Financial Data and Key Metrics Changes - Net income for Q4 2022 was $100 million or $0.46 per share, up from $61.5 million or $0.28 per share in Q3 2022 [12] - Adjusted EBITDA for Q4 2022 was almost 5 times that of Q4 2021, indicating significant profitability improvement [5] - Average rig revenue per day in the U.S. increased by $9,800 or 44% year-over-year from Q4 2021 to Q4 2022 [12] - The debt to adjusted EBITDA metric improved to 1.2x for 2022, with a fourth quarter annualized basis of less than 0.9x gross or approximately 0.7x net of cash [18] Business Line Data and Key Metrics Changes - In contract drilling, average adjusted rig margin per day in the U.S. increased by $2,970, driven by successful contract renewals at favorable pricing [12] - Pressure pumping revenues increased to $307 million in Q4 2022, with an adjusted gross margin of $86 million [38] - Directional drilling revenues improved to $59.5 million in Q4 2022 from $58.9 million in Q3 2022, with adjusted gross margin rising to $11.2 million [14] Market Data and Key Metrics Changes - The average rig count in the U.S. rose by 3 rigs to 131 rigs in Q4 2022 [8] - In Colombia, contract drilling revenues for Q4 2022 were $15.1 million, with an adjusted gross margin of $4.9 million [13] - The company anticipates an average rig count in the U.S. of 130 rigs for Q1 2023, with an expected increase in average rig margin per day by approximately $1,000 [13] Company Strategy and Development Direction - The company remains optimistic about being in a multiyear up-cycle, with high demand for Tier 1 super-spec rigs and premium pressure pumping equipment [6] - The strategic focus includes converting engines to Tier 4 dual fuel to reduce operational costs and emissions, and enhancing technology in directional drilling [10] - The company is shifting towards higher-margin rotary steerable work, with revenues from this segment increasing to approximately 20% of directional drilling revenues in 2022 [35] Management's Comments on Operating Environment and Future Outlook - Management expects continued high utilization of Tier 1 super-spec rigs to support current leading-edge rates, despite potential softness in gas markets outside the Northeast [31] - The company anticipates significant increases in earnings and cash flow during 2023, driven by repricing drilling rig contracts to current leading-edge rates [31] - Management acknowledges potential downside risks in gas markets but believes the Northeast remains stable due to long-term contracts with well-hedged customers [83] Other Important Information - The company plans to return 50% of free cash flow to shareholders through dividends and share buybacks [44] - Capital expenditures for 2023 are expected to be approximately $550 million, with a focus on maintenance and reactivation CapEx [16] - The company ended 2022 with $836 million of long-term debt and a cash balance of $138 million, reflecting improved profitability [18] Q&A Session Summary Question: Outlook on rig count and market demand - Management noted that while there may be a decline in gas rig counts, demand for oil rigs is expected to offset this, maintaining a tight market for high-spec rigs [23][31] Question: Reactivation of rigs and market conditions - Management confirmed plans for eight rig reactivations in 2023, with sufficient demand to support these actions despite potential softness in gas markets [82][87] Question: Pricing and operational costs - Management indicated that they expect to reprice around 30 contracts in the first half of 2023, with significant increases in revenue per day anticipated [66][88] Question: Pressure pumping market dynamics - Management highlighted that pressure pumping services remain robust, with supply constraints limiting equipment availability [34][38] Question: Hydrogen blending project - The trial for blending hydrogen with natural gas was successful, and the company is excited about the potential for reducing emissions in the future [121][100]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-39270 Patterson-UTI Energy, Inc. (Exact name of registrant as specified in its charter) 10713 W. Sam Houston Pkwy N, Suite 800 Houston, T ...

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Q3 2022 Earnings Conference Call October 27, 2022 10:00 AM ET Company Participants Mike Drickamer – Vice President-Investor Relations Andy Hendricks – Chief Executive Officer Andy Smith – Chief Financial Officer Conference Call Participants Scott Gruber – Citi Luke Lemoine – Piper Sandler Derek Podhaizer – Barclays Don Crist – Johnson Rice Saurabh Pant – Bank of America Keith Mackey – RBC Sean Mitchell – Daniel Energy David Smith – Pickering Energy Partners Dan Kutz ...

Patterson-UTI Energy, Inc. Barclays CEO Energy-Power Conference September 6-7, 2022 Forward Looking Statements 2 This material and any oral statements made in connection with this material include "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Statements made which provide the Company's or management's intentions, beliefs, expectations or predictions for the future are forward-looking statements and are inherently uncertain. The opinion ...

PART I — FINANCIAL INFORMATION [ITEM 1. Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) The company's unaudited condensed consolidated financial statements detail its financial position, performance, and cash flows [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20condensed%20consolidated%20balance%20sheets) Balance Sheet Summary | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $19,636 | $117,524 | $(97,888) | -83.3% | | Accounts receivable, net | $473,153 | $356,083 | $117,070 | 32.9% | | Total current assets | $621,218 | $583,653 | $37,565 | 6.4% | | Total assets | $2,959,977 | $2,957,848 | $2,129 | 0.1% | | Total current liabilities | $448,421 | $435,853 | $12,568 | 2.9% | | Long-term debt, net | $877,739 | $852,323 | $25,416 | 3.0% | | Total liabilities | $1,383,896 | $1,348,361 | $35,535 | 2.6% | | Total stockholders' equity | $1,576,081 | $1,609,487 | $(33,406) | -2.1% | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20operations) Statement of Operations Summary | Metric (in thousands, except per share) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $622,238 | $291,774 | $1,131,613 | $532,703 | | Total operating costs and expenses | $585,476 | $401,184 | $1,113,732 | $759,640 | | Operating income (loss) | $36,762 | $(109,410) | $17,881 | $(226,937) | | Net income (loss) | $21,886 | $(103,309) | $(6,891) | $(209,722) | | Basic net income (loss) per common share | $0.10 | $(0.55) | $(0.03) | $(1.12) | | Diluted net income (loss) per common share | $0.10 | $(0.55) | $(0.03) | $(1.12) | | Cash dividends per common share | $0.04 | $0.02 | $0.08 | $0.04 | - The company reported a **significant turnaround in operating income and net income** for the three months ended June 30, 2022, moving from a substantial loss in the prior year to a profit[13](index=13&type=chunk) - For the six months ended June 30, 2022, while still reporting a net loss, it was **significantly reduced** compared to the prior year[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20comprehensive%20income%20(loss)) Comprehensive Income (Loss) Summary | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $21,886 | $(103,309) | $(6,891) | $(209,722) | | Foreign currency translation adjustment | $1,678 | $255 | $1,793 | $673 | | Release of cumulative translation adjustment | $(7,708) | — | $(7,708) | — | | Total comprehensive income (loss) | $15,856 | $(103,054) | $(12,806) | $(209,049) | - **Total comprehensive income significantly improved** for the three months ended June 30, 2022, turning positive from a large loss