Patterson-UTI Energy(PTEN) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and detailed notes for the reporting period ITEM 1. Financial Statements This section provides the company's unaudited condensed consolidated financial statements and comprehensive notes on accounting policies and financial performance Unaudited condensed consolidated balance sheets The company's total assets decreased by $257.8 million from December 31, 2024, to June 30, 2025, primarily driven by reductions in property and equipment and intangible assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Total Assets | $5,575,620 | $5,833,466 | $(257,846) | | Total Liabilities | $2,226,947 | $2,357,622 | $(130,675) | | Total Equity | $3,348,673 | $3,475,844 | $(127,171) | Unaudited condensed consolidated statements of operations For the six months ended June 30, 2025, the company reported a net loss of $(47.4) million, a significant decline from a net income of $63.3 million in the prior year Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Operating Revenues | $1,219,320 | $1,348,194 | $2,499,857 | $2,858,554 | | Operating Income (Loss) | $(29,486) | $45,228 | $(12,541) | $132,227 | | Net Income (Loss) | $(48,697) | $11,621 | $(47,407) | $63,327 | | Net Income (Loss) Attributable to Common Stockholders | $(49,144) | $11,077 | $(48,139) | $62,312 | | Basic EPS | $(0.13) | $0.03 | $(0.12) | $0.15 | | Diluted EPS | $(0.13) | $0.03 | $(0.12) | $0.15 | | Cash Dividends per Common Share | $0.08 | $0.08 | $0.16 | $0.16 | Unaudited condensed consolidated statements of comprehensive income For the six months ended June 30, 2025, the company reported a comprehensive loss of $(45.8) million, a significant decrease from a comprehensive income of $62.2 million in the prior year period Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(48,697) | $11,621 | $(47,407) | $63,327 | | Foreign currency translation adjustment, net of taxes of $0 for all periods | $1,848 | $(127) | $1,559 | $(1,120) | | Comprehensive income (loss) | $(46,849) | $11,494 | $(45,848) | $62,207 | | Comprehensive income (loss) attributable to common stockholders | $(47,296) | $10,950 | $(46,580) | $61,192 | Unaudited condensed consolidated statements of changes in stockholders' equity Total equity decreased by $127.2 million from December 31, 2024, to June 30, 2025, primarily due to a net loss, cash dividends paid, and treasury stock purchases Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Item | December 31, 2024 | June 30, 2025 | Change (6 months) | | :------------------------------------ | :---------------- | :------------ | :---------------- | | Balance, December 31, 2024 | $3,475,844 | N/A | N/A | | Net income (loss) | N/A | $(49,144) | $(49,144) | | Payment of cash dividends | N/A | $(61,619) | $(61,619) | | Purchase of treasury stock | N/A | $(35,849) | $(35,849) | | Balance, June 30, 2025 | N/A | $3,348,673 | $(127,171) | Unaudited condensed consolidated statements of cash flows For the six months ended June 30, 2025, net cash provided by operating activities decreased by $215.5 million to $347.9 million, with overall cash and equivalents decreasing by $55.4 million Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net cash provided by operating activities | $347,890 | $563,413 | $(215,523) | | Net cash used in investing activities | $(289,207) | $(349,504) | $60,297 | | Net cash used in financing activities | $(112,720) | $(332,538) | $219,818 | | Net decrease in cash, cash equivalents and restricted cash | $(55,402) | $(117,644) | $62,242 | | Cash, cash equivalents and restricted cash at end of period | $185,891 | $75,036 | $110,855 | Notes to unaudited condensed consolidated financial statements These notes detail accounting policies, revenue recognition, inventory, assets, liabilities, equity, and fair value measurements, including segment disclosure updates and an impairment charge Note 1. Basis of Presentation The interim financial statements are unaudited and prepared under SEC rules and GAAP, with new segment disclosure requirements adopted and future income tax standards under evaluation - The company adopted a new FASB accounting standards update for reportable segment disclosure requirements effective January 1, 2024[25] - The company plans to adopt new FASB guidance on income tax disclosure requirements during fiscal year 2025, with first enhancements to be reflected in its Annual Report on Form 10-K for the year ending December 31, 2025[26] - New FASB guidance expanding disclosure requirements for certain income statement expenses is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027[27] Cash, Cash Equivalents and Restricted Cash Reconciliation (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $183,768 | $72,444 | | Restricted cash | $2,123 | $2,592 | | Total cash, cash equivalents and restricted cash | $185,891 | $75,036 | Note 2. Revenues