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Text: Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; and Lloyd Hajdik, Oil States' Executive Vice President and Chief Financial Officer.
We're also joined by Chris Cragg, Oil States' Executive Vice President, Operations; and Ben Smith, President of GEODynamics, our Downhole Technologies segment.
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.
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.
As you can imagine, the market dislocations caused by the global response to the COVID-19 pandemic have been unprecedented.
The impact on the energy industry is even more extreme due to the rapid demand destruction for crude oil and the resulting massive inventory builds across the globe that have resulted.
Partially cushioning this very negative industry backdrop is the agreement reached at the OPEC+ Summit earlier this month, whereby both short-term and long-term supply cuts were agreed to.
The announced duration for the short-term cuts totaling 10 million barrels per day, extend for two months through May and June.
This is the single largest coordinated output cut in history, but nonetheless, it falls far short of the estimated 25 million to 30 million barrels per day of demand destruction.
Importantly, the longer-term cuts extend to April 2022, with supply reductions compressing over the extended term.
Given the duration of the cuts, the industry should be able to better manage through the unprecedented crude oil demand destruction once we get beyond the immediate impact of inadequate storage globally with well shut-ins and supply constraints that follow.
We have important matters to discuss with you today beyond just our results for the first quarter.
In conjunction with our discussion of the quarter, we plan to highlight our initiatives undertaken to shore up liquidity, give you our thoughts on near-term market conditions and summarize our efforts to mitigate costs, both capital and operating, as we navigate this difficult market.
First, I'd like to provide a brief update regarding COVID-19 and its impact on our global operations.
We have implemented stringent protocols in an effort to protect our employees, customers, suppliers and the broader communities within which we work.
Measures applied include working remotely, we're able to do so, adhering to social distancing guidelines, limiting visitors to our work sites to essential personnel, adjusting shifts and work schedules to minimize close contact, mandatory stay-at-home principles when employees show symptoms of illness, performing enhanced cleaning protocols, along with other safety measures.
To date, we have only been notified of two confirmed cases of COVID-19 in our global workforce with one of the two now testing negative and returning to work.
As various states began to reopen nonessential businesses, we have stressed how critical it is that we maintain our diligence to help prevent a second wave of cases developing in our communities.
Demand for oil and gas, and therefore, our products and services depends on a fully functional economy, and we intend to set an example for others in working safely during this pandemic based upon what we have learned.
Moving on to the quarter.
We reported a large headline loss during the quarter resulting from various impairments taken due to impacts on our business from the global response to the COVID-19 crisis.
However, our first quarter results, excluding the impairments taken, exceeded our guidance issued in February.
During the first quarter, our Completion Services revenues were modestly up sequentially with margins improving 370 basis points.
In our Downhole Technologies segment, revenues improved 7% sequentially and margins increased 420 basis points.
Revenues in our Offshore/Manufactured Products segment decreased sequentially due to delays in our project-driven sales arising from global disruptions in our own operations and in various parts of our supply chain.
Segment backlog at March 31, 2020, totaled $267 million, a decrease of 4% sequentially.
Our segment book-to-bill ratio for the quarter approximated one times.
Despite exceeding our first quarter guidance, we are acutely aware of the challenging market conditions that we will face during the remainder of 2020 and into 2021.
During stress periods in our business, we know that the immediate focus needs to be on the preservation of liquidity and the management of variable and fixed costs through such a downturn.
Lloyd will review with you our efforts taken with our lenders to amend our current cash flow-based revolving credit facility and convert it into an asset-based lending arrangement.
We have also taken significant actions on the cost side of our business to adjust to significantly declining revenues, particularly those ties to shale completions in the United States, which are currently in three fall.
We will closely manage our debt, working capital and cash flow generation in the quarters to come.
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.
During the first quarter, we generated revenues of $220 million, while reporting a loss of $405 million or $6.79 per share.
Our first quarter results were reduced by significant noncash impairment charges, including the following: a $406 million or $6.48 per share of goodwill written off; a $25 million or $0.34 per share inventory impairment; and a $5 million or $0.07 per share fixed asset impairment, driven by the expected duration of this unprecedented market downturn.
Our first quarter EBITDA totaled $22 million with an EBITDA margin of 10%.
The goodwill impairment charges were taken in all segments but related primarily to our Downhole Technologies and Completion Services businesses, arising from, among other factors, the significant decline in our stock price and that of our industry peers, along with reduced growth expectations in the next couple of years, given weak energy market conditions resulting from demand destruction, caused by the global response to the COVID-19 pandemic.
