Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Q1 2020 Earnings Conference Call April 23, 2020 10:00 AM ET Company Participants Mike Drickamer - Vice President-Investor Relations Mark Siegel - Chairman Andy Smith - Chief Financial Officer Andy Hendricks - President & Chief Executive Officer Conference Call Participants Sean Meakim - JPMorgan Chase Mulvehill - Bank of America Kurt Hallead - RBC Scott Gruber - Citigroup Taylor Zurcher - Tudor Pickering Jeffrey Campbell - Tuohy Brothers John Daniel - Daniel Energy P ...

Financial Data and Key Metrics Changes - For Q4 2019, the company reported a net loss of $85.9 million or $0.44 per share on revenue of $492 million and adjusted EBITDA of $97.3 million [8][9] - The company generated strong cash flow in 2019, returning $283 million to shareholders through share repurchases and dividends, while net debt decreased by $79 million to $801 million at year-end [8][9][36] - Capital expenditures (CapEx) for 2019 were $348 million, a 46% reduction compared to 2018, with an expected CapEx of approximately $250 million for 2020 [10][36] Business Line Data and Key Metrics Changes Contract Drilling - The average rig count for Q4 fell to 123 rigs, with a net decrease of 10 rigs during the quarter [14][15] - Average rig revenue per operating day was $23,980, and average rig direct cost per operating day was $15,540, leading to lower than expected average rig margin per day [18] - The company expects the first quarter rig count to be similar to Q4, with average revenue per operating day projected between $23,200 and $23,500 [20] Pressure Pumping - Pressure pumping activity decreased throughout Q4, with a gross margin of $21.9 million, including a $10.8 million sales tax refund [24][25] - For Q1, pressure pumping revenues are expected to be approximately $130 million, with a gross margin of low 5% [31] - The company plans to average 10 active spreads for Q1, with no current plans to activate additional spreads due to market oversupply [51] Directional Drilling - Directional drilling revenues were $38.6 million with a gross margin of $3.8 million in Q4, negatively impacted by lower rig count [32] - For Q1, directional drilling revenues are expected to be $34 million with a gross profit margin of $2 million [33] Other Operations - Revenues from other operations, including rental, technology, and E&P businesses, were $21.5 million with a gross margin of $7.7 million in Q4 [34] Market Data and Key Metrics Changes - Geographically, the Permian Basin showed relative strength, partially offsetting weakness in other markets [17] - The company noted that super-spec utilization in the Permian is starting to tighten, with all APEX-XKs currently working [22] Company Strategy and Development Direction - The company is focusing on maintenance capital to maintain equipment quality and service levels, with strategic investments in automation and performance technologies planned for 2020 [10][36] - The company is positioned to benefit from the increasing demand for natural gas dual fuel capabilities and high line powered electric rigs [21][22][30] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about both contract drilling and pressure pumping businesses through 2020, despite challenges in the operating environment [13][30] - The supply side of the market is improving, but demand remains challenged, with modest improvements in industry activity expected [30] Other Important Information - The company declared a quarterly cash dividend of $0.04 per share to be paid on March 19, 2020 [37] - The company successfully extended near-term debt maturities and issued $350 million of notes due in 2029 [9] Q&A Session Summary Question: What is a normal level for OpEx by the end of the year? - Management indicated that normalized OpEx should be closer to $14,000 to $14,500 per day as rig counts stabilize [42][43] Question: Is 10 spreads the right size for pressure pumping? - Management confirmed that 10 spreads is the current plan, with no immediate plans to activate more due to market conditions [51] Question: How much additional frac capacity needs to come out of the market for balance? - Management estimated that approximately 5 million horsepower needs to be retired from the market to achieve balance [106] Question: What is the profitability of performance-based contracts? - Performance components in contracts provide an additional uplift of $400 to $500 per day compared to traditional contracts [114] Question: What is the outlook for dual fuel and electric frac technologies? - Management noted increasing demand for dual fuel capabilities and is conducting studies on emissions for both drilling and pressure pumping operations [85][89]