in the prior year[16](index=16&type=chunk) - For the six-month period, the comprehensive loss was **substantially reduced**, influenced by a foreign currency translation adjustment release[16](index=16&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20changes%20in%20stockholders'%20equity) Changes in Stockholders' Equity | Metric (in thousands) | December 31, 2021 | June 30, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $1,609,487 | $1,576,081 | | Net loss/income | $(28,777) (Q1) / $21,886 (Q2) | | | Retained Deficit | $(198,316) | $(222,714) | | Treasury Stock | $(1,372,641) | $(1,395,906) | | Accumulated Other Comprehensive Income | $5,915 | $0 | - **Stockholders' equity decreased** from December 31, 2021, to June 30, 2022, primarily due to net losses in Q1 2022, cash dividend payments, and treasury stock purchases, partially offset by net income in Q2 2022 and stock-based compensation[19](index=19&type=chunk)[83](index=83&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20cash%20flows) Cash Flow Summary | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85,017 | $44,197 | | Net cash used in investing activities | $(178,194) | $(41,651) | | Net cash used in financing activities | $(5,160) | $(11,045) | | Net decrease in cash and cash equivalents | $(97,888) | $(8,233) | | Cash and cash equivalents at end of period | $19,636 | $216,682 | - Net cash provided by operating activities **significantly increased** year-over-year, but a substantial increase in cash used in investing activities led to a larger net decrease in cash and cash equivalents for the six months ended June 30, 2022[22](index=22&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20unaudited%20condensed%20consolidated%20financial%20statements) [Note 1. Basis of Presentation](index=8&type=section&id=Note%201.%20Basis%20of%20Presentation) The unaudited financial statements are prepared per SEC rules and GAAP, including all necessary adjustments for fair presentation - The company adopted new FASB guidance on income taxes on January 1, 2021, with **no material impact**[25](index=25&type=chunk) - The company plans to adopt new FASB guidance on contract assets and liabilities in business combinations on January 1, 2023, and does not expect a material impact[27](index=27&type=chunk) [Note 2. Acquisition and Discontinued Operations](index=8&type=section&id=Note%202.%20Acquisition%20and%20Discontinued%20Operations) The company acquired Pioneer Energy Services and subsequently sold its well servicing rig and wireline businesses - Acquired Pioneer Energy Services Corp on October 1, 2021, for approximately **$278 million**[28](index=28&type=chunk)[31](index=31&type=chunk) - Pioneer acquisition included **17 AC-powered drilling rigs** in the U.S and **8 SCR rigs** in Colombia, along with production services assets[29](index=29&type=chunk)[125](index=125&type=chunk) - Sold Pioneer Production Services (well servicing rig and wireline businesses) on December 31, 2021, for **$43.0 million cash**[34](index=34&type=chunk)[126](index=126&type=chunk) Summarized Operating Results from Discontinued Operations (Year Ended December 31, 2021) | Metric | Amount (in thousands) | | :--- | :--- | | Total operating revenues | $29,520 | | Total operating costs and expenses | $27,050 | | Operating income | $2,470 | | Income from discontinued operations, net of tax | $2,534 | [Note 3. Revenues](index=10&type=section&id=Note%203.%20Revenues) Revenue is recognized over time for drilling services, with a U.S contract drilling backlog of approximately $440 million - Revenue from contract drilling, pressure pumping, and directional drilling is **recognized over time** as a series of distinct services[36](index=36&type=chunk)[37](index=37&type=chunk) - Oil and natural gas working interest revenue is reported under ASC 932-323, outside the scope of ASC Topic 606[41](index=41&type=chunk) - Recognized **$59.7 million of revenue** in the six months ended June 30, 2022, from contract liabilities outstanding at the beginning of the period[47](index=47&type=chunk) - Contract drilling backlog in the United States was approximately **$440 million** as of June 30, 2022, with about 24% expected to remain at June 30, 2023[49](index=49&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) Accounts Receivable and Contract Liabilities | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Accounts receivable | $466 | $352 | | Contract liabilities | $3.4 | $60.3 | [Note 4. Inventory](index=12&type=section&id=Note%204.%20Inventory) Inventory increased to $53.5 million, primarily driven by a rise in raw materials and supplies Inventory (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Finished goods | $817 | $515 | | Work-in-process | $1,838 | $882 | | Raw materials and supplies | $50,873 | $40,962 | | **Total Inventory** | **$53,528** | **$42,359** | [Note 5. Property and Equipment](index=12&type=section&id=Note%205.%20Property%20and%20Equipment) Net property and equipment decreased slightly to $2.29 billion, with no impairment recorded in the period Property and Equipment, Net (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total property and equipment (gross) | $7,934,557 | $8,178,346 | | Less accumulated depreciation, depletion and impairment | $(5,645,186) | $(5,846,591) | | **Property and equipment, net** | **$2,289,371** | **$2,331,755** | - **No impairment** related to drilling rigs or long-lived assets was recorded during the three and six months ended June 30, 2022[52](index=52&type=chunk)[53](index=53&type=chunk) [Note 6. Intangible Assets](index=12&type=section&id=Note%206.%20Intangible%20Assets) Net intangible assets decreased to $7.2 million, with a significant reduction in amortization expense Intangible Assets, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Customer relationships | $857 | $986 | | Developed technology | $4,387 | $4,776 | | Internal use software | $1,151 | $913 | | Trade name | $771 | $862 | | **Intangible assets, net** | **$7,166** | **$7,537** | Amortization Expense on Intangible Assets (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended June 30 | $0.4 | $3.1 | | Six months ended June 30 | $0.7 | $6.3 | [Note 7. Accrued Liabilities](index=13&type=section&id=Note%207.%20Accrued%20Liabilities) Total accrued liabilities decreased to $189.2 million due to a reduction in customer prepayments and restructuring expenses Accrued Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Salaries, wages, payroll taxes and benefits | $47,445 | $52,252 | | Workers' compensation liability | $66,734 | $67,921 | | Property, sales, use and other taxes | $14,786 | $9,673 | | Accrued restructuring expenses | $2,400 | $7,884 | | Customer prepayment | $3,409 | $60,282 | | **Accrued liabilities** | **$189,203** | **$238,511** | [Note 8. Long-Term Debt](index=13&type=section&id=Note%208.%20Long-Term%20Debt) Long-term debt increased to $877.7 million, with the company in compliance with all debt covenants Long-Term Debt (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Revolving credit facility | $25,000 | — | | 3.95% Senior Notes | $509,505 | $509,505 | | 5.15% Senior Notes | $349,250 | $349,250 | | Less deferred financing costs and discounts | $(6,016) | $(6,432) | | **Total** | **$877,739** | **$852,323** | - The company has a **$600 million** senior unsecured revolving credit facility, with **$575 million** available borrowing capacity as of June 30, 2022[58](index=58&type=chunk)[62](index=62&type=chunk)[174](index=174&type=chunk) - The company was **in compliance with all debt covenants**, including the total debt to capitalization ratio not exceeding 50%, as of June 30, 2022[61](index=61&type=chunk)[177](index=177&type=chunk) Principal Repayment Requirements of Long-Term Debt (as of June 30, 2022, in thousands) | Year ending December 31, | Amount | | :--- | :--- | | 2022 | $— | | 2023 | $— | | 2024 | $— | | 2025 | $25,000 | | 2026 | $— | | Thereafter | $858,755 | | **Total** | **$883,755** | [Note 9. Commitments and Contingencies](index=15&type=section&id=Note%209.