In addition, given the negative market outlook, our estimated weighted average cost of capital increased approximately 500 basis points compared to year-end 2019.
We remained essentially cash flow neutral during the quarter with $5 million in cash flow from operations, offset by $6 million in capital expenditures.
In the first quarter, we collected $4 million in proceeds from the sale of equipment and repurchased $6 million in principal amount of our convertible senior notes at a 17% discount to par value.
For the first quarter 2020, our net interest expense totaled $4 million, of which $2 million was noncash amortization of debt discount and issuance costs.
At March 31, our net debt-to-book capitalization ratio was 23%, which increased from year-end 2019 due to the noncash asset impairments recorded during the first quarter.
At March 31, our liquidity totaled $132 million, and we were in compliance with our debt covenants.
It is important to fully understand our leverage position, which, at March 31, consisted of $72 million of senior secured revolving credit facility borrowings and $217 million of other debt, consisting primarily of our 1.5% convertible senior notes due in February 2023.
Our credit agreement underlying our revolving credit facility is the only debt agreement that is subject to leverage covenants.
Accordingly, we are working with our bank group to amend our existing cash flow-based revolving credit facility to convert it into an asset-based lending arrangement, giving a negative market outlook and the uncertainty regarding the level of EBITDA to be generated as we progress through to 2020, coupled with the leverage covenants, governing both total net debt and senior secured debt to EBITDA.
The amended facility is expected to be subject to a borrowing base based on our accounts receivable and inventory with differing advance rates depending on the age and geographic location of the various assets.
While the amount of the borrowing base has not yet been finalized, we expect the amended facility size to range from $175 million to $200 million, and it will not contain similar leverage covenants.
At March 31, 2020, our net working capital, excluding cash and the current portion of debt and lease obligations, totaled $348 million compared to borrowings outstanding under our revolver totaling $72 million, which yielded a 4.8 times coverage level.
In terms of our second quarter 2020 consolidated guidance, we expect depreciation and amortization expense to total approximately $25 million, net interest expense to total approximately $4 million, of which $2 million is noncash, and our corporate expenses are projected to total $8.5 million.
Corporate expenses in the first quarter of 2020 and forecast for the second quarter reflect reductions in both short-term and long-term incentive compensation expense.
We are reducing our capex spending during 2020 to a range of $15 million to $20 million, which at the midpoint is roughly 70% less than our 2019 capital expenditures.
In our Offshore/Manufactured Products segment, we generated revenues of $91 million and segment EBITDA of $13 million during the first quarter.
Revenues decreased 16% sequentially due primarily to delays in our project-driven revenues due to global disruptions in our operations and in our supply chain.
Segment EBITDA margin was 14% in the first quarter of 2020 compared to 15% in the prior quarter.
Orders booked in the first quarter totaled $87 million, resulting in a quarterly book-to-bill ratio of approximately one times.
At March 31, our backlog totaled $267 million, a 4% sequential decrease, but it, nonetheless, reflected a 14% increase from the $234 million of backlog that existed at March 31, 2019.
For 75 years, our Offshore/Manufactured Products segment has endeavored to develop leading-edge technologies while cultivating the specific expertise required for working in highly technical deepwater and offshore environments.
Recent product developments should help us leverage our capabilities and support a more diverse base of energy customers.
In 2020, we are bidding on potential award opportunities to support our subsea, floating and fixed platform systems, drilling, military and wind energy clients globally.
However, with reduced market visibility, given much lower crude oil prices and reduced customer spending, we now believe 2020 bookings will be lower than the levels achieved in 2019.
In our Well Site Services segment, we generated $88 million of revenue, $12 million of segment EBITDA and a segment EBITDA margin of 14% compared to 10% reported in the preceding quarter.
The sequential improvement in our results was driven by sound cost controls during the quarter.
However, we know the sequential improvement cannot be sustained, given expected materially lower U.S. land completion activity and the reduced number of frac spreads in operation.
International and Gulf of Mexico market activity comprised 20% of our first quarter Completion Services revenues.
As announced last year, we have discontinued our drilling operations in the Permian, reducing our marketed fleet from 34 rigs to nine rigs with the remaining assets serving customers in the Rocky Mountain region.
We recorded an additional $5 million noncash fixed asset impairment charge in the first quarter, given the negative outlook for the vertical rig market for the remainder of 2020.
As of early April, none of our marketed rigs were working.
We are highly focused on streamlining our operations and pursuing profitable activity in support of our global customer base.
While focusing on value-added services in 2019, we closed or consolidated eight North American operating districts or 19% of our locations and reduced headcount in our Completion Services business by 20%.