Financial Data and Key Metrics Changes - For Q3 2019, the company reported a net loss of $262 million or $1.31 per share, which included charges totaling $260 million pretax or $209 million after tax. Excluding these charges, the net loss would have been $52.9 million or $0.27 per share [8][9] - Capital expenditures totaled $68 million, a 30% reduction from the second quarter, with full year 2019 CapEx expected to be approximately $350 million, down from previous expectations of $400 million [13][16] - The outstanding gross debt balance was $975 million, a $150 million reduction from the end of the prior quarter, with a net debt-to-capital ratio of 21.6% at September 30, 2019 [15] Business Line Data and Key Metrics Changes - In contract drilling, the average rig count during Q3 was 142 rigs, with average rig revenue per day increasing to $24,240 from $24,200 in Q2. Average rig operating cost per day increased to $14,440 due to lower fixed cost absorption [21][23] - Pressure pumping gross margin was $32.3 million on revenues of $209 million, lower than expected due to decreased activity. The company ended the quarter with 14 active spreads and expects Q4 pressure pumping margin to be approximately $8 million with revenues of approximately $150 million [28][30] - Directional drilling gross margin was $7.8 million with revenues of $47 million in Q3, with expectations of $39 million in revenues and $8 million in gross profit margin for Q4 [33] Market Data and Key Metrics Changes - The overall decrease in U.S. industry rig count was noted, with Patterson-UTI's rig count decrease in line with expectations. The company anticipates further declines in drilling and pressure pumping activity in Q4 [18][19] - The company has retired 36 non-APEX rigs and expects rig count to average 126 rigs in Q4, stabilizing near current levels [24][25] - The pressure pumping market is oversupplied, with pricing at unsustainably low levels, leading to equipment rationalization [30][32] Company Strategy and Development Direction - The company remains capital disciplined and focused on optimizing its fleet, having permanently retired 300,000 horsepower of pressure pumping equipment to improve utilization and returns [31][32] - The company is adjusting its business according to market conditions, with a focus on debt reduction and share buybacks, having repurchased 8.2 million shares in Q3 [39] - The company is investing in technology to enhance operational efficiency, with a focus on capital-light investments [77][78] Management's Comments on Operating Environment and Future Outlook - Management indicated limited visibility for 2020 activity, with operators currently working on their budgets. There is potential for a modest increase in rig activity in early 2020 [19][20] - The company expects Q4 to be challenging due to seasonality and budget constraints, but anticipates some improvement in Q1 as operators finalize their budgets [95][96] - Management expressed confidence that supply-side adjustments, including equipment retirements, will help address underutilization in the market over time [50] Other Important Information - The company declared a quarterly cash dividend of $0.04 per share to be paid on December 19, 2019 [40] - The company published its corporate sustainability report, highlighting various initiatives [40] Q&A Session Summary Question: Customer actions in the first half of next year for pumping and drilling activity - Management noted that visibility for 2020 is limited, but discussions with operators suggest potential rig activity increases towards the end of December and into early Q1 [44] Question: Confidence level regarding supply-driven solutions to underutilization - Management believes that supply-side adjustments will help improve utilization, but it will take time [50] Question: CapEx needed to reactivate retired horsepower - Management indicated that the decision to retire 300,000 horsepower was based on market needs and the oversupply situation [52] Question: Pricing environment in land drilling - Management acknowledged pressure on leading-edge dayrates but emphasized the value of super-spec rigs [57] Question: Potential for incremental rig activity - Management indicated that there is potential for a modest increase in rig activity, but specifics are uncertain [65] Question: Impact of retired frac pumps on CapEx - Management noted that the use of components from retired equipment could provide some savings, but it would be relatively small [67] Question: Maintenance CapEx expectations - Management stated that it is too early to determine maintenance CapEx levels for 2020 due to uncertainty in rig counts and schedules [85]

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Financial Data and Key Metrics Changes - The company reported a net loss of $49.4 million, or $0.24 per share, for Q2 2019, which included charges totaling $16.3 million pre-tax [7] - Excluding these charges, the adjusted net loss would have been $35.9 million, or $0.17 per share [7] - Adjusted EBITDA for the second quarter would have been $177 million, with $150 million of stock repurchased in the first half of 2019, representing 5.5% of shares outstanding at the beginning of the year [9][10] - Cash capital expenditures for Q2 totaled $96.9 million, down from $118 million in Q1, with a revised forecast of $400 million for 2019 [11] Business Line Data and Key Metrics Changes Contract Drilling - Average rig count during Q2 was 158 rigs, down from 175 in Q1, with average rig revenue per day increasing to $24,200 [16] - Average rig margin per day increased to $10,170, including $280 per day from early termination revenue [16] - Expected average rig count for Q3 is 142 rigs, with average rig revenue per operating day projected at approximately $23,700 [17] Pressure Pumping - Pressure pumping gross margin remained unchanged at $44.9 million, while revenues increased to $251 million from $248 million in Q1 [18] - EBITDA per spread increased by 18% over Q1, with expectations of Q3 pressure pumping revenues at $225 million and gross margin of approximately $35 million [20] Directional Drilling - Gross margin for Q2 improved to $8.1 million from $7.4 million, with