Patricia Gil – Investor Relations, Manager Cindy Taylor – President, Chief Executive Officer and Director Lloyd Hajdik – Chief Financial Officer, Treasurer and Senior Vice President.

Jim Wicklund – Credit Suisse Blake Hutchinson – Howard Weil George O’Leary – TPH & Co. Sean Meakim – JPMorgan.

Welcome to the Oil States International Incorporated First Quarter 2016 Earnings Conference Call. My name is Adrianne and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note this conference is being recorded.

I will now turn the call over to Patricia Gil, Investor Relations. Patricia Gill, you may begin..

Thank you, Adrianne and welcome to Oil States' first quarter 2016 earnings conference call. Our call today will be led by Cindy Taylor, Oil States President and Chief Executive Officer; Lloyd Hajdik, Senior Vice President and Chief Financial Officer and we are also joined by Chris Cragg, Senior Vice President of Operation.

Before we begin, we would like to you caution listeners regarding forward-looking statements to the extent that our remarks today contain forward 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 and other SEC filings. I will now turn the call over to Cindy..

Thank you, Patricia. Good morning to all of you and thank you for joining us today for our earnings conference call today. Yesterday, we reported an adjusted loss of $0.24 per diluted share after removing certain severance and other downsizing charges been heard in the first quarter of 2016.

As most of you will appreciate, the current industry downturn has been harsher and has persisted for longer than any of us hoped. U.S. land rig count declined 38% since the end of 2015 bringing the overall decline to 78% since the rig count peaked in 2014.

Our customers are spending significantly less of CapEx in order to preserve their own liquidity and to protect their balance sheet during this protracted downturn.

Demand and pricing for our Well Site Services segment remains under considerable pressure and reduced drilling and completion related activity has also negatively affected demand for our shorter-cycle Offshore Products and Services.

Our Well Site Services segment experienced a 35% sequential decline in completion service jobs performed and average utilization for our land-drilling rigs fell to a near 6%.

While individual jobs we performed and our completion services business remained profitable, the margins earned were inadequate to cover our regional and divisional overheads, thus leading to negative quarterly EBITDA margins for this segment for the first time since this downturn started.

In our Offshore Products segment, we recognized another quarter of strong EBITDA margins averaging 23% for the quarter and our book-to-bill ratio for the quarter totaled 0.74 times, which was relatively strong given the current market environment.

However, our revenues were light at $126 million partially due to timing issues that's also due to backlog which has declined steadily since mid-2014. While final investment decisions for major Offshore Products continue to be economically evaluated, virtually all were deferred.

At this time, Lloyd will take you through more details of our consolidated results and provide highlights of our financial position. I will follow with more details by segments and provide additional comments on our market outlook..

Thanks, Cindy. During the first quarter, we generated revenues of $170 million and reported an adjusted net loss of $12.2 million or a loss of $0.24 per diluted share, which excluded $1.6 million pre-tax or $0.02 per diluted share after tax for addition severance and downsizing charges.

EBITDA adjusted for these charges totaled $12.1 million during the quarter. Our consolidated first quarter adjusted EBITDA margin was positive at 7.1% due to the contributions from the Offshore Products segment. However, the margin we achieved was well below the 18.1% adjusted EBITDA margin we earned in the fourth quarter of 2015.

Protecting our balance sheet and liquidity position remain a top priority. We ended the first quarter with total liquidity of $408 million, which is comprised of $365 million available under our revolving credit facility, plus cash on hand at $43 million.

As a remainder, our liquidity position is likely to decline throughout 2016 from the March 31 level as a result of lower expected levels of EBITDA on a trailing 12-months or TTM basis which could restrict full access to announce available under our revolving credit facility. Our financial position remains healthy.

We had meaningful receivable collections during the first quarter and were able to generate $57 million of cash flow from operations. Using available cash, we repaid $37 million of debt during the quarter and as of March 31, our gross and net debt levels totaled $90 million and $47 million respectively.

