grow international project-driven revenues and optimize U.S. land operations. \ Consolidated revenues in Q2 2025 decreased 11% year-over-year to $165.4 million, primarily due to the exit of underperforming U.S. land-based service offerings and locations. However, excluding the impact of these exited operations, consolidated revenues decreased a more modest 5% year-over-year. For the first six months of 2025, consolidated revenues were $325.3 million, down 8% from the prior year, but increased $1.3 million year-over-year when excluding the $29.6 million revenue from exited operations in the first six months of 2024. Profitability metrics demonstrate the positive impact of the strategic high-grading. Consolidated operating income in Q2 2025 rose to $5.3 million from $2.0 million in Q2 2024, even after accounting for $1.4 million in non-cash operating lease impairment charges and $2.3 million in facility consolidation and exit charges. This improvement was driven by growth in offshore and international activity and the benefits of U.S. land-based restructuring. Net income for Q2 2025 was $2.8 million, or $0.05 per share, compared to $1.3 million, or $0.02 per share, in Q2 2024. For the first six months of 2025, net income was $6.0 million, or $0.10 per share, a significant turnaround from a net loss of $12.1 million in the prior-year period, which included a $10.0 million goodwill impairment charge.

Loading interactive chart...

\ The Offshore Manufactured Products segment continues to be a standout performer. Its revenues increased 5% to $106.6 million in Q2 2025 and 6% to $199.2 million for the first six months of 2025, driven by increased international and offshore project-driven product demand. The segment's adjusted EBITDA margin was 20% in Q2 2025, following 19% in Q1 2025 and 23% in Q4 2024 and Q3 2024. Management targets a sustainable EBITDA margin of 20-22% for this segment, with potential to accrete higher with increased revenue and improved absorption. The segment's backlog reached $363 million as of June 30, 2025, its highest level since September 2015, supported by robust Q2 bookings of $112 million, yielding a book-to-bill ratio of 1.1x for the quarter and 1.2x year-to-date. The Completion and Production Services segment's revenues decreased 37% in Q2 2025 to $29.4 million, primarily due to the exit of underperforming service offerings and lower U.S. land-based activity. However, its adjusted segment EBITDA margin improved significantly to 28% in Q2 2025, benefiting from facility and equipment sale gains, and 25% in Q1 2025. This reflects the positive impact of restructuring efforts and a strong recovery in Gulf of America operations. Management projects EBITDA margins for this segment to be in the 23-25% range for 2025, a substantial improvement from prior periods, and potentially reaching "upper 20s to low 30s" in 2026. Conversely, the Downhole Technologies segment faced headwinds, with revenues decreasing 23% to $29.4 million in Q2 2025 due to lower U.S. customer activity. The segment reported $1 million in adjusted EBITDA for Q2 2025. Despite this, management is intensely focused on improving its margin profile, targeting "low double-digits" for 2025, driven by international expansion and the domestic rollout of new EPIC technology. ## Competitive Landscape and Strategic Positioning Oil States operates in a highly competitive global oilfield services and equipment market, facing formidable rivals such as Schlumberger (TICKER:SLB), Halliburton (TICKER:HAL), Baker Hughes (TICKER:BKR), and NOV Inc. (TICKER:NOV). These larger players often boast superior financial health, growth rates, and broader technological portfolios. For instance, SLB's 2024 revenue growth of 11% and operating margin of 15% significantly outpaced OIS's 5% revenue growth and 8% operating margin (based on 2024 annual data). HAL also demonstrated stronger performance with 9% revenue growth and a 14% operating margin in 2024. OIS's strategic response to this competitive environment is multi-faceted. Rather than competing head-on across all segments, OIS is refining its focus on niche, high-value areas where its proprietary technology and specialized expertise provide a distinct edge. Its Tempress product line, a market-leading technology for drill-out of plugs in completion operations, exemplifies this targeted approach. In the Downhole Technologies segment, while facing cost increases from tariffs on imported steel components, OIS expects to pass these on to customers, as competitors utilizing similar supply chains are likely to face comparable cost pressures. The company's strength in offshore manufactured products, particularly its specialized connectors and FlexJoint deepwater riser connectors, positions it well in the deepwater market where projects are less susceptible to short-term commodity price fluctuations. OIS's strategic collaborations, such as with Seadrill Limited (TICKER:SDRL) for MPD technology and Halliburton, further enhance its market penetration and operational efficiency. The new manufacturing facility in Batam, Indonesia, expected to complete in Q3 2025, is a strategic investment aimed at increasing market share in Southeast Asia for connector products by improving cost competitiveness. In the U.S. land market, OIS is not aiming to be "all things to all people." Instead, it is highly selective, focusing on its frac and isolation business, extended reach technology, and new automation and digital offerings. This selective approach, coupled with the exit of underperforming operations, is designed to improve the profitability of its remaining U.S. land footprint, even if overall activity remains subdued. ## Outlook, Liquidity, and Shareholder Value Oil States' outlook for the remainder of 2025 and beyond is anchored in its strategic transformation. The company is maintaining its full-year 2025 adjusted EBITDA guidance in the range of $88 million to $93 million, a testament to the anticipated margin improvements from its high-graded business mix and cost reduction initiatives. Full-year revenue guidance has been adjusted to $685 million to $700 million to reflect the streamlining of U.S. land operations. For Q3 2025, management projects revenues between $165 million and $170 million, with EBITDA ranging from $21 million to $23 million. The company's liquidity position is robust. Cash flows from operations totaled $24.3 million for the first six months of 2025, a significant improvement from the prior year. OIS expects strong cash flow from operations of $65 million to $75 million for the full year 2025. Capital expenditures are projected at approximately $30 million for 2025, elevated by the Batam facility completion and the manufacture of new rental riser equipment, both of which are investments for future revenue streams.

Loading interactive chart...

\ A key focus for OIS is deleveraging. The company repurchased $14.8 million principal amount of its convertible senior notes and $12.0 million of its common stock in the first six months of 2025. With no borrowings outstanding under its ABL Facility as of June 30, 2025, and $59.3 million available to be drawn, OIS is well-positioned to meet its liquidity needs. The recent amendment to its ABL Agreement in July 2025 further enhances borrowing availability and facilitates the retirement of the remaining 2026 Notes at maturity in April 2026. Management anticipates achieving a net debt zero position in 2025, which is expected to serve as a significant catalyst for stock price improvement and unlock additional equity value for stockholders. The company's $50 million share repurchase authorization, with $29.3 million remaining as of June 30, 2025, underscores its commitment to returning capital to shareholders, prioritizing opportunistic buybacks given its attractive free cash flow yields.

Loading interactive chart...

\ ## Conclusion Oil States International is executing a deliberate and impactful transformation, shedding lower-margin, commoditized U.S. land businesses to sharpen its focus on the resilient and growing offshore and international markets. This strategic re-engineering, underpinned by differentiated technology and disciplined capital allocation, is already yielding tangible results in the form of improved profitability and robust cash flow generation. As global energy capital continues to pivot towards long-cycle, lower-carbon offshore developments, OIS's enhanced competitive positioning and technological leadership in critical production infrastructure and specialized services are set to drive sustained value creation. The company's clear path to net debt zero, coupled with its commitment to shareholder returns through opportunistic share repurchases, presents a compelling investment thesis for those seeking exposure to a leaner, more profitable, and strategically aligned player in the evolving energy landscape.