Sadly, these headcount reductions and facility closures must continue in 2020 in order to sustain the company through this extreme market downturn.
We will continue to focus on core areas of expertise and actively develop new proprietary products to differentiate Oil States' completions offerings.
In our Downhole Technologies segment, we generated revenues of $41 million and segment EBITDA of $5 million in the first quarter.
First quarter revenues and EBITDA were sequentially higher due to improved sales of our perforating products and frac plugs, coupled with sound cost control.
Segment EBITDA margin averaged 13% in the first quarter compared to 9% in the preceding quarter.
We continue to develop, field trial and commercialize new products in our Downhole Technologies segment.
Sales trends for our vapor gun integrated perforating system and addressable switches are gaining customer acceptance following their respective commercializations late in the fourth quarter.
In addition, our premium integrated gun system, named STRATX, was formally launched in the first quarter.
As noted on our last earnings conference call in February, we announced the commercialization of ancillary perforating products, including a new wireline release tool and two new families of shaped charge technology.
Our product development efforts are designed with our wireline and E&P customers in mind, where we strive to provide them with flexibility, improved functionality and increased performance while ensuring the highest level of safety and reliability.
Given the current market weakness, we recognize that revenue uptake of these new technologies will be delayed.
Given rapidly declining spending on U.S. land operations by our customers who are facing dunning challenges, we are not comfortable providing specific revenue or EBITDA guidance for the second quarter of 2020 for either of our Well Site Services or Downhole Technologies segments.
However, we will attempt to do so directionally.
The first quarter 2020 U.S. rig count average was 785 rigs, which was down 4% sequentially.
The U.S. rig count totaled 465 rigs on April 24, 2020, down 41% from the first quarter 2020 average rig count.
Current analyst estimates are calling for a 40% to 70% sequential decline in Completions activity, which will negatively impact all of our segments with short-cycle U.S. shale-driven exposure.
As a result, we expect our U.S. onshore businesses and product lines to feel the dramatic effects of lower well completions consistent with that of our U.S. peers.
Accordingly, we are aggressively reducing our cost in order to stabilize our financial results as we manage through this unprecedented downturn.
In our Offshore/Manufactured Products segment, we are more confident in our ability to forecast revenues, given our backlog position and the relatively low level of short-cycle product sales in the first quarter.
We project our second quarter revenues in this segment to range between $96 million and $104 million with segment EBITDA margins expected to average 10% to 12%, depending on product and service mix, along with absorption levels.
Our margins are expected to be compressed in the near-term due to the closures of our India and Singapore facilities until at least May four and June 1, respectively, as mandated by their governments, along with reduced cost absorption globally as we deal with supply chain issues and other inefficiencies.
Management teams have to make difficult decisions during market downturns such as this to protect the health of their companies.
We wanted to provide a summary of actions that we are taking to mitigate the expected material decline in revenue during 2020.
As Lloyd mentioned, capex will be reduced by approximately 70% year-over-year.
Direct operating cost will be reduced in line with activity declines.
Headcount has already been reduced approximately 30% in our Well Site Services and Downhole Technologies segments since the beginning of this year.
SG&A headcount has been reduced by approximately 15% since the beginning of the year as well.
Short-term incentives have essentially been eliminated for 2020.
Our 401(k) and deferred compensation plan matches have been suspended for the immediate future.
Various salary personnel, including executive management, have taken salary reductions in addition to other reductions in short-term and long-term compensation.
Discretionary spending has been substantially reduced or eliminated.
When we summarize the impact of our actions taken, we estimate that we will reduce 2020 cost by $225 million when compared to 2019.
Of that total, 87% is estimated at cost of goods sold and 13% relates to SG&A.
We believe that 20% to 25% of the cost reductions are fixed in nature.
Now I'd like to offer some concluding comments.
We believe that we are making substantial progress in terms of shoring up our liquidity with the planned amendment and conversion of our cash flow-based revolving credit facility to an asset-based lending arrangement.
With our strong working capital position, we believe that we can manage through this extreme downturn with a safe balance sheet position.
We recognize that cost management has to be a primary focus in this lower activity environment.
To that end, cash flow generation remains a top priority with near-term plans to manage working capital and secure balance sheet stability.
Oil States will continue to conduct safe operations and will remain focused on providing value-added products and services to meet customer demand globally.
That completes our prepared comments.

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q1 loss per share $6.79.
compname says reduced capital spending plans for 2020 by approximately 70%.
compname says expect to receive u.s. income tax refunds of about $41 million in 2020 under provisions of cares act.

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