%20Commitments%20and%20Contingencies) The company has commitments for equipment purchases and proppants, with no material impact expected from legal proceedings - Outstanding letters of credit totaled **$65.1 million** as of June 30, 2022, primarily for insurance collateral[77](index=77&type=chunk)[178](index=178&type=chunk) - Commitments to purchase major equipment amounted to approximately **$97.8 million** for various business segments[78](index=78&type=chunk)[188](index=188&type=chunk) - Remaining minimum obligation for proppants and chemicals was approximately **$16.1 million**[79](index=79&type=chunk)[188](index=188&type=chunk) - The company does not believe the outcome of current legal proceedings will have a **material adverse effect** on its financial condition, cash flows, or results of operations[80](index=80&type=chunk)[209](index=209&type=chunk) [Note 10. Stockholders' Equity](index=16&type=section&id=Note%2010.%20Stockholders'%20Equity) The company approved a cash dividend, has an active stock buyback program, and released a cumulative translation adjustment - A cash dividend of **$0.04 per share** was approved on July 27, 2022, payable September 15, 2022[81](index=81&type=chunk)[184](index=184&type=chunk) - Approximately **$130 million** remained authorized for stock repurchases under the stock buyback program as of June 30, 2022[82](index=82&type=chunk)[186](index=186&type=chunk) - A **$7.7 million** cumulative translation adjustment (net of $3.8 million tax) was released into net income (loss) in Q2 2022, resulting in an **$11.5 million pre-tax gain**, due to exiting Canadian operations[83](index=83&type=chunk)[150](index=150&type=chunk)[167](index=167&type=chunk) [Note 11. Stock-based Compensation](index=16&type=section&id=Note%2011.%20Stock-based%20Compensation) The company utilizes various share-based payments, with total unrecognized compensation costs of $48.5 million - **No stock options** were granted during the six months ended June 30, 2022, or 2021[85](index=85&type=chunk) - Phantom Units, granted to the CEO, are cash-settled liability awards with compensation expense fluctuating based on fair value remeasurement[94](index=94&type=chunk) Unrecognized Stock-based Compensation Costs (as of June 30, 2022, in millions) | Award Type | Unrecognized Cost | Weighted-Average Remaining Vesting Period | | :--- | :--- | :--- | | Unvested restricted stock units | $34.2 | 1.90 years | | Unvested Performance Units | $14.3 | 1.70 years | [Note 12. Income Taxes](index=18&type=section&id=Note%2012.%20Income%20Taxes) The effective income tax rate was significantly impacted by valuation allowances during a pre-tax loss period Effective Income Tax Rate | Period | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Three months ended | 7.5% | 13.4% | | Six months ended | (64.7)% | 15.0% | - The lower effective income tax rates, particularly the negative rate for the six-month period, were primarily attributable to the **impact of valuation allowances**[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 13. Earnings Per Share](index=19&type=section&id=Note%2013.%20Earnings%20Per%20Share) Earnings per share improved significantly, moving from a substantial loss in the prior year to a small loss for the six-month period Net Income (Loss) Per Common Share | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $0.10 | $(0.55) | $(0.03) | $(1.12) | | Diluted EPS | $0.10 | $(0.55) | $(0.03) | $(1.12) | | Weighted average number of common shares outstanding (Basic) | 216,165 | 188,408 | 215,718 | 188,044 | [Note 14. Business Segments](index=19&type=section&id=Note%2014.%20Business%20Segments) All business segments showed significant year-over-year revenue growth and a shift from operating losses to income - Reportable segments include **contract drilling, pressure pumping, and directional drilling**[104](index=104&type=chunk) - Other operations comprise oilfield rentals, equipment servicing, electrical controls and automation, and oil and natural gas working interests[36](index=36&type=chunk)[106](index=106&type=chunk) Total Revenues by Segment (in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Contract drilling | $307,618 | $142,264 | $567,301 | $275,926 | | Pressure pumping | $238,376 | $111,991 | $427,966 | $187,830 | | Directional drilling | $54,825 | $24,869 | $98,159 | $44,539 | | Other operations | $29,233 | $18,251 | $54,259 | $32,817 | | **Total revenues** | **$622,238** | **$291,774** | **$1,131,613** | **$532,703** | Income (Loss) Before Income Taxes by Segment (in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Contract drilling | $21,720 | $(58,229) | $18,556 | $(106,850) | | Pressure pumping | $20,091 | $(23,921) | $26,512 | $(63,660) | | Directional drilling | $4,028 | $(5,110) | $5,816 | $(10,033) | | Other operations | $3,300 | $(3,287) | $4,041 | $(7,843) | | Corporate | $(12,377) | $(18,863) | $(37,044) | $(38,551) | | **Total income (loss) before income taxes** | **$23,666** | **$(119,282)** | **$(4,183)** | **$(246,665)** | [Note 15. Fair Values of Financial Instruments](index=21&type=section&id=Note%2015.%20Fair%20Values%20of%20Financial%20Instruments) The fair values of Senior Notes were lower than their carrying values, reflecting higher implied market interest rates Fair Values of Debt (in thousands) | Debt Type | Carrying Value (June 30, 2022) | Fair Value (June 30, 2022) | Carrying Value (Dec 31, 2021) | Fair Value (Dec 31, 2021) | | :--- | :--- | :--- | :--- | :--- | | Revolving credit facility | $25,000 | $25,000 | $— | $— | | 3.95% Senior Notes | $509,505 | $432,972 | $509,505 | $511,652 | | 5.15% Senior Notes | $349,250 | $301,773 | $349,250 | $359,142 | | **Total debt** | **$883,755** | **$759,745** | **$858,755** | **$870,794** | - The fair values of the Senior Notes implied **higher market interest rates** at June 30, 2022 compared to December 31, 2021[107](index=107&type=chunk) [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=22&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements subject to significant risks and uncertainties, and readers are cautioned not to place undue reliance on them - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause **actual results to differ materially**[111](index=111&type=chunk) - Key risks include: - Adverse oil and natural gas industry conditions[112](index=112&type=chunk) - Volatility in customer spending and oil/natural gas prices[112](index=112&type=chunk) - Excess availability of drilling and pressure pumping equipment[112](index=112&type=chunk) - Impact of the ongoing conflict in Ukraine[112](index=112&type=chunk) - Liabilities from operational risks not fully indemnified or insured[112](index=112&type=chunk) - Inflationary pressure on labor and supplies[114](index=114&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, market conditions, and segment performance [Management Overview and Recent Developments in Market Conditions](index=24&type=section&id=Management%20Overview%20and%20Recent%20Developments%20in%20Market%20Conditions) Strong market fundamentals are driving improved pricing and activity, leading to an increased 2022 capital expenditures forecast - Market fundamentals are strong with **increased demand** for drilling and completions equipment and services, and constrained industry supply[118](index=118&type=chunk) - Oil prices averaged **$108.72 per barrel** in Q2 2022, up