Our net debt to book capitalization was 3.6% at March 31 and our leverage ratio using TTM adjusted EBITDA was 0.6 times which continues to be well below our maximum level of 3.25 times provided for in our credit agreement which is said to mature in 2019. During the quarter, we invested $10 million in capital expenditures.

Capital spending during the quarter related to expansionary investments for our Offshore Products facilities along with maintenance capital spent on our completion services equipment. For the full year 2016, we expect to spend approximately $45 million to $50 million in capital expenditures.

And as we've mentioned on past conference calls, our level of plain capital expenditures is highly variable and can be adjusted upward or downward depending on the prevailing market conditions.

In terms of our second quarter 2016 consolidated guidance, we expect depreciation and amortization expense to total $30.3 million, net interest expense to total $1.3 million and corporate cost to total $11.5 million. Our second quarter and full year 2016 consolidated tax rate benefit is expected to average approximately 39% to 40%.

At this time I would like to turn the call back over to Cindy who will take you through each of our business segments..

Thanks Lloyd. I'll continue with our segment. In our Offshore Products segment, we generated revenues of $126 million during the first quarter of 2016 down 26% sequentially while EBITDA totaled $29 million.

Our EBITDA margin percentage exceeded our guidance and averaged 23% for the quarter, largely due to strong project execution on several jobs nearing completion during the quarter along with a lower cost structure. Our revenues were weaker sequentially due primarily to reduced drilling, connector product sales and weaker service revenues.

Orders booked for the quarter totaled $93 million and our backlog at March 31 totaled $306 million representing a sequential decrease of 10% from the fourth quarter. Our first quarter book-to-bill ratio was 0.74 times which we believe sets a reasonable expectation for our full year 2016 book-to-bill target.

Notable backlog additions during the first quarter included orders for connector products destined for the Middle East and mooring equipment for Gulf of Mexico production facility.

As we progress into the second quarter of 2016, we believe that revenue in our Offshore Products segment will recover slightly and range between $130 million and $140 million as certain orders and job completions shifted to the second quarter from the first quarter.

We are not yet seeing much improvement in demand for our shorter cycle and consumable products or services. EBITDA margin guidance for the second quarter is forecasted to range between 18% and 21%. Going to our Well Site Services segment, results wakened due to further deterioration in activity in the U.S.

land drilling and completions market, with the U.S. land rig count having declined an additional 250 rigs or approximately 38% in the first quarter.

Our Well Site Services segment revenues totaled $44 million which represents a 32% sequential decrease caused by a 35% decrease in the number of completion services jobs performed and continued low utilization of our land drilling rigs.

EBITDA decreased sequentially to a loss of $8 million which included severance and other charges that we incurred during the quarter as we continued to adjust our cost structure in light of the severely depressed levels of activity in North America.

As I mentioned previously, land rig utilization declined further in the first quarter to average only 6%. Given all of these variables, this continues to be an extremely challenging market in which the forecast activity and results for our Well Site Services segment.

While there is limited visibility for the onshore North American drilling and completions market, we believe that we are approaching a cycle trough. We estimate that second quarter revenues for our Well Site Services segment will remain depressed and range between $40 million and $45 million with segment EBITDA remaining below breakeven.

In conclusion, the U.S. onshore energy services market poses significant challenges for our businesses. Industry E&P spending is projected to be down for a second consecutive year off an already low base of activity. In addition, major deepwater projects continue to be deferred.

However, the recent improvements in WTI and Brent crude oil pricing in encouraging, part of the commodity supplier demand imbalance outlook is trending more positive as producers have continued to curtail spending and activity remains at depressed levels. We believe it is only a matter of time before supply and demand rebalanced.

On a more positive note, we had maintained a strong balance sheet position during this cycle and have the potential to execute on selected M&A opportunities that should present themselves in this market. We expect to maintain low levels of leverage while we monitor the timing of an expected market recovery. That completes our prepared comments.

Adrianne, would you open up the call for questions and answers at this time please..