expected revenues of $49 million for Q3 [21] Other Operations - Revenues in other operations decreased to $26.4 million from $31.2 million in Q1, with gross margin percentage increasing to 33% [21] Market Data and Key Metrics Changes - Oil prices began Q2 in the mid $60 range but fell to the low $50 range due to concerns about trade and inventory levels [14] - E&P companies are being more disciplined with budgets, leading to a slowdown in drilling and completion activity [15] Company Strategy and Development Direction - The company is focused on cash flow generation, having generated adjusted EBITDA of $368 million in the first half of 2019, exceeding CapEx by $153 million [24] - Plans to use cash flow for stock buybacks and debt repayment, with a cash balance of $256 million at the end of Q2 [28] - The company aims to maintain operational efficiency while restraining spending and generating cash [27] Management Comments on Operating Environment and Future Outlook - Management noted that E&P companies are slowing spending earlier in the year to avoid budget exhaustion, which may lead to lower drilling activity in Q3 [15] - The company expects a mix shift to more single well pads in pressure pumping, impacting overall activity and efficiency [20] - There is uncertainty regarding Q4 activity levels, but management believes rig count may not drop as much as previously anticipated [47] Other Important Information - The company declared a quarterly cash dividend of $0.04 per share to be paid on September 19, 2019 [29] - The board of directors increased the share repurchase authorization to $250 million [9] Q&A Session Summary Question: Can you provide insights on Q3 rig count guidance and customer indications for 2020? - Management noted that major international oil companies are holding steady, while public independents are managing budgets more tightly, leading to a downward shift in rig count [35][36] Question: What are your views on dayrates for super-spec rigs? - Management indicated that while there is pressure on pricing due to rig count declines, utilization for super-spec rigs remains relatively high [38] Question: How do you see the rig count and frac activity evolving in Q4? - Management expressed uncertainty but noted that E&P companies are managing budgets earlier, which may stabilize rig counts [47] Question: What is the competitive landscape for pressure pumping? - Management stated that most frac spreads work under dedicated agreements, and while there is pressure on pricing, operational efficiencies are being improved [80][81] Question: Are there any plans for dual fuel tier four fleets? - Management confirmed they have dual fuel capabilities and are adding tier four engines as needed, but do not see immediate economic sense in expanding electric frac capacity [118][119]

Financial Data and Key Metrics Changes - The company reported a net loss of $28.6 million or $0.14 per share on revenues of $704 million for Q1 2019, with consolidated adjusted EBITDA of $191 million [10][12] - Cash capital expenditures for Q1 totaled $118 million, down from $161 million in Q4 2018, with a forecast for 2019 CapEx of $465 million [13][36] - The cash balance improved to $249 million at March 31, with a net-debt-to-capital ratio of 20.5% [12] Business Line Data and Key Metrics Changes - In contract drilling, the average rig count decreased to 175 rigs, with average rig revenue per day increasing to $23,590, resulting in an average rig margin per day of $9,700, the highest since early 2016 [18][19] - Pressure pumping revenues decreased to $248 million, but gross profit margin exceeded expectations at $44.9 million [24] - Directional drilling revenues were $53 million, with gross profit margin increasing to $7.4 million [27] Market Data and Key Metrics Changes - The rig count is expected to decline further, potentially bottoming in the mid-150s during Q2 2019, despite higher oil prices [21][42] - Super-spec rig utilization remains over 90%, indicating a tight market for high-spec rigs [54][96] Company Strategy and Development Direction - The company is focused on efficient capital allocation, with a 27% reduction in capital expenditures compared to 2018 levels, leading to increased cash flow generation [36] - The company aims to improve profitability through internal efficiencies and cost reductions, particularly in pressure pumping [26][78] - The company is exploring technology-driven capabilities, such as Superior QC, to enhance operational efficiency and capture value [72][90] Management's Comments on Operating Environment and Future Outlook - Management noted that the decrease in drilling and completion activity will be less severe than previously forecasted, with potential upside from private operators as oil prices rise [34][58] - There is cautious optimism regarding the rig count and market conditions, with expectations for a flat activity level in the near term [50][61] Other Important Information - The company returned over $80 million to shareholders through stock repurchases and dividends in Q1 2019 [36][37] - A quarterly cash dividend of $0.04 per share was declared, to be paid on June 20, 2019 [38] Q&A Session Summary Question: Visibility on rig count guidance - Management indicated that rig count is expected to bottom in Q2, with private operators potentially providing some upside [41][42] Question: Margin progression for the remainder of the year - Management expressed