Revenue recognition for services is based on performance, with contract liabilities decreasing significantly to $4.8 million and $70.5 million recognized as revenue in H1 2025 - Revenue from Drilling Services and Completion Services is recognized as services are performed, typically daily or per stage, with variable consideration determined upon job completion[29][31][33] - Contract liabilities decreased from $75.6 million at December 31, 2024, to $4.8 million at June 30, 2025[38] - The company recognized $70.5 million of revenue during the six months ended June 30, 2025, that was included in the contract liability balance at the beginning of the period[38] - The contract drilling backlog in the United States was approximately $312 million as of June 30, 2025, with about 9% expected to remain at June 30, 2026[40][125] Note 3. Inventory Total inventory decreased slightly to $163.7 million, primarily due to an $8.1 million decrease in finished goods, partially offset by increases in raw materials Inventory (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Raw materials and supplies | $125,555 | $121,694 | $3,861 | | Work-in-process | $7,596 | $6,681 | $915 | | Finished goods | $30,536 | $38,648 | $(8,112) | | Total Inventory | $163,687 | $167,023 | $(3,336) | Note 4. Other Current Assets Other current assets decreased by $2.5 million to $120.6 million, mainly due to a decrease in workers' compensation receivable and other assets Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Federal and state income taxes receivable | $27,660 | $24,777 | $2,883 | | Workers' compensation receivable | $26,474 | $33,240 | $(6,766) | | Prepaid expenses | $43,388 | $34,004 | $9,384 | | Other | $23,122 | $31,172 | $(8,050) | | Total Other Current Assets | $120,644 | $123,193 | $(2,549) | Note 5. Property and Equipment Net property and equipment decreased by $174.9 million, with a $27.8 million impairment charge recorded for Latin American drilling equipment due to deteriorating market conditions Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | Total property and equipment (gross) | $8,924,181 | $9,082,568 | $(158,387) | | Less accumulated depreciation, depletion, amortization and impairment | $(6,088,749) | $(6,072,226) | $(16,523) | | Property and equipment, net | $2,835,432 | $3,010,342 | $(174,910) | - Depreciation and depletion expense on property and equipment was approximately $199 million for the three months ended June 30, 2025, and $399 million for the six months ended June 30, 2025[43] - A $27.8 million impairment charge was recorded to Latin American drilling equipment during the three months ended June 30, 2025, due to a reduced outlook for activity driven by global economic deterioration, increased oil supply, and geopolitical tensions[44][46] Note 6. Goodwill and Intangible Assets Goodwill remained stable at $487 million, while net intangible assets decreased by $57.7 million due to amortization; no goodwill impairment was recorded despite a Q2 2025 assessment - Goodwill balance remained at $487 million as of June 30, 2025, with no additions or impairments during the six months ended June 30, 2025[48] - A quantitative assessment for goodwill impairment was performed in Q2 2025 due to reduced activity forecasts and a decline in stock price, but no impairment was recorded for the drilling products or cementing services reporting units[51][53][54] Intangible Assets, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Customer relationships | $652,189 | $687,004 | $(34,815) | | Developed technology | $125,884 | $146,210 | $(20,326) | | Trade name | $82,594 | $86,903 | $(4,309) | | Other | $11,283 | $9,493 | $1,790 | | Intangible assets, net | $871,950 | $929,610 | $(57,660) | - Amortization expense on intangible assets was approximately $31.9 million for the three months ended June 30, 2025, and $62.8 million for the six months ended June 30, 2025[55] Note 7. Accrued Liabilities Total accrued liabilities decreased significantly by $124.1 million to $261.7 million, primarily due to decreases in deferred revenue, salaries, and workers' compensation liability Accrued Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | Salaries, wages, payroll taxes and benefits | $89,575 | $110,212 | $(20,637) | | Workers' compensation liability | $65,988 | $73,730 | $(7,742) | | Property, sales, use and other taxes | $41,679 | $54,445 | $(12,766) | | Insurance, other than workers' compensation | $9,095 | $10,703 | $(1,608) | | Accrued interest payable | $17,512 | $17,484 | $28 | | Deferred revenue | $4,467 | $75,195 | $(70,728) | | Accrued merger and integration expense | $2,500 | $4,723 | $(2,223) | | Other | $30,837 | $39,259 | $(8,422) | | Total Accrued Liabilities | $261,653 | $385,751 | $(124,098) | Note 8. Long-Term Debt Total long-term debt remained stable at $1.22 billion, with $6.4 million in Equipment Loans paid off and a new $500 million credit facility established with $498 million available Long-Term Debt (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | 3.95% Senior Notes Due 2028 | $482,505 | $482,505 | $0 | | 5.15% Senior Notes Due 2029 | $344,895 | $344,895 | $0 | | 7.15% Senior Notes Due 2033 | $400,000 | $400,000 | $0 | | Equipment Loans Due 2025 | $0 | $6,395 | $(6,395) | | Total (gross) | $1,227,400 | $1,233,795 | $(6,395) | | Less deferred financing costs and discounts | $(7,002) | $(7,637) | $635 | | Less current portion | $0 | $(6,388) | $6,388 | | Total Long-Term Debt, Net | $1,220,398 | $1,219,770 | $628 | - The company paid off $6.4 million in Equipment Loans in June 2025[57] - A new $500 million senior unsecured credit facility was entered into on January 31, 2025, maturing on January 31, 2030[57][58][163] - As of June 30, 2025, the company had no borrowings outstanding under the Credit Agreement and approximately $498 million available borrowing capacity[62][213] Principal Repayment Requirements of Long-Term Debt (in thousands) | Year ending December 31, | Amount | | :----------------------- | :----- | | 2025 | $0 | | 2026 | $0 | | 2027 | $0 | | 2028 | $482,505 | | 2029 | $344,895 | | Thereafter | $400,000 | | Total | $1,227,400 | Note 9. Commitments and Contingencies The company has $42.1 million in letters of credit, $37.0 million in surety bonds, and $94.8 million in equipment purchase commitments, facing a patent-related lawsuit with potential material impact - As of June 30, 2025, the company had $42.1 million in outstanding letters of credit and $37.0 million in surety bond exposure[76][172] - Commitments to purchase major equipment totaled approximately $94.8 million as of June 30, 2025[77][184] - Remaining minimum obligations for proppant purchases were approximately $27.1 million as of June 30, 2025, with $9.2 million for the remainder of 2025, $13.1 million for 2026, and $4.8 million for 2027[77][184] - The company is a defendant in a patent-related breach of license agreement claim by NOV Inc., with trial scheduled for October 27, 2025[78][81][226] An unfavorable judgment not covered by indemnity could materially impact financial results Note 10. Stockholders' Equity A $0.08 per share cash dividend was approved, and the stock buyback program has $728 million remaining authorization, with $31.4 million in repurchases during H1 2025 - A cash dividend of $0.08 per share was approved on July 23, 2025, payable on September 15, 2025[83][178] - The stock buyback program was increased in February 2024 to $1.0 billion, with approximately $728 million remaining authorization as of June 30, 2025[84][180] Treasury Stock Acquisitions (in thousands, except shares) | Item | Shares | Cost | | :------------------------------------ | :------------- | :--------- | | Treasury shares at January 1, 2025 | 133,440,028 | $1,951,067 | | Purchases pursuant to stock buyback program | 4,278,723 | $31,434 | | Acquisitions pursuant to long-term incentive plans | 669,959 | $4,632 | | Treasury shares at June 30, 2025 | 138,388,710 | $1,987,133 | Note 11. Stock-based Compensation Unrecognized compensation cost for unvested RSUs and Performance Units totals $76.5 million, with total stock-based compensation expense decreasing to $22.5 million in H1 2025 - No stock options have been granted since 2016[87] - As of June 30, 2025, unrecognized compensation cost related to unvested equity-based restricted stock units totaled $51.7 million, with a weighted-average remaining vesting period of 2.26 years[87] - As of June 30, 2025, unrecognized compensation cost related to unvested cash-settled restricted stock units totaled $3.6 million, with a weighted-average remaining vesting period of 2.83 years[88] - As of June 30, 2025, unrecognized compensation cost related to unvested Performance Units totaled $21.2 million, with a weighted-average remaining vesting period of 2.05 years[91] Stock-Based Compensation Expense (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Share-settled awards | $9,578 | $10,812 | $21,867 | $22,864 | | Cash-settled awards | $581 | $(130) | $589 | $1,110 | | Total Stock-based compensation expense | $10,159 | $10,682 | $22,456 | $23,974 | Note 12. Income Taxes The effective income tax rate for Q2 2025 was (2.5)% and for H1 2025 was (5.8)%, primarily due to valuation allowances and permanent differences, with the company evaluating new tax legislation - Effective income tax rate for Q2 2025 was (2.5)%, down from 60.5% in Q2 2024, primarily due to valuation allowances on deferred tax assets and permanent differences[94] - Effective income tax rate for H1 2025 was (5.8)%, down from 37.4% in H1 2024, due to valuation allowances on deferred tax assets and permanent differences[95] - The company is evaluating the impact of the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025, on its consolidated financial statements[97][161] Note 