from $94.45 per barrel in Q1 2022[118](index=118&type=chunk)[199](index=199&type=chunk) - General oilfield cost inflation is observed across segments due to supply chain disruptions and labor market tightness[119](index=119&type=chunk) - Increased 2022 capital expenditures forecast to approximately **$390 million**[123](index=123&type=chunk)[181](index=181&type=chunk) Key Operational Metrics | Metric | Q2 2022 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Average active rig count (U.S) | 121 | 115 | +6 | | Active pressure pumping spreads (end of quarter) | 12 | 11 | +1 | | Average active pressure pumping spreads | 11 | 11 | 0 | [Recent Developments in Financial Matters and Merger and Acquisition Activity](index=24&type=section&id=Recent%20Developments%20in%20Financial%20Matters%20and%20Merger%20and%20Acquisition%20Activity) The company completed the acquisition of Pioneer Energy Services and divested certain assets while repaying its term loan - Acquired Pioneer Energy Services Corp on October 1, 2021, for approximately **$278 million**[124](index=124&type=chunk) - Sold Pioneer Production Services (well servicing rig and wireline businesses) on December 31, 2021, for **$43.0 million cash**[126](index=126&type=chunk) - Repaid the final **$50 million** of borrowings under the 2019 Term Loan Agreement by December 30, 2021[127](index=127&type=chunk) [Impact on our Business from Oil and Natural Gas Prices and Other Factors](index=25&type=section&id=Impact%20on%20our%20Business%20from%20Oil%20and%20Natural%20Gas%20Prices%20and%20Other%20Factors) The company's performance is highly dependent on cyclical oil and gas prices and is subject to various operational risks - Revenues, profitability, and cash flows are **highly dependent** on prevailing oil and natural gas prices and customer access to capital[128](index=128&type=chunk) - The North American oil and natural gas services industry is **cyclical**, leading to periods of excess equipment and difficulty sustaining profit margins[129](index=129&type=chunk) - Other factors affecting the business include: - Operational risks[130](index=130&type=chunk) - Competition[130](index=130&type=chunk) - Labor issues[130](index=130&type=chunk) - Weather[130](index=130&type=chunk) - Supplier delays[130](index=130&type=chunk) Operating Revenues by Segment (in thousands) | Segment | Q2 2022 | % of Total | Q1 2022 | % of Total | YTD 2022 | % of Total | YTD 2021 | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Contract drilling | $304,586 | 49.0% | $256,640 | 50.4% | $561,226 | 49.6% | $275,233 | 51.7% | | Pressure pumping | $238,376 | 38.3% | $189,590 | 37.2% | $427,966 | 37.8% | $187,830 | 35.3% | | Directional drilling | $54,825 | 8.8% | $43,334 | 8.5% | $98,159 | 8.7% | $44,539 | 8.4% | | Other operations | $24,451 | 3.9% | $19,811 | 3.9% | $44,262 | 3.9% | $25,101 | 4.6% | | **Total** | **$622,238** | **100.0%** | **$509,375** | **100.0%** | **$1,131,613** | **100.0%** | **$532,703** | **100.0%** | [Business Segments Overview](index=25&type=section&id=Business%20Segments%20Overview) The company operates through contract drilling, pressure pumping, directional drilling, and other operations segments [Contract Drilling](index=25&type=section&id=Contract%20Drilling) The contract drilling business operates a fleet of 171 super-spec rigs and has a U.S backlog of approximately $440 million - Rig fleet includes **171 super-spec rigs**, of which 115 are Tier-1, super-spec rigs[132](index=132&type=chunk) - U.S contract drilling backlog was approximately **$440 million** as of June 30, 2022[133](index=133&type=chunk) [Pressure Pumping](index=26&type=section&id=Pressure%20Pumping) The pressure pumping segment provides well stimulation services with a fleet of approximately 1.1 million horsepower - Pressure pumping fleet has approximately **1.1 million horsepower**[135](index=135&type=chunk) - Services include well stimulation (hydraulic fracturing) and cementing[135](index=135&type=chunk) [Directional Drilling](index=26&type=section&id=Directional%20Drilling) The directional drilling segment offers a comprehensive suite of services across major U.S onshore basins - Services include directional drilling, measurement-while-drilling, and supply/rental of downhole performance motors[136](index=136&type=chunk) [Other Operations](index=26&type=section&id=Other%20Operations) Other operations include oilfield rentals, equipment servicing, electrical controls, and oil and gas working interests - Comprises oilfield rentals, drilling equipment service, electrical controls and automation, and oil and natural gas working interests[137](index=137&type=chunk) [Results of Operations (QoQ Analysis)](index=26&type=section&id=Results%20of%20Operations%20(QoQ%20Analysis)) Q2 2022 results showed significant quarter-over-quarter improvements across all segments driven by increased activity and pricing [Contract Drilling Segment Performance (QoQ)](index=26&type=section&id=Contract%20Drilling%20Segment%20Performance%20(QoQ)) Contract drilling revenue and adjusted gross margin increased significantly due to higher operating days and improved pricing Contract Drilling Performance (QoQ, in thousands, except percentages) | Metric | Q2 2022 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $304,586 | $256,640 | 18.7% | | Direct operating costs | $196,269 | $176,706 | 11.1% | | Adjusted gross margin | $108,317 | $79,934 | 35.5% | | Operating income (loss) | $21,720 | $(3,164) | NA | | Operating days - U.S | 11,015 | 10,362 | 6.3% | | Average revenue per operating day - U.S | $25.90 | $23.13 | 12.0% | | Average direct operating costs per operating day - U.S | $16.50 | $15.96 | 3.4% | | Average adjusted gross margin per operating day - U.S | $9.39 | $7.17 | 30.9% | - Direct operating costs increased due to higher operating days and **inflationary pressure** on labor and supplies[139](index=139&type=chunk) [Pressure Pumping Segment Performance (QoQ)](index=27&type=section&id=Pressure%20Pumping%20Segment%20Performance%20(QoQ)) Pressure pumping revenue and operating income surged due to more higher-revenue fracturing jobs and improved pricing Pressure Pumping Performance (QoQ, in thousands, except percentages) | Metric | Q2 2022 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $238,376 | $189,590 | 25.7% | | Direct operating costs | $191,455 | $157,468 | 21.6% | | Adjusted gross margin | $46,921 | $32,122 | 46.1% | | Operating income | $20,091 | $6,421 | 212.9% | | Fracturing jobs | 142 | 128 | 10.9% | | Average revenue per fracturing job | $1,654.75 | $1,449.30 | 14.2% | | Adjusted gross margin as a percentage of revenues | 19.7% | 16.9% | 16.2% | - Direct operating costs increased due to more higher-cost fracturing jobs and inflationary pressure; Q1 2022 included a **$9.9 million net benefit** from a sales and use tax refund[141](index=141&type=chunk)[142](index=142&type=chunk) [Directional Drilling Segment Performance (QoQ)](index=27&type=section&id=Directional%20Drilling%20Segment%20Performance%20(QoQ)) Directional drilling revenue and operating income grew substantially, driven by increased job activity and improved pricing Directional Drilling Performance (QoQ, in thousands, except percentages) | Metric | Q2 2022 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $54,825 | $43,334 | 26.5% | | Direct operating costs | $45,438 | $36,954 | 23.0% | | Adjusted gross margin | $9,387 | $6,380 | 47.1% | | Operating income | $4,028 | $1,788 | 125.3% | | Average jobs per day | 46 | 42 | 9.5% | - Direct operating costs increased primarily due to **increased job activity and cost inflation**[145](index=145&type=chunk) [Other Operations Segment Performance (QoQ)](index=28&type=section&id=Other%20Operations%20Segment%20Performance%20(QoQ)) Other