[Operator Instructions]. And our first question comes from Jim Wicklund from Credit Suisse..

Good morning guys..

Hi Jim..

Good job with as ugly as it was. We too think you are approaching a bottom in the current quarter in the U.S. market and I'm knocking on wood as I say that.

And we think that the recovery this year will be somewhat anemic, because the leverage that everybody has, but we're optimistic and so if we were going to put X number of rigs back to work and all of a sudden, it will be nice, your rig utilization went to a whopping 30%.

How long would it take throughout Well Site Services and the different parts, how long would it take to respond assuming it just comes back in a big rush, so we're going to be optimistic on a hypothetical basis, how long would it take for you to respond and what are your two or three biggest issues in the recovery?.

It's a great question and obviously there is no precise answer. But let me start with the land drilling fleet. We've historically been able to swing that fairly quickly. We don't see V-shaped recovery in land drilling by any means.

However, we've had some customer dialogs that is suggestive that outside a small number, a handful of those rigs could go back to work at about $45 a barrel of crude oil and about $2, $2.25 on Mcf and so we're talking a number of rigs, but when you are only working three, outlook for the working six. Okay..

Exactly..

So that's kind of the landscape. That's the feedback we're giving there. Completion service….

Do you have a people to do that?.

We've historically been able to do that efficiently, and again you have to understand our operations. We got people that have been in the business, their entire careers that we've kept, we've bumped them back, we've held that crew complement. And these are the types of rigs that don't demand a huge number of crew personnel to restart.

And so, I feel pretty confident, that that's not an issue. Now, if you tell me I had to bring all 30 back in short order that would be a challenge. But I don't expect that. So, I think we are manageable in terms of re-activating anywhere from I'm going to say three to six rigs in fairly short order.

But again, when we are working three, that would feel pretty darn good. Where completion services lies, I've been very open about -- I think we reacted early in terms of recognizing the market downtime. We've trend as necessary, but we're also have hit a point that we really don't want to -- I don't want to lose more field personnel at this point.

The ones that I have are generally concentrating in basins that are more active, that's not a surprise. It's also in the basins that are more likely to see the near-term improvement. Most of these guys would clamor for over time and incremental pay, basically more work. So, I feel like we can kind of use the existing.

We got great basis of operation, great facilities, we've got people, we've got equipment. So, I think that you know -- again it all depends on how many rigs we're talking about. That's the magic question if you're at 400-ish rigs, can you go to 800 before you feel a pinch point.

And I generally say, I think we could, if it were a little more balanced, if it's all going to be in one basin that is going to create some challenges. And it always is the latter not the former.

I think we know that, but I do think that not only us, but the industry as a whole, has some propensity to pick up activity without adding much in terms of incremental cost other than necessary logistics transportation and in our case over time. I know you probably want a little more precision around that answer, but again it's not….

How much you could give it. Only….

My point of that is, if it's not a broad based recovery, you do create bottlenecks and I don't think it will be. I think we're going to see selective basin start to recovery ahead of some of the other ones, that's maybe an obvious comment, but that's what we're going to see..

And my follow-up, if I could Cindy on the offshore sector, people on my site get myopic when something's announced. We think it's done and business is kind of -- usually when it started.

You talk about, you think you can hold the 0.73 book to bill, or hope you can in marine for the rest of the year, when does marine products, when do revenues bottom and start to pick back up in your opinion.

Is that a two quarter or four quarter or a six quarter or how -- just some frame of reference on how long before they bottom and you can expect to start coming back up?.

Well, you know I guess that's a tough question. And probably a little more I'll say optimistic than might be what you've heard for other manufacturers and part of it is because we do have some short cycle products in there.

And so there is going to be a trajectory, and the best I can guide to right now is that point, you know if it's 0.7, 0.75, I'm going to be ecstatic.

I think the second quarter bookings are going to be the weaker quarter from a bookings standpoint, just based on bidding/quoting, enquiry, all the things that we're working on and some pick up in the second half just again based on specific bidding type of opportunities that are out there.