13. Earnings Per Share Basic and diluted EPS for H1 2025 were $(0.12), reflecting a net loss attributable to common stockholders, a decrease from $0.15 in the prior year Earnings Per Share (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(49,144) | $11,077 | $(48,139) | $62,312 | | Basic net income (loss) per common share | $(0.13) | $0.03 | $(0.12) | $0.15 | | Diluted net income (loss) per common share | $(0.13) | $0.03 | $(0.12) | $0.15 | | Weighted average number of common shares outstanding (Basic/Diluted) | 385,365 | 399,558 | 385,940 | 403,870 | Note 14. Business Segments Drilling Services operating income decreased by 29.5%, Completion Services shifted to an operating loss, and Drilling Products operating income decreased by 10.5% in H1 2025 - The company's business is organized into three segments: Drilling Services (contract drilling, directional drilling, oilfield technology, electrical controls and automation), Completion Services (hydraulic fracturing, wireline and pumping, completion support, cementing, power solutions, proppant logistics), and Drilling Products (manufacturing and distribution of drill bits)[101][102][103][116][117][119][121] Segment Operating Income (Loss) (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Drilling Services | $40,602 | $76,112 | $116,916 | $165,724 | | Completion Services | $(29,248) | $10,725 | $(48,084) | $60,354 | | Drilling Products | $6,820 | $8,639 | $13,548 | $15,139 | | Total Segment Operating Income (Loss) | $18,174 | $95,476 | $82,380 | $241,217 | Segment Capital Expenditures (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Drilling Services | $55,174 | $58,426 | $128,632 | $141,219 | | Completion Services | $68,985 | $48,728 | $131,158 | $172,105 | | Drilling Products | $15,252 | $13,958 | $33,474 | $29,544 | | Total Capital Expenditures | $144,206 | $130,508 | $306,037 | $357,449 | Note 15. Fair Values of Financial Instruments Fair values of cash, receivables, and payables approximate carrying values; outstanding debt fair values are based on market prices, with implied market interest rates ranging from 5.24% to 6.70% - The fair values of cash, cash equivalents, restricted cash, trade receivables, and accounts payable approximate their carrying values due to short-term maturities (Level 1 fair value estimates)[108][216] Fair Values of Outstanding Debt (in thousands) | Debt Instrument | Carrying Value (June 30, 2025) | Fair Value (June 30, 2025) | Carrying Value (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :------------------------------------ | :----------------------------- | :--------------------------- | :----------------------------- | :--------------------------- | | 3.95% Senior Notes Due 2028 | $482,505 | $467,706 | $482,505 | $461,720 | | 5.15% Senior Notes Due 2029 | $344,895 | $340,174 | $344,895 | $336,490 | | 7.15% Senior Notes Due 2033 | $400,000 | $411,226 | $400,000 | $419,265 | | Equipment Loans Due 2025 | $0 | $0 | $6,395 | $6,424 | | Total Debt | $1,227,400 | $1,219,106 | $1,233,795 | $1,223,899 | Implied Market Rates of Interest for Outstanding Debt | Debt Instrument | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | 3.95% Senior Notes Due 2028 | 5.24 % | 5.49 % | | 5.15% Senior Notes Due 2029 | 5.51 % | 5.73 % | | 7.15% Senior Notes Due 2033 | 6.70 % | 6.42 % | | Equipment Loans Due 2025 | — % | 5.28 % | SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that forward-looking statements are subject to risks from industry conditions, economic volatility, competition, and geopolitical conflicts, which could materially affect actual results - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[113] - Key risks include adverse oil and natural gas industry conditions, global economic volatility (inflation, recession), commodity price volatility, geopolitical conflicts (Ukraine/Russia, Middle East), competition, and governmental regulation (including climate legislation)[113][115] - The company cautions against undue reliance on forward-looking statements and undertakes no obligation to update them, except as required by law[114] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews business segments, market developments, financial performance, liquidity, capital resources, non-GAAP measures, and critical accounting estimates, including impacts of commodity prices and inflation Management Overview Patterson-UTI Energy, Inc. provides drilling and completion services through three segments, including 152 marketed rigs and investments in natural gas-powered equipment for emissions reduction - The company operates in three reportable business segments: Drilling Services, Completion Services, and Drilling Products[116] - As of June 30, 2025, the Drilling Services segment had 152 marketed land-based drilling rigs, including 136 Tier-1, super-spec rigs[118] - Completion Services has invested in natural