HOUSTON - Superior Energy Services, Inc. (the 'Company') filed its Form 10-Q for the period ending September 30, 2022 on November 2, 2022. In accordance with the Company's Shareholders Agreement, it will host a conference call with shareholders on Tuesday, November 8, 2022.
For the third quarter of 2022, the Company reported net income from continuing operations of $48.5 million, or $2.41 per diluted share, and revenue of $222.3 million. This compares to net income from continuing operations of $43.6 million, or $2.17 per diluted share, and revenue of $224.6 million, for the second quarter of 2022.
Net income from continuing operations includes a gain of $13.4 million in Other (gains) and losses within operating income primarily related to net gains from divestitures of non-core businesses within our Well Services segment. This gain was offset by an expense of $6.8 million in Other income (expense) primarily related to unfavorable foreign exchange rate changes.
The Company's Adjusted EBITDA (a non-GAAP measure) was $75.1 million for the quarter, an increase of 1% compared to $74.0 million in the second quarter of 2022. Refer to page 11 for a Reconciliation of Adjusted EBITDA to GAAP results.
The Company divested non-core businesses and assets during the third quarter of 2022 for cash proceeds of $31.2 million. The divestitures collectively generated $20.6 million of revenue and $3.4 million of Adjusted EBITDA during the first two quarters of 2022.
Brian Moore, Chief Executive Officer, commented, 'I'm extremely proud of our team's execution during the quarter. Commodity prices remained elevated despite the Fed's rapid interest rate increases that drove the US dollar higher. The market continued to tighten for oilfield products, driving pricing higher for our businesses while maintaining near full capacity levels of utilization.
Our team has continued to execute the Transformation Project, divesting many low-margin, asset and labor-intensive businesses, with low barriers to entry, in regions and product lines where we do not have and do not wish to achieve scale. The value derived from these sales is evident in the near-term as the increase to our earnings guidance is driven by higher margins.'
Third Quarter 2022 Geographic Breakdown
U.S. land revenue was $49.5 million in the third quarter of 2022, an increase of 3% compared to revenue of $47.9 million in the second quarter of 2022. This increase was driven by increased pricing for our premium drill pipe rentals business and increased utilization and pricing for our bottom hole assembly rentals business.
U.S. offshore revenue was $61.4 million in the third quarter of 2022, a decrease of 11% compared to revenue of $68.9 million in the second quarter of 2022. This decrease was driven by lower project activity in our completion services business and the impact of our exit from non-core businesses in the Well Services segment.
International revenue was $111.4 million in the third quarter of 2022, an increase of 3% compared to revenue of $107.8 million in the second quarter of 2022. This increase was driven by increased activity in premium drill pipe, international completions services, and increased production services activity in Argentina.
Segment Reporting
The Rentals segment revenue in the third quarter of 2022 was $104.6 million, a 1% increase compared to revenue of $103.7 million in the second quarter of 2022. Adjusted EBITDA of $64.1 million contributed 72% of the Company's total Adjusted EBITDA before including corporate costs. Third quarter Adjusted EBITDA Margin (a non-GAAP measure further defined on page 9) within Rentals was 61%, a 4% increase relative to the second quarter driven by price increases on land and increased utilization offshore.
The Well Services segment revenue in the third quarter of 2022 was $117.7 million, a 3% decrease compared to revenue of $120.9 million in the second quarter of 2022. Adjusted EBITDA for the third quarter of 2022 was $25.2 million for an Adjusted EBITDA Margin of 21%, roughly equal to the second quarter. Lower margin international completions projects were offset by higher activity and pricing in Latin America.
Liquidity
As of September 30, 2022, the Company had cash, cash equivalents, and restricted cash of approximately $533.4 million and the availability remaining under our ABL Credit Facility was approximately $79.7 million, assuming continued compliance with the covenants under our ABL Credit Facility.
Total cash proceeds received from the sale of non-core assets during the quarter were $31.2 million. Additionally, at September 30, 2022, the Company owned approximately 2.4 million shares of Select Energy Services Class A common stock (NYSE: WTTR).
The Company remains focused on cash conversion. Free cash flow (net cash from operating activities less payments for capital expenditures) for the third quarter totaled $31.4 million and totaled $79.1 million on a year-to-date basis.
Third quarter capital expenditures were $22.4 million. The Company expects total capital expenditures for 2022 to be between $65 - $75 million, a reduction to prior guidance as some previously planned spending within the Well Services segment has been curtailed. Approximately 77% of total 2022 capital expenditures are targeted for the replacement of existing assets. Of the total capital expenditures, over 75% of which will be invested in the Rentals segment.
2022 & 2023 Guidance
Based on our continued strong performance in the third quarter, we now expect Adjusted EBITDA for 2022 between $270 million and $290 million. Revenue is expected to be in the $860 to $900 million range.
We are currently in our 2023 planning cycle. As we look forward, we expect activity and results in 2023 to be in line with results from the second half of 2022 with some moderate growth generated primarily by our international rental operations.