What that would mean and these are more, right now the kind of content we’re getting if you look at what we said on some of the notable backlog addition, some of these are repair, like subsea repair type systems, the pipeline side additional content for projects already FID'ed.

What we're lacking in a new project FID, but they are certainly still in the bidding, quoting and evaluation stage. And obviously, and obvious comment, we and everybody else would like to see at least one FID in the second half of this year.

But in the meantime, we're bidding things like I talked about, and we're seeing some pretty strong or out strong not the word, improving bidding around some of our crane products, the mooring systems, again things that are not as project FID dependent.

When you are asking about revenues bottoming, I think what's going to happen, what we call POC, or my project FID revenue is steadily declining, we're not to going see that until 2017. One offset thought that I do expect to see is some improvement in short-cycle and service.

And in fact our short cycle, I would call it was flattish to slightly up sequentially, that doesn't necessarily evidence the trend, but I do think by the second half, we'll see a little bit of improve and service was weak for -- that was part of the top-line and it's relative to our guidance with on the service, but we don't think that is permanent.

And that's maybe a long-winded way of saying, revenue is probably trough, probably trough depending on mix, but I'm going to say early 2017, fourth quarter 2016, it's elusive and it's really dependent upon the timing and extent of recovery on short-cycle products and services..

Cindy, thank you very much, I appreciate it..

Thanks Tim..

And our next question comes from Blake Hutchinson from Howard Weil. Please go ahead.

Good morning..

Hi Blake..

Just thinking about Offshore Products margin here, you know several quarters if not you know, a year's time frame of excellent execution, I take it, there is parts where it's the franchise, that portion of the franchise as a whole and then there is projects you've been tracking, you know specifically that have been coming above cost estimates or better than estimated.

Is there a point where you'd caution that you will improve enough of that back of you've been tracking, you know that purposely having switched over to U.K.

facility et cetera to where, potential for positive margin gains runs out or is it really, would you just highlight the kind of overall execution of the revision?.

Well our outlook for the kind of underlying cost structure in Offshore Products is a little different than what we experience on completion service. In that, depending on the product, roughly 60%, 65% is materials based and so you don't have the work, you don't incur the materials cost.

We've really got a control that other kind of 35% to 40% that facility, get in that, we got manufacturing facilities all over the globe, and so I track what's going on in every unique facility. You mentioned the U.K., that's where we've had some of our, we had some of our most proprietary product number one.

Number two, one good thing when a market does slow down a little bit, you can be more efficient. Your people are skilled people, experienced people, they are very, very focused on the project that we have in the shop. We're not strained if you will.

Certain thing that we might have had to outsource, we can insource, and so that lends itself to generally kind of predictable healthy type performance and led to some unique product or technology that we'd not really done before. And so that's the positive side of it.

But again some of these projects we commented in fourth quarter and again this quarter are maturing into the revenue stream. We are not getting significant FID, so my mix particular in my U.K. facility is going to trend to a little bit lower margin.

But frankly, if we get the offset though, short cycle service and I mentioned cranes and mooring bidding activity in my home of base operation and elsewhere, we could offset that, and that's why we kind of widened our EBITDA margin guidance range for Q2 even to 18% to 21%.

We're just trying to give you a frame of reference that we think we can operate in. But you are exactly right, but there is again, it's kind of an ebb and flow across all of our global facilities with some puts and takes depending upon product mix that goes through it..

Thanks, exactly what I was looking for. And then just understanding, again you know in your earlier commentary you kind of following in there, you said you are not losing money, you feel but we're losing cash at the field level in completion services.

Help us understand you know competitively what empowering your people to kind of I guess term down work has done. Are you actually experiencing a heightened level of job turndowns or are you just kind of last man standing at this point and you feel like you are getting your share and actually seeing other players kind of retire.

Again, what we can't see from our seats?.