operations revenue and operating income increased significantly, led by higher oil and natural gas revenues Other Operations Performance (QoQ, in thousands, except percentages) | Metric | Q2 2022 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $24,451 | $19,811 | 23.4% | | Direct operating costs | $13,738 | $12,084 | 13.7% | | Adjusted gross margin | $10,713 | $7,727 | 38.6% | | Operating income | $3,300 | $741 | 345.3% | | Average WTI-Cushing price per barrel | $108.72 | $94.45 | 15.1% | - Direct operating costs increased primarily due to **increased activity levels and cost inflation**[147](index=147&type=chunk) [Corporate Segment Performance (QoQ)](index=28&type=section&id=Corporate%20Segment%20Performance%20(QoQ)) Corporate expenses decreased due to lower merger-related costs and a gain on asset disposals from exiting Canadian operations Corporate Performance (QoQ, in thousands, except percentages) | Metric | Q2 2022 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Selling, general and administrative | $20,158 | $22,637 | (11.0)% | | Merger and integration expenses | $182 | $1,863 | (90.2)% | | Net gain on asset disposals | $(9,295) | $(1,113) | 735.1% | | Other operating (income) expenses, net | $(9,236) | $(1,222) | 655.8% | | Other income (expense) | $(2,452) | $1,582 | NA | - The **$9.3 million net gain** on asset disposals in Q2 2022 was primarily due to the release of an **$11.5 million cumulative translation adjustment** into net income upon exiting Canadian operations[150](index=150&type=chunk) - The **$4.0 million change** in other income (expense) was primarily due to foreign currency adjustments related to Colombian operations[151](index=151&type=chunk) [Results of Operations (YoY Analysis)](index=29&type=section&id=Results%20of%20Operations%20(YoY%20Analysis)) Year-to-date results showed substantial revenue growth and a shift from operating losses to income across all segments [Contract Drilling Segment Performance (YoY)](index=29&type=section&id=Contract%20Drilling%20Segment%20Performance%20(YoY)) Contract drilling revenues more than doubled year-over-year, shifting the segment from a significant operating loss to a profit Contract Drilling Performance (YoY, in thousands, except percentages) | Metric | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $561,226 | $275,233 | 103.9% | | Direct operating costs | $372,975 | $179,512 | 107.8% | | Adjusted gross margin | $188,251 | $95,721 | 96.7% | | Operating income (loss) | $18,556 | $(106,850) | NA | | Operating days - U.S | 21,377 | 12,835 | 66.6% | | Average revenue per operating day - U.S | $24.56 | $21.44 | 14.5% | | Average direct operating costs per operating day - U.S | $16.24 | $13.98 | 16.2% | | Average adjusted gross margin per operating day - U.S | $8.32 | $7.47 | 11.4% | | Capital expenditures | $101,875 | $35,469 | 187.2% | - Direct operating costs increased due to higher operating days, increased reactivation costs, and inflationary pressure; depreciation expense decreased due to a **$220 million impairment charge** in Q4 2021[152](index=152&type=chunk)[153](index=153&type=chunk) [Pressure Pumping Segment Performance (YoY)](index=30&type=section&id=Pressure%20Pumping%20Segment%20Performance%20(YoY)) Pressure pumping revenues and adjusted gross margin surged, resulting in a significant turnaround from an operating loss to income Pressure Pumping Performance (YoY, in thousands, except percentages) | Metric | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $427,966 | $187,830 | 127.8% | | Direct operating costs | $348,923 | $178,830 | 95.1% | | Adjusted gross margin | $79,043 | $9,000 | 778.3% | | Operating income (loss) | $26,512 | $(63,660) | NA | | Average active spreads | 11 | 7 | 57.1% | | Fracturing jobs | 270 | 176 | 53.4% | | Average revenue per fracturing job | $1,557.35 | $994.88 | 56.5% | | Adjusted gross margin as a percentage of revenues | 18.5% | 4.8% | 284.8% | | Capital expenditures | $68,016 | $12,989 | 423.6% | - Depreciation, amortization, and impairment expense decreased due to a **$32.2 million impairment charge** in Q4 2021[158](index=158&type=chunk) [Directional Drilling Segment Performance (YoY)](index=30&type=section&id=Directional%20Drilling%20Segment%20Performance%20(YoY)) Directional drilling revenues more than doubled, shifting the segment from an operating loss to a profit Directional Drilling Performance (YoY, in thousands, except percentages) | Metric | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $98,159 | $44,539 | 120.4% | | Direct operating costs | $82,392 | $39,007 | 111.2% | | Adjusted gross margin | $15,767 | $5,532 | 185.0% | | Operating income (loss) | $5,816 | $(10,033) | NA | | Average jobs per day | 44 | 25 | 76.0% | | Capital expenditures | $7,002 | $1,323 | 429.3% | - Depreciation, amortization, and impairment expense decreased due to the abandonment of an **$11.4 million developed technology intangible asset** and **$2.5 million of equipment** in Q4 2021[162](index=162&type=chunk) [Other Operations Segment Performance (YoY)](index=31&type=section&id=Other%20Operations%20Segment%20Performance%20(YoY)) Other operations revenue grew significantly, driven by favorable crude oil prices and higher oilfield rentals volume Other Operations Performance (YoY, in thousands, except percentages) | Metric | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $44,262 | $25,101 | 76.3% | | Direct operating costs | $25,822 | $20,635 | 25.1% | | Adjusted gross margin | $18,440 | $4,466 | 312.9% | | Operating income (loss) | $4,041 | $(7,843) | NA | | Average WTI-Cushing price per barrel | $102.01 | $62.21 | 63.9% | | Capital expenditures | $13,391 | $6,173 | 116.9% | - Direct operating costs increased due to incremental production costs, higher oilfield rentals volume, and cost inflation[164](index=164&type=chunk) [Corporate Segment Performance (YoY)](index=31&type=section&id=Corporate%20Segment%20Performance%20(YoY)) Corporate SG&A expenses increased due to higher headcount and wage growth, while a gain on asset disposals improved results Corporate Performance (YoY, in thousands, except percentages) | Metric | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | | Selling, general and administrative | $42,795 | $36,978 | 15.7% | | Merger and integration expenses | $2,045 | $1,148 | 78.1% | | Net gain on asset disposals | $(10,408) | $(4,052) | 156.9% | | Other operating (income) expenses, net | $(10,458) | $(2,569) | 307.1% | | Other income (expense) | $(870) | $826 | NA | | Capital expenditures | $914 | $619 | 47.7% | - The **$10.4 million gain** on asset disposals in YTD 2022 was primarily due to the release of an **$11.5 million cumulative translation adjustment** upon exiting Canadian operations[167](index=167&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes) The effective tax rate fluctuated significantly due to pre-tax income/loss changes and the impact of valuation allowances Effective Income Tax Rate | Period | Q2 2022 | Q1 2022 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Effective tax rate | 7.5% | (3.3)% | (64.7)% | 15.0% | - Fluctuations in the effective tax rate are influenced by changes in pretax income across jurisdictions and the **impact of valuation allowances**[169](index=169&type=chunk)[171](index=171&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash, its credit facility, and operating cash flows for its current plans - Primary liquidity sources: cash and cash equivalents, revolving credit facility, and cash from operating activities[173](index=173&type=chunk) - **Working capital**: $173 million as of June 30, 2022[173](index=173&type=chunk) - **Cash and cash equivalents**: $19.6 million as of