Strategic Initiatives
The Board has continued to evaluate strategic alternatives in the third quarter. We now expect to pay a distribution, and are pursuing a return of capital, with an expected range between $225 million and $250 million to shareholders in December 2022.
Our Transformation Project is now substantially complete, as evidenced by solid cash flow conversions and margins over the last few quarters. Management will continue to execute the remaining initiatives and attempt to further our consistent performance.
With a narrowed focus and simplified structure, the Company is well-positioned to move forward efficiently and purposefully with the evaluation of strategic consolidation opportunities aligned with our objectives in an effort to create value for stakeholders.
Conference Call Information
The Company will host a conference call on Tuesday, November 8, 2022 at 10:00 a.m. Eastern Time. To listen to the call via a live webcast, please visit Superior's website at ir.superiorenergy.com and use access code 10172654. You may also listen to the call by dialing in at 1-833-816-1366 in the United States and Canada or 1-412-317-0461 for International calls and using access code 10172654. The call will be available for replay until November 15, 2022 on Superior's website at ir.superiorenergy.com. If you are a shareholder and would like to submit a question, please email your question beforehand to Jamie Spexarth at ir@superiorenergy.com.
About Superior Energy Services
Superior Energy Services serves the drilling, completion and production-related needs of oil and gas companies worldwide through a diversified portfolio of specialized oilfield services and equipment that are used throughout the economic life cycle of oil and gas wells. For more information, visit: www.superiorenergy.com.
Non-GAAP Financial Measure
To supplement Superior's consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States ('GAAP'), the Company also uses Adjusted EBITDA and Adjusted EBITDA Margin. Management uses Adjusted EBITDA and Adjusted EBITDA Margin internally for financial and operational decision-making and as a means to evaluate period-to-period comparisons. The Company also believes these non-GAAP measures provide investors useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Non-GAAP financial measures are not recognized measures for financial statement presentation under U.S. GAAP and do not have standardized meanings and may not be comparable to similar measures presented by other public companies. Adjusted EBITDA and Adjusted EBITDA Margin should be considered as supplements to, and not as substitutes for, or superior to, the corresponding measures calculated in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit) and depreciation, amortization and depletion, adjusted for reduction in value of assets and other charges, which management does not consider representative of our ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA by segment as a percentage of segment revenues. For a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, please see the tables under '?Superior Energy Services, Inc. and Subsidiaries Reconciliation of Adjusted EBITDA' included on pages 10 through 11 of this press release.
Free cash flow is considered a non-GAAP financial measure under the SEC's rules. Management believes, however, that free cash flow is an important financial measure for use in evaluating the Company's financial performance, as it measures our ability to generate additional cash from our business operations. Free cash flow should be considered in addition to, rather than as a substitute for, net income as a measure of our performance or net cash provided by operating activities as a measure of our liquidity. Additionally, our definition of free cash flow is limited and does not represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other obligations or payments made for business acquisitions. Therefore, we believe it is important to view free cash flow as supplemental to our entire statement of cash flows.
Forward-Looking Statements
This press release contains, and future oral or written statements or press releases by the Company and its management may contain, certain forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words 'expects,' 'anticipates,' 'targets,' 'goals,' 'projects,' 'intends,' 'plans,' 'believes,' 'seeks' and 'estimates,' variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact regarding the Company's financial position, financial performance, depreciation expense, liquidity, strategic alternatives (including dispositions and the timing thereof), market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company's management in light of its experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties, including but not limited to conditions in the oil and gas industry and the availability of third party buyers, that could cause the Company's actual results to differ materially from such statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors, many of which are outside the control of the Company, which could cause actual results to differ materially from such statements.
While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors that could impact the future performance or results of its business.
These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in the Company's Form 10-K for the year ended December 31, 2021, Form 10-Q for any subsequent interim period, and those set forth from time to time in the Company's other current or periodic filings with the Securities and Exchange Commission, which are available at www.superiorenergy.com. Except as required by law, the Company expressly disclaims any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise.
The Company is unable to provide a reconciliation of the forward-looking non-GAAP financial measure, EBITDA, contained in this Current Report on Form 8-K to its most directly comparable GAAP financial measure, net income (loss), because the information necessary for a quantitative reconciliation of the forward-looking non-GAAP financial measure to its respective most directly comparable GAAP financial measure is not (and was not, when prepared) available to the Company without unreasonable efforts due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Net income (loss) includes the impact of depreciation, income taxes and certain other items that impact comparability between periods, which may be significant and are difficult to project with a reasonable degree of accuracy. In addition, we believe such reconciliation could imply a degree of precision that might be confusing or misleading to investors. The probable significance of providing this forward-looking non-GAAP financial measure without the directly comparable GAAP financial measure is that such GAAP financial measure may be materially different from the corresponding non-GAAP financial measure.
Contact:
Jamie Spexarth
Chief Financial Officer
1001 Louisiana St., Suite 2900
Houston, TX 77002
Investor
E: ir@superiorenergy.com
T: (713) 654-2200
SELECT WATER SOLUTIONS, INC. 