encouragement regarding current rig margins, which have reached a new high since 2016, but noted difficulty in predicting beyond Q2 [44] Question: Pressure pumping efficiencies - Management credited field teams for improving margins in a challenging market and emphasized ongoing efforts to reduce costs and improve uptime [46][47] Question: Reactivation of idle fleets - Management stated that reactivation decisions depend on internal hurdle rates and market conditions, with no immediate plans to increase activity [49][50] Question: Pricing pressure on super-spec rigs - Management reported that super-spec rig utilization remains high, with limited pricing pressure observed [54][96] Question: Customer inquiries and activity levels - Management noted that discussions with customers have not yet changed significantly, but there is potential for increased activity as oil prices rise [66][68] Question: Dayrate structure and margin expectations - Management anticipates maintaining margins above $11,000 per day based on current pricing trends [69] Question: Strategic view on pressure pumping - Management reaffirmed the importance of the pressure pumping business and its potential for margin improvement [78] Question: Technology adoption and revenue models - Management is focused on capturing value from technology investments without solely relying on dayrate increases [90][91]

Financial Data and Key Metrics Changes - The company reported a net loss of $201 million or $0.93 per share on revenues of $796 million for Q4 2018. Excluding a noncash pre-tax goodwill impairment charge of $211 million, the net loss would have been $9 million or $0.04 per share [10][12]. - Consolidated adjusted EBITDA for Q4 was $213 million, bringing the total for 2018 to $806 million, an increase of $315 million or 64% over the prior year [12]. - The company repurchased 3.8 million shares for $50 million in Q4, totaling $150 million for the year, representing 4.2% of outstanding shares at the beginning of 2018 [13][14]. Business Line Data and Key Metrics Changes - In contract drilling, the average rig count for Q4 was 183 rigs, up five from Q3, with an average rig margin per day increasing by $920 to $9,390 [21]. - Pressure pumping generated a gross profit of $62.2 million on revenues of $320 million in Q4, down from a gross profit of $79.1 million on revenues of $422 million in Q3, primarily due to lower activity levels [32][33]. - Directional drilling achieved adjusted EBITDA of $4.1 million on revenues of $56.4 million, an increase from $3.3 million on revenues of $51.6 million in the previous quarter [37]. Market Data and Key Metrics Changes - The company noted a significant drop in oil prices in December, with WTI decreasing by almost $34 or 44% over 82 days [42]. - Following the drop, oil prices rebounded by approximately 26%, improving operator sentiment and discussions about putting rigs back to work [44][45]. - The current available supply of super-spec rigs in the U.S. is estimated at approximately 650 rigs, with industry utilization for super-spec rigs in the mid-90% range [25]. Company Strategy and Development Direction - The company aims to maintain its position as a leading super-spec driller and will continue to focus on operational excellence and efficient service delivery [25][46]. - The company plans to return cash to shareholders through share repurchases and dividends while keeping a fortress-like balance sheet with low debt levels [47][48]. - The company is investing in technology advancements, including the development of proprietary operating systems to enhance drilling performance [28][121]. Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the future, noting that while Q1 may see softness in drilling activity and pressure pumping, high utilization rates for super-spec rigs are expected to continue [45][46]. - The company anticipates that the first quarter of 2019 could be the low point for activity, with potential improvements as oil prices stabilize [66][78]. - Management highlighted the importance of maintaining flexibility to scale operations based on market conditions and customer demand [48][90]. Other Important Information - The company declared a quarterly cash dividend of $0.04 per share to be paid on March 21, 2019 [50]. - The company has approximately $150 million remaining under its share repurchase authorization, which was increased to $250 million [15]. Q&A Session Summary Question: Average rig count and customer feedback - Management indicated that the average rig count could drop to the upper 160s based on customer notifications, but this is still fluid as operators finalize their plans [56][57]. Question: Pressure pumping market conditions - Management noted that the Mid-Con region is experiencing the softest market conditions, with competitive pricing and an oversupplied market [64][65]. Question: Equipment attrition and market consolidation - Management believes that while there is oversupply in the market, equipment attrition will eventually lead to consolidation as demand increases [72][91]. Question: Pressure pumping pricing expectations - Management stated that pricing improvements are contingent on WTI prices rising and overall activity levels increasing [78][80]. Question: Interest in additional upgrades - Discussions regarding term contracts for upgrades have cooled due to commodity price fluctuations, but management remains optimistic about future opportunities [113][114].