June 30, 2022[173](index=173&type=chunk) - Available borrowing capacity under the **$600 million** revolving credit facility was approximately **$575 million** as of June 30, 2022[174](index=174&type=chunk) - Outstanding debt at June 30, 2022, was **$884 million**, including Senior Notes and revolving credit facility borrowings[177](index=177&type=chunk) - Increased 2022 capital expenditures forecast to approximately **$390 million**[181](index=181&type=chunk) - Approximately **$130 million** remained authorized for stock repurchases under the stock buyback program as of June 30, 2022[186](index=186&type=chunk) Cash Flows from Operating Activities (Six Months Ended June 30) | Year | Net Cash Provided (in millions) | | :--- | :--- | | 2022 | $85.0 | | 2021 | $44.2 | Cash Dividends Paid (Six Months Ended June 30, 2022, in thousands) | Payment Date | Per Share | Total | | :--- | :--- | :--- | | March 17, 2022 | $0.04 | $8,611 | | June 16, 2022 | $0.04 | $8,652 | | **Total** | **$0.08** | **$17,263** | [Trading and Investing](index=34&type=section&id=Trading%20and%20Investing) The company does not engage in high-risk trading and invests cash in highly liquid, short-term instruments - Does not engage in high-risk trading activities (e.g., derivatives, non-exchange traded contracts)[190](index=190&type=chunk) - Invests cash primarily in **highly liquid, short-term investments** like overnight deposits and money market accounts[190](index=190&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP measures, Adjusted EBITDA and Adjusted Gross Margin, to comparable GAAP measures - **Adjusted EBITDA** is defined as net income (loss) plus net interest expense, income tax expense (benefit), and depreciation, depletion, amortization, and impairment expense[192](index=192&type=chunk) - **Adjusted gross margin** is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization, and impairment expense)[194](index=194&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2022 | Q1 2022 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $21,886 | $(28,777) | $(6,891) | $(209,722) | | Income tax expense (benefit) | $1,780 | $928 | $2,708 | $(36,943) | | Net interest expense | $10,644 | $10,550 | $21,194 | $20,554 | | Depreciation, depletion, amortization and impairment | $121,553 | $116,938 | $238,491 | $296,919 | | **Adjusted EBITDA** | **$155,863** | **$99,639** | **$255,502** | **$70,808** | Adjusted Gross Margin by Segment (YTD 2022 vs. YTD 2021, in thousands) | Segment | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | | Contract Drilling | $188,251 | $95,721 | | Pressure Pumping | $79,043 | $9,000 | | Directional Drilling | $15,767 | $5,532 | | Other Operations | $18,440 | $4,466 | [Critical Accounting Estimates](index=36&type=section&id=Critical%20Accounting%20Estimates) No material changes have been made to the company's critical accounting estimates since the last annual report - **No material changes** in critical accounting estimates since the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[196](index=196&type=chunk) [Recently Issued Accounting Standards](index=36&type=section&id=Recently%20Issued%20Accounting%20Standards) Information on recently issued accounting standards is available in Note 1 of the financial statements - Refer to **Note 1** for discussion of recently issued accounting standards[197](index=197&type=chunk) [Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition](index=36&type=section&id=Volatility%20of%20Oil%20and%20Natural%20Gas%20Prices%20and%20its%20Impact%20on%20Operations%20and%20Financial%20Condition) The company's performance is highly sensitive to volatile oil and gas prices, which could adversely affect future results - Oil and natural gas prices are expected to **remain volatile** and will affect financial condition, operations, and access to capital[200](index=200&type=chunk) - Demand for services is driven by customer expectations of **future prices** and their ability to access capital, not just current high prices[200](index=200&type=chunk) - A decline in demand or prolonged low prices could **materially adversely affect** operating results, financial condition, and cash flows[200](index=200&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk from its variable-rate revolving credit facility, with no material changes since year-end - Exposure to interest rate market risk is associated with borrowings under the **Credit Agreement**[201](index=201&type=chunk) - Loans under the Credit Agreement bear **variable interest rates**, with **$25.0 million** outstanding at a base rate of 5.5% as of June 30, 2022[202](index=202&type=chunk) - **No material changes** in market risk exposure since December 31, 2021[201](index=201&type=chunk) [ITEM 4. Controls and Procedures](index=37&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - Disclosure controls and procedures were **effective** as of June 30, 2022[206](index=206&type=chunk) - **No material changes** in internal control over financial reporting during the most recently completed fiscal quarter[207](index=207&type=chunk) PART II — OTHER INFORMATION [ITEM 1. Legal Proceedings](index=38&type=section&id=ITEM%201.%20Legal%20Proceedings) The company anticipates no material adverse effects from ongoing legal proceedings in the normal course of business - The company does not believe that the outcome of legal proceedings will have a **material adverse effect** on its financial condition, cash flows, or results of operations[209](index=209&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company purchased common stock for employee tax obligations, with $130 million remaining under its buyback program Common Stock Purchases (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 1,178,830 | $16.45 | | May 2022 | — | $— | | June 2022 | 195,427 | $19.75 | | **Total** | **1,374,257** | | - Shares were acquired primarily for exercise price and **employee tax withholding obligations**, not under the stock buyback program[212](index=212&type=chunk) - Approximately **$130 million** remained authorized for repurchases under the stock buyback program as of June 30, 2022[211](index=211&type=chunk)[212](index=212&type=chunk) [ITEM 6. Exhibits](index=39&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the quarterly report, including merger agreements, certifications, and XBRL documents - Key exhibits include: - Merger agreements (Pioneer Energy Services Corp)[213](index=213&type=chunk) - Restated Certificate of Incorporation and Amendments[213](index=213&type=chunk) - Fourth Amended and Restated Bylaws[213](index=213&type=chunk) - Certifications of Chief Executive Officer and Chief Financial Officer[213](index=213&type=chunk) - Inline XBRL Instance Document and Taxonomy Extension Documents[213](index=213&type=chunk) [Signature](index=40&type=section&id=Signature) - The report was signed by C Andrew Smith, Executive Vice President and Chief Financial Officer, on **August 2, 2022**[216](index=216&type=chunk)