Generally, I don't think, we're bidding most of the work that is out there and so we're not 'turning it down' meaning we're bidding it at what we think we can make money at.

We know that we are losing some jobs and pricing and I always say, you always hear about the jobs you lost, not the jobs you won sometimes particular from the field because they want to work. But it's just another word, know your cost structure, know what it takes to deliver a project, bid accordingly.

We're not losing market share, but I don't want market share that cause me to lose cash in the field. That's a no-win situation. I would rather be the healthy one remaining. If I comment specifically on Q1, pricing has not improved. We had a better mix and part of that better mix is really driven by international work.

It's driven by, and I'd say on a percentage basis, because land U.S. is so challenged. International content has been a little better for us, and we're seeing somewhat of an improvement for our specific product offshore Gulf of Mexico.

And I will just say, some mix improvement on land, but don't think of that as pricing improvement, because it is not there..

Got it. Thanks for the time. I'll turn it back..

Thanks Blake..

The next question comes from George O’Leary from TPH & Co..

Good morning guys..

Hi George. .

I felt the Well Site Services revenue guidance for second quarter is interesting $40 million to $45 million kind of in line with what you guys did in the first quarter and just given what we've seen from an activity standpoint, where it looks like activity is trough-ing, I guess is that more maybe just to offset some incremental land rigs go back to work or just the job ticket outlook you have on the completion services side, what's driving that to be flat, and not maybe down where average activity is probably going to be down quarter-on-quarter?.

For us, I think this would be a company specific comment and we've got some Gulf of Mexico start-up work that we think is going to weigh in our favor. And we're seeing to-date, what I would just call stable land activity all be it at a low level, but that might be a more company-specific comment..

Alright, and Blake stole my other more granular question.

So, I'll talk about the obligatory M&A question, what are you guys seeing on the M&A front today, bid/ask spreads compressing it all, hurt a little bit, then it maybe becoming more of a buyer's market and seems like a lot of the opportunities you guys had seen, seen previously had been distressed and things you wouldn't necessarily be interested in, is anything more intriguing, popping?.

Well, there are couple of things out there yes that are intriguing and we're kind of in that process of, I'll call it understanding the bid/ask spread to figure out whether we are successful or not. But we can't go through the depths and duration of this down cycle and not expect to see some opportunities.

I don't think they just didn't really mature last year because of, think of lot of ongoing dialog around debt issues and other restructuring cost and other things. So we expect to see more this year than we did last year.

The one caveat I will roll out there that we're going to -- that will be a little bit of a headwind, is just be sheer amount of private equity money that is out there and every deal pretty much that we look at today is going to have a cost competitive bid out there from private equity.

And I think strategic like us are the ideal people to do this, because we can generate some true synergies and consolidation savings. But I think in the long-run, be it advantaged over some private equity investments that, that's just reality.

There is a lot of money out there and they are in a deal that we look at that we're not to some degree competing with private equity fund.

And we can talk all day about the dynamic the private equity hasn't shift to more equity versus debt and it does create, I'll say a little more level playing field if not somewhat of an advantage playing field for us.

Because I do believe that the right acquisitions we can generate both savings and synergies that do not give us a competitive advantage particularly, private equity can't layer on far as much leverage as they have in the past..

Great, thanks very much for the color Cindy..

Thank you..

And the next question comes from Sean Meakim from J.P. Morgan. Please go ahead..

Hey good morning..

Hi Sean..

Hi Sean..

So, then just trying to think about the recent offshore revenue coming in just below guidance last few quarters, but margin coming in considerably stronger. And just so I'm trying to understand the underlying moving pieces as you've give a lot of detail on this call.

It sounds like early phase project revenue recognition getting pushed to the right, so that impacts the top-line, but then that mix shift is towards legacy projects that are probably in later stages, when you often get better margins towards the end.

Is that are reasonable interpretation of some of the moving parts you've seen in that business?.

Well, I'll speak specifically to Q1 and you are accurate that we were short of our revenue guidance and part of that as I said, you know service revenue, there is no finite predictor there. It's not a backlog-driven. You just -- you really forecast it based on history and conversations with your customer.