gas-powered equipment (electric, direct drive, dual fuel pumps) to replace legacy diesel equipment for emissions reduction[120] - Drilling Products manufactures and distributes drill bits in North America and over 30 international countries, with manufacturing and repair facilities in Texas, Alberta, and Saudi Arabia[121] Recent Developments in Market Conditions and Outlook Global economic conditions deteriorated in Q2 2025 due to trade policies and increased oil supply, leading to lower commodity prices and a decreased U.S. rig count, with a mid-90s rig count expected for Q3 2025 - Global economic conditions deteriorated in Q2 2025 due to trade policies, increased OPEC+ oil supply, and geopolitical tensions, leading to lower crude oil futures prices and heightened uncertainty[123] Average Commodity Prices | Commodity | Q2 2025 Average | Q1 2025 Average | Change (QoQ) | | :-------------------- | :-------------- | :-------------- | :----------- | | Oil (per barrel) | $64.57 | $71.78 | $(7.21) | | Natural Gas (per MMBtu) | $3.19 | $4.14 | $(0.95) | - The average active U.S. rig count decreased to 104 in Q2 2025 from 106 in Q1 2025[124] - For Q3 2025, the company expects its average rig count to be in the mid-90s, Completion Services adjusted gross profit to remain steady, and Drilling Products adjusted gross profit to improve slightly[126][127] Impact on our Business from Oil and Natural Gas Prices and Other Factors The company's financial performance is highly dependent on volatile oil and natural gas prices and customer capital spending, with operational risks, competition, and labor issues also impacting the business - Revenues, profitability, and cash flows are highly dependent on prevailing oil and natural gas prices, future price expectations, and customer capital access/deployment[128][207][208] - The oil and natural gas services industry is cyclical, with downturns leading to excess equipment, difficulty sustaining profit margins, and potential losses[129] - Operational risks, competition, labor issues, weather, product availability, and supplier delays can materially adversely affect the business[130] Results of Operations - Segment Analysis (Three Months Ended June 30, 2025 vs. March 31, 2025) This section analyzes sequential segment performance, showing declines in Drilling Services and Completion Services operating income, while Drilling Products saw slight revenue growth Drilling Services Drilling Services revenues decreased by 2.2% and operating income by 46.8% due to lower U.S. operating days, pricing, and a $27.8 million impairment charge Drilling Services Performance (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | % Change | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------- | | Revenues | $403,805 | $412,860 | (2.2)% | | Direct operating costs | $254,772 | $247,629 | 2.9 % | | Adjusted gross profit | $149,033 | $165,231 | (9.8)% | | Operating income | $40,602 | $76,314 | (46.8)% | | Capital expenditures | $55,174 | $73,458 | (24.9)% | | Operating days – U.S. | 9,465 | 9,573 | (1.1)% | - Operating income decreased primarily due to a decrease in U.S. operating days and lower pricing, and a $27.8 million impairment charge to Latin American drilling equipment[133][134] - Other operating income, net, increased due to insurance proceeds received during Q2 2025[135] Completion Services Completion Services revenues decreased by 6.1%, resulting in an operating loss of $(29.2) million, primarily due to lower activity in fracturing and power solutions operations Completion Services Performance (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | % Change | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------- | | Revenues | $719,332 | $766,080 | (6.1)% | | Direct operating costs | $619,083 | $657,681 | (5.9)% | | Adjusted gross profit | $100,249 | $108,399 | (7.5)% | | Operating loss | $(29,248) | $(18,836) | 55.3 % | | Capital expenditures | $68,985 | $62,173 | 11.0 % | - Revenues and direct operating costs declined primarily due to a decrease in activity in fracturing and power solutions operations, with revenues decreasing $35 million and direct operating costs decreasing $31 million (5% and 6% respectively) from Q1 2025[136] - Selling, general and administrative expenses decreased primarily as a result of cost reduction efforts[137] Drilling Products Drilling Products revenues increased by 3.2% and operating income by 1.4% due to additional activity, though direct operating costs were higher from purchase accounting adjustments Drilling Products Performance (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | % Change | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------- | | Revenues | $88,390 | $85,663 | 3.2 % | | Direct operating costs | $49,335 | $46,940 | 5.1 % | | Adjusted gross profit | $39,055 | $38,723 | 0.9 % | | Operating income | $6,820 | $6,728 | 1.4 % | | Capital