Financial Data and Key Metrics Changes - Net income for Q2 2022 was $21.9 million or $0.10 per share, compared to a net loss of $28.8 million or $0.13 per share in Q1 2022 [11] - Adjusted EBITDA forecast for 2022 is now expected to exceed $600 million, with a slight increase in CapEx forecast to $390 million due to rising activity and cost inflation [4][11] Business Line Data and Key Metrics Changes - In contract drilling, average U.S. rig count increased by six rigs to 121, with 127 active rigs currently [5] - Average adjusted rig margin per day increased by $2,220, while average rig revenue per day increased by $2,770 [11] - Pressure pumping revenues reached $238 million, a 26% increase from Q1, with adjusted gross margin improving to $46.9 million [15] - Directional drilling revenues increased by 27% to $54.8 million, with adjusted gross margin improving to $9.4 million [15] Market Data and Key Metrics Changes - Tier 1 super spec rig utilization is greater than 90%, with Patterson-UTI's utilization exceeding 95% [6] - The active rig count is at its highest level since early 2020, indicating strong demand and limited supply [6] Company Strategy and Development Direction - The company is positioned to benefit from strong market fundamentals, focusing on contract drilling, pressure pumping, and directional drilling services [19] - Plans to push day rates and contract terms while maintaining a disciplined approach to activity growth [19] - Emphasis on technology in directional drilling to improve wellbore quality and efficiency [9] Management's Comments on Operating Environment and Future Outlook - Management believes the industry is in a multi-year upcycle, with U.S. oilfield service companies showing financial discipline [18] - Anticipation of continued increases in rig activity and pricing, with constraints on rig supply positively impacting market pricing [25][27] Other Important Information - The company has approximately $440 million of future day rate drilling revenue under term contracts, up from $400 million at the end of Q1 [12] - The company expects to generate approximately $15.5 million of revenue in Colombia for Q3, with adjusted gross margin of approximately $4.8 million [14] Q&A Session Summary Question: Rig count and future activity - Management confirmed five additional rigs are committed to work in 2022, with continued increases expected despite some constraints on rig supply [25] Question: Contract coverage and day rates - Management indicated that day rates are increasing rapidly, and they expect to extend contract lengths as they negotiate for 2023 [27] Question: Pressure pumping capacity - Management stated that while they are currently focused on 12 spreads, they are open to adding more if market conditions warrant [36] Question: CapEx and supply chain - Management noted that lead times for equipment are around six months, prompting an increase in CapEx to secure necessary items for next year [43] Question: Labor issues - Management acknowledged ongoing challenges in recruiting but emphasized successful efforts to find and retain personnel [51] Question: Cash flow and working capital - Management expects working capital increases to be limited in the second half of the year, projecting positive cash flow for 2022 [56] Question: Colombia market conditions - Management reported that operations in Colombia remain stable, with no anticipated changes due to the political climate [57] Question: Utilization of less efficient rigs - Management believes there is a low probability of operators accepting less efficient rigs, as their customer base is focused on increasing activity with Tier 1 super spec rigs [60]

Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the transition period from to Commission file number 1-39270 Patterson-UTI Energy, Inc. (Exact name of registrant as specified in its charter) Delaware 75-2504748 (State or other jurisdiction of i ...

Financial Data and Key Metrics Changes - The company reported a significant increase in average adjusted margin in the U.S., which rose by $1,720 per day in Q1 2022, with expectations for further growth of $1,100 per day in Q2 2022 [5][8] - Total adjusted EBITDA for 2022 is now expected to exceed $500 million, reflecting strong pricing momentum for services [8] - The rig count in the U.S. increased by nine rigs sequentially to 115 rigs in Q1 2022 [8] Business Line Data and Key Metrics Changes - In contract drilling, revenues and margins increased significantly due to higher activity and day rates, with average adjusted margin per rig day reaching $7,170 [9] - Pressure pumping revenues improved to $190 million in Q1 2022, with adjusted gross margin rising to $32.1 million, aided by a sales and use tax refund [12] - Directional drilling revenues increased by 23% to $43.3 million in Q1 2022, with expectations for revenues to reach approximately $50 million in Q2 2022 [16] Market Data and Key Metrics Changes - The leading edge day rates for Tier 1 rigs are now in the upper $20,000 range, with total day rates exceeding $30,000 including ancillary equipment [6] - In Colombia, contract drilling revenues increased to $17 million in Q1 2022, up from $15.8 million in the previous quarter [9] Company Strategy and Development Direction - The company is focused on increasing contract backlog and securing longer-term contracts due to rising demand and limited supply of rigs [6][10] - Management anticipates continued pricing increases in the market for equipment and services, indicating a strong pricing environment not seen in a decade [27] Management's Comments on Operating Environment and Future Outlook - Management noted that the increase in oil and gas demand is primarily driven by the reopening of world economies rather than geopolitical events [22] - The company expects the market for its services to remain tight, with operators needing to commit to higher prices to secure equipment and crews [26] - There is an expectation of a step-up in rig count in 2023 as larger public operators begin to increase their programs [67] Other Important Information - The company is maintaining its 2022 capital expenditure forecast at approximately $350 million, with a focus on the first half of the year to mitigate supply chain issues [19] - Increased working capital was a drag on cash flow in Q1 2022, but management expects this to moderate and cash balances to increase over the year [20] Q&A Session Summary Question: Pricing and Rig Revenue Expectations - Management indicated that there is significant upside potential for average rig revenue and margins, with expectations for continued upward movement in pricing [32][34] Question: Rig Count Projections - Management revised their year-end rig count projection to above 700 rigs, citing strong market conditions [39] Question: Contract Duration and Pricing - The majority of contracts are expected to roll to higher prices, with a shift towards longer contract durations due to market tightness [41] Question: Supply Chain and Labor Issues - Management acknowledged challenges in hiring and retaining labor but does not foresee a strong need for significant wage increases at this time [35] Question: Future Rig Demand and Upgrades - Management confirmed that there are sufficient existing rigs that can be upgraded to meet demand, with no plans for new builds [51]