So we're a little bit light on the service side and some of the large OD conductor casing connector moves and that's depending on timing of award, so to speak. You get a little lighter than you thought you would. You don't produce that revenue. And so we'll speak of that return in the second quarter.

You are absolutely right in saying, although I will absolutely tell you, it's not always the case that at the end of the project you have better margins. I feel I'm smiling as I said here that I can say that we have had that, which is fantastic. But you are right, in the sense that and it's particularly for our U.K.

operations, some of the high-end products are maturing and coming out of our backlog in those locations they have had margin -- favorable margins which have offset lower top-line, if I'm addressing your question as I think you ask it..

Very much a thank you for that.

And then I just had one more around cash and liquidity, so just curious how much working capital release you say can be achieved if we end up staying up in a lower for longer environment? And then I guess the second part would be, just is there any hesitancy to draw on the revolver in a material way in pursuit of M&A until you get bare trajectory of above -- well maintaining above breakeven on EBITDA?.

That's a fantastic question. It's one we think about every week, if not every day, pretty much and so. Going to the M&A question and of course Lloyd has been very good and very careful about not talking about near-term capacity and availability that's forward capacity and availability which we are forecasting for good or for bad through 2019.

And it's fluid obviously, but we've watching that very, very closely. But if you look at us, our history, we do lot of these smaller tuck-in acquisitions typically for cash. Those would range I'd say generally in kind of the $30 million to $60 million range and we're comfortable doing that.

Depends on the number as to whether you start then thinking about what if the absolute leverage, is there some element of equity that should go with that. But in the near term, one of two of these deals, we feel comfortable doing. I've been open about saying our preference right now is top line growth.

We've got a lot of great people in this company and we have the propensity to do a lot more than we're doing currently. And the best way to address that is with an expanded content and revenue at the top-line, so very focused on that.

Again from an availability standpoint, I've got a moving forecast that I watch every week, so I'm not worried about that. And again, if you've got larger deals or more of these smaller tuck-ins, we'd evaluate use of equity, but we don't see that necessarily in the near term.

What was your first question?.

Working capital?.

Working capital. Okay. So we did generate good cash flow last year from marketing, so good cash flow in the first quarter. We're continuing to get you know some -- there was a few one-offs receivables that are coming into cash in the second quarter.

But that's probably is dependent upon overall activity levels that, if you walk through our guidance, in totality, you come out to something overall is sequentially flat and so I wouldn't expect much receivable improvement other than $10 million.

And then at some point, when we get a pick-up in activity, you will start building that working capital back. So, the other one we're very focused on is inventory, and I do think we can get some inventory benefit by the end of the year, but it's not huge. I think you are talking $10 million to $15 million.

And so there's a put and take there that with our own internal forecast which is a softer Q2 followed by some improvement throughout the balance of '16, we may have some nominal working capital improvement in Q2 that may reverse in the second half again with projected improvement a little bit on U.S.

land and some of our short-cycle in Services and Offshore Products..

Thanks. You are seeing a majority of your benefit and working capital in Q1 and that's largely on the back of Q4 working capital build and receivables for some of the larger projects that we had completed in the fourth quarter in Offshore Products that we collected in Q1..

Got it and no doubt you guys have done a great job, putting us in a good position with this balance sheet. So thank for all that detail..

Thank you..

Thanks Sean..

[Operator Instructions] Standing by for more questions..

Okay Adrienne. It looks like there are none..

Thank you. I'll now turn the call back for final comments..

Okay. Thanks Adrienne. I appreciate all your time. I know somehow we always end up and your various busy week in terms of trying to handle all the earnings that are coming out. As always we very much appreciate your following the company and the good work that you do.

And we look forward to future follow-up as we go to various conferences and get on the road. So thanks again. Have a great week. We will be at OTC and look forward to seeing all of you there, if you are present. So thanks again..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..