expenditures | $15,252 | $18,222 | (16.3)% | - Revenues and direct operating costs increased primarily due to additional activity[138] - Direct operating costs and depreciation, amortization and impairment expense were approximately $0.5 million and $1.6 million higher than they would have otherwise been for the three months ended June 30, 2025, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting[139] Other The "Other" segment's revenues decreased by 51.1% and reported an operating loss of $(2.0) million, primarily due to the divestiture of the oilfield rentals business Other Segment Performance (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | % Change | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------- | | Revenues | $7,793 | $15,934 | (51.1)% | | Direct operating costs | $6,173 | $9,164 | (32.6)% | | Adjusted gross profit | $1,620 | $6,770 | (76.1)% | | Operating income (loss) | $(2,000) | $230 | NA | | Capital expenditures | $1,802 | $3,596 | (49.9)% | - The changes for the three months ended June 30, 2025, as compared to the three months ended March 31, 2025, can be primarily attributed to the divestiture of the oilfield rentals business during the second quarter of 2025[140] Corporate Corporate expenses were relatively flat sequentially, with merger and integration expense increasing by 13.0% and interest income decreasing by 13.1% Corporate Financials (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | % Change | | :------------------------------------ | :------------------------------- | :-------------------------------- | :------- | | Selling, general and administrative | $41,500 | $42,253 | (1.8)% | | Merger and integration expense | $488 | $432 | 13.0 % | | Depreciation | $2,315 | $1,856 | 24.7 % | | Other operating expense, net | $1,357 | $2,950 | (54.0)% | | Interest income | $1,272 | $1,464 | (13.1)% | | Interest expense, net of amount capitalized | $(17,645) | $(17,697) | (0.3)% | | Other income (expense) | $(1,644) | $1,968 | NA | | Capital expenditures | $2,993 | $4,382 | (31.7)% | Results of Operations - Segment Analysis (Six Months Ended June 30, 2025 vs. June 30, 2024) This section analyzes year-over-year segment performance, showing declines in Drilling Services and Completion Services operating income, while Drilling Products saw a slight decrease Drilling Services Drilling Services revenues decreased by 9.0% and operating income by 29.5% due to lower U.S. operating days, pricing, and a $27.8 million impairment charge Drilling Services Performance (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Revenues | $816,665 | $897,862 | (9.0)% | | Direct operating costs | $502,401 | $533,234 | (5.8)% | | Adjusted gross profit | $314,264 | $364,628 | (13.8)% | | Operating income | $116,916 | $165,724 | (29.5)% | | Capital expenditures | $128,632 | $141,219 | (8.9)% | | Operating days – U.S. | 19,038 | 21,412 | (11.1)% | - The decrease in operating days for U.S. contract drilling reflects the industry-wide activity declines during the first six months of 2025[144] - Depreciation, amortization and impairment expense increased primarily due to a $27.8 million impairment charge to Latin American drilling equipment during the second quarter of 2025[145] This increase was partially offset by a decrease in depreciation, amortization and impairment expense which was attributable to a lower depreciable asset base in 2025, in part, due to the abandonment of 42 legacy non-super-spec rigs and equipment in the third quarter of 2024 Completion Services Completion Services revenues decreased by 15.1%, shifting to an operating loss of $(48.1) million, primarily due to lower fracturing activity and reduced capital expenditures Completion Services Performance (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Revenues | $1,485,412 | $1,750,370 | (15.1)% | | Direct operating costs | $1,276,764 | $1,398,834 | (8.7)% | | Adjusted gross profit | $208,648 | $351,536 | (40.6)% | | Operating income (loss) | $(48,084) | $60,354 | NA | | Capital expenditures | $131,158 | $172,105 | (23.8)% | - Completion services revenues and direct operating costs decreased primarily due to lower activity in fracturing operations[147] Revenues and direct operating costs from our fracturing operations decreased by approximately $250 million and $123 million, or 17% and 11%, respectively - Depreciation, amortization and impairment expense decreased primarily due to fewer capital additions placed in service relative to asset retirements between the periods[148] - We reduced capital expenditures in response to changing macroeconomic conditions between the periods[150] Drilling Products Drilling Products revenues decreased slightly by 1.1% and operating income by 10.5%, with direct operating costs higher due to purchase accounting adjustments Drilling Products Performance (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Revenues | $174,053 | $176,027 | (1.1)% | | Direct operating costs | $96,275 | $94,777 | 1.6 % | | Adjusted gross profit | $77,778 | $81,250 | (4.3)% | | Operating income | $13,548 | $15,139 | (10.5)% | | Capital expenditures | $33,474 | $29,544 | 13.3 % | - Direct operating costs and depreciation, amortization and impairment expense were approximately $1.1 million and $3.8 million higher than they would have otherwise been for the six months ended June 30, 2025, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting[152] Other The "Other" segment's revenues decreased by 30.8% and reported an operating loss of $(1.8) million, primarily due to the divestiture of the oilfield rentals business Other Segment Performance (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Revenues | $23,727 | $34,295 | (30.8)% | | Direct operating costs | $15,337 | $21,458 | (28.5)% | | Adjusted gross profit | $8,390 | $12,837 | (34.6)% | | Operating income (loss) | $(1,770) | $1,421 | NA | | Capital expenditures | $5,398 | $13,010 | (58.5)% | - The changes for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, can be primarily attributed to the divestiture of the oilfield rentals business during the second quarter of 2025[153] - Excluding the effects of our oilfield rentals business divestiture, the decrease in revenue and direct operating costs was driven by lower realized crude oil prices[154] Oil prices averaged $68.12 per barrel in the first half of 2025 as compared to $79.69 per barrel in the first half of 2024 Corporate Corporate selling, general and administrative expenses were flat, while merger and integration expense decreased significantly by 96.0% due to prior year merger timing Corporate Financials (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | | Selling, general and administrative | $83,753 | $83,763 | 0.0 % | | Merger and integration expense | $920 | $22,878 | (96.0)% | | Depreciation | $4,171 | $2,988 | 39.6 % | | Other operating expense, net | $4,307 | $782 | 450.8 % | | Interest income | $2,736 | $4,056 | (32.5)% | | Interest expense, net of amount capitalized | $(35,342) | $(36,248) | (2.5)% | | Other income | $324 | $1,074 | (69.8)% | | Capital expenditures | $7,375 | $1,571 | 369.4 % | - Merger and integration expense decreased due to the timing of the NexTier merger and the Ulterra acquisition, which both closed in the third quarter of 2023[155] - The increase in capital expenditures was primarily due to the expansion of our Corporate office[157] Income Taxes The effective income tax rate for Q2 2025 was (2.5)% and for H1 2025 was (5.8)%, primarily due to valuation allowances and permanent differences, with new tax legislation under evaluation - Effective income tax rate for Q2 2025 was (2.5)%, compared to 51.9% for Q1 2025, primarily due to permanent differences and book impairments[159] - Effective income tax rate for H1 2025 was (5.8)%, compared to 37.4% for H1 2024, primarily due to valuation allowances on deferred tax assets and permanent differences[160] - The company is evaluating the impact of the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025, on its consolidated financial statements[161] Liquidity and Capital Resources The company had $525 million in working capital and $498 million available under its credit agreement, with sufficient liquidity to fund operations, debt service, dividends, and share repurchases - As of June 30, 2025, the company had $525 million in working capital, including $184 million of cash and cash equivalents, and approximately $498 million available under its Credit Agreement[162][177][213] - The company believes its current liquidity, together with cash expected to be generated from operations, should provide sufficient ability to fund current plans for equipment maintenance, debt service, cash dividends, and share repurchases for at least the next 12 months[174] - During the six months ended June 30, 2025, cash flow sources included $348 million from operating activities and $28.3 million in proceeds from asset disposals[178][182] - During the six months ended June 30, 2025, cash flow uses included $306 million for capital expenditures, $35.8 million for repurchases of common stock, and $61.6 million to pay dividends[182] Cash Dividends Paid (in thousands) | Payment Date | Per Share | Total | | :-------------------- | :-------- | :------ | | Paid on March 17, 2025 | $0.08 | $30,877 | | Paid on June 16, 2025 | $0.08 | $30,742 | | Total (H1 2025) | $0.16 | $61,619 | Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures; Adjusted EBITDA for H1 2025 was $482.4 million, and total Adjusted Gross Profit was $609.1 million, both decreasing year-over-year Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, was $482.4 million for H1 2025, a decrease from $698.8 million in the prior year, reflecting net loss and other adjustments - Adjusted EBITDA is a non-GAAP measure defined as net income (loss) plus income tax expense, net interest expense, depreciation, depletion, amortization and impairment expense, impairment of goodwill, and merger and integration expense[187] Adjusted EBITDA Reconciliation (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(48,697) | $11,621 | $(47,407) | $63,327 | | Income tax expense | $1,194 | $17,785 | $2,584 | $37,782 | | Net interest expense | $16,373 | $16,046 | $32,606 | $32,192 | | Depreciation, depletion, amortization and impairment | $261,858 | $267,638 | $493,724 | $542,594 | | Merger and integration expense | $488 | $10,645 | $920 | $22,878 | | Adjusted EBITDA | $231,216 | $323,735 | $482,427 | $698,773 | Adjusted Gross Profit Adjusted gross profit, a non-GAAP measure, was $609.1 million for H1 2025, a decrease from $810.3 million in the prior year, reflecting revenues less direct operating costs - Adjusted gross profit is a non-GAAP measure defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense)[189] Adjusted Gross Profit by Segment (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :-------------------------------- | :----------------------------- | :----------------------------- | | Drilling Services | $149,033 | $165,231 | $314,264 | $364,628 | | Completion Services | $100,249 | $108,399 | $208,648 | $351,536 | | Drilling Products | $39,055 | $38,723 | $77,778 | $81,250 | | Other | $1,620 | $6,770 | $8,390 | $12,837 | | Total Adjusted Gross Profit | $289,957 | $319,123 | $609,080 | $810,251 | Critical Accounting Estimates This section details critical accounting estimates for impairment of long-lived assets and goodwill, including a $27.8 million impairment charge for Latin American drilling equipment in Q2 2025 Impairment of long-lived assets A $27.8 million impairment charge was recorded for Latin American drilling equipment in Q2 2025 due to market conditions, with future material charges possible from unfavorable market changes - The company reviews long-lived assets for impairment whenever events or changes in circumstances, such as reduced activity forecasts and a decline in stock price, indicate that the carrying amounts of certain assets may not be recovered[192][194] - A $27.8 million impairment charge was recorded to Latin American drilling equipment during the three months ended June 30, 2025, as estimated undiscounted cash flows did not exceed its carrying value[195] - Prolonged trade tensions and sustained lower crude oil futures prices could adversely affect future outlook on activity and profitability, potentially resulting in material impairment charges[196] Goodwill Goodwill was assessed in Q2 2025 due to reduced activity forecasts and stock price decline, but no impairment was recorded, though future unfavorable changes could lead to material impairment - Goodwill is evaluated at least annually or more frequently if impairment indicators arise, with a quantitative assessment performed in Q2 2025 due to reduced activity forecasts and stock price decline[197][199] - No goodwill impairment was recorded for the drilling products or cementing services reporting units, as their fair values exceeded carrying values based on discounted cash flow models[201][203] - A 100 bps decrease in the long-term revenue growth rate for drilling products would reduce estimated fair value by approximately 7%, while a 100 bps increase to the discount rate would reduce it by approximately 10%[204] - A decrease in fair value resulting from unfavorable changes to these assumptions, or others, could result in goodwill impairment in future periods that could be material to our results of operations and financial statements as a whole[205] Recently Issued Accounting Standards The company refers to Note 1 for a discussion of the impact of recently issued accounting standards - Refer to Note 1 for details on recently issued accounting standards[206] Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition Financial performance is highly dependent on volatile oil and natural gas prices; global economic deterioration and increased oil supply in Q2 2025 led to lower prices and increased market uncertainty - The company's financial condition, operations, and ability to access sources of capital are highly dependent upon unpredictable oil and natural gas prices[208] - Global economic deterioration, increased OPEC+ oil supply, and geopolitical tensions in Q2 2025 contributed to lower average crude oil ($64.57/barrel) and natural gas ($3.19/MMBtu) prices, increasing market uncertainty[207] - A decline in demand for oil and natural gas, prolonged low prices, or a reduction in the ability of customers to access capital would likely result in decreased demand for services and materially adverse effects on operating results[208] Impact of Inflation and Trade Policies Moderate inflationary pressures and uncertain trade policies have increased