Operations and Fleet - As of December 31, 2021, the company operated a fleet of 192 marketed land-based drilling rigs in the U.S. and Colombia, with 73 rigs in West Texas and 33 in Appalachia[34]. - The average active U.S. rig count increased to 106 in Q4 2021, up from 80 in Q3 2021, partly due to the acquisition of 13 active rigs from Pioneer Energy Services Corp.[23]. - The company ended Q4 2021 with 11 active pressure pumping spreads, with an expected average of 11 active spreads in Q1 2022[24]. - The company has invested approximately $409 million over the last three years to modify and upgrade its drilling fleet[37]. - Average rigs operating per day in the U.S. decreased from 149 in 2019 to 82 in 2021, with 1,662 wells drilled in 2021 compared to 2,690 in 2019[43]. - Pressure pumping equipment totaled approximately 1.1 million horsepower as of December 31, 2021, with 497 units in operation[48]. Financial Performance - The average oil price per barrel in Q4 2021 was $77.45, showing a recovery from the lows experienced in 2020[20]. - Capital expenditures for 2021 were approximately $166 million, with a forecast increase to $170 million for 2022 due to rising activity levels[25]. - The contract drilling backlog in the U.S. increased from approximately $301 million in 2020 to $325 million in 2021, with 22% expected to remain after 2022[59]. - Approximately 57% of consolidated operating revenues in 2021 came from the ten largest customers, with one customer accounting for approximately $216 million, or 16% of total revenues[58]. - The company recorded a $220 million charge in Q4 2021 related to the abandonment of 43 legacy, non-super-spec rigs due to limited commercial opportunity[43]. - A charge of $32.2 million was recorded in Q4 2021 for the abandonment of approximately 0.2 million horsepower within the pressure pumping fleet[49]. Acquisitions and Divestitures - The acquisition of Pioneer Energy Services was completed on October 1, 2021, valued at approximately $278 million, enhancing the company's contract drilling capabilities[27]. - The company sold its acquired well servicing rig business for $43 million in cash on December 31, 2021, presenting the results as a discontinued operation[30]. Technology and Innovation - The EcoCell™ lithium battery hybrid energy management system was commercialized to reduce fuel consumption and emissions on drilling rigs[64]. - The company continues to enhance technology offerings, including the Cortex® operating system for rig performance and the GenAssist™ application for fuel efficiency[45]. - The company abandoned certain directional drilling equipment totaling $2.5 million in Q4 2021 due to advances in technology rendering those assets obsolete[54]. Employee Relations and Safety - The company had approximately 5,000 full-time employees as of January 31, 2022, with employee relations considered satisfactory[66]. - The company trained over 3,500 employees on its Code of Business Conduct and Ethics in 2021[72]. - The company has implemented safety protocols in response to the COVID-19 pandemic, allowing many office-based employees to work from home[69]. - The company is committed to diversity and inclusion, requiring new supervisors and managers to attend training on these topics[71]. Regulatory and Environmental Considerations - The company is subject to numerous federal, state, and local regulations that could increase operational costs and affect business[75]. - The company faces potential legislative and regulatory changes regarding hydraulic fracturing that could impact operations and costs[83]. - The company monitors and assesses new policies related to greenhouse gas emissions and climate change, which may affect operations[89]. - The company does not anticipate significant capital expenditures for environmental control facilities in the foreseeable future[74]. Risk Management and Insurance - The company maintains liability and other forms of insurance to mitigate risks associated with its operations[91]. - The company has indemnification agreements with many customers, but these may be limited or unenforceable under certain circumstances[91]. - The company maintains various types of insurance coverage, including a $1.5 million deductible for workers' compensation and a $10 million deductible for general liability[92]. - The company self-insures several risks, including loss of earnings and most cybersecurity risks[92]. - The company retains the risk for any loss in excess of insurance policy limits or exclusions[93]. Financial Position and Borrowings - As of December 31, 2021, the applicable margin on LIBOR rate loans was 1.75% and on base rate loans was 0.75%[291]. - The company had no borrowings outstanding under its revolving credit facility as of December 31, 2021[291]. - Under the Reimbursement Agreement, the company is obligated to pay Scotiabank interest at LIBOR plus 2.25% per annum for any amounts not paid on demand[292]. - The company has exposure to interest rate market risk associated with borrowings under the Credit Agreement[290]. Seasonality and Market Conditions - Seasonality has not significantly affected the company's overall operations, although there is slower activity toward the end of the calendar year[95]. - The carrying values of cash and cash equivalents, trade receivables, and accounts payable approximate fair value due to their short-term maturity[293]. - The company utilizes numerous independent subcontractors and multiple suppliers for raw materials and services[96].

Financial Data and Key Metrics Changes - For Q4 2021, the company reported a net loss of $362 million or $1.68 per share, which included pre-tax charges totaling $286 million [17] - The adjusted EBITDA for 2022 is expected to exceed $450 million, which is more than $100 million above the CapEx forecast of approximately $350 million [7][18] - The average rig margin per day during Q4 decreased to $5,450 due to increased labor and rig reactivation costs [19] Business Line Data and Key Metrics Changes - In contract drilling, total revenue increased by 46% and adjusted gross margin increased by 26% [19] - Pressure pumping profitability improved significantly, with adjusted gross margin rising to $20.9 million on $183 million of revenues in Q4 [23] - Directional drilling adjusted gross margin for Q4 was $1 million, which included a $4 million non-cash write-off of inventory [25] Market Data and Key Metrics Changes - The U.S. rig count is projected to be between 650 to 700 for the industry in 2022 [39] - The company expects to generate approximately $16 million of revenue in Colombia for Q1 2022 [20] Company Strategy and Development Direction - The company plans to focus on high return, quick payback opportunities for CapEx, with a majority directed towards maintenance and reactivation [8][32] - The company is increasing its quarterly dividend to $0.04 per share, reflecting improved cash flow [8] - The company aims to upgrade approximately 20 rigs to Tier 1 status in 2022, with expected paybacks ranging from 1 to 3 years [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a multiyear up cycle in the oilfield services sector due to tight premium equipment availability and improving pricing [30][31] - The company anticipates strong EBITDA growth year-on-year, driven by higher activity and improved pricing [32] - Management noted that labor remains tight but compensation increases have been implemented to address potential challenges [81] Other Important Information - The company repaid a $50 million balance on its term loan, resulting in approximately $741 million of net debt outstanding as of December 31, 2021 [27] - The company has a total of 107 Tier 1 super-spec rigs in the U.S., with 95% utilization [11] Q&A Session Summary Question: Guidance for 2022 and rig count expectations - Management expects the rig count in 2022 to be between 650 to 700, with improving pricing and profitability across businesses [39][40] Question: Daily gross margins expectations - Management indicated that daily gross margins are expected to improve, with some rigs earning over $30,000 per day [42][44] Question: Term contracts and pricing - Management confirmed that term contracts are rolling up and will not be dilutive to expected realized day rates [55][58] Question: Pressure pumping margins - Management expects continued progression in pressure pumping gross margins throughout the year, potentially reaching high teens [71][73] Question: Rig upgrades and costs - Management noted that upgrading Tier 2 rigs to Tier 1 super-spec could be costly, with their own upgrades costing about $2 million each [46][47] Question: Directional drilling growth - Management highlighted the impressive growth in directional drilling and plans to roll out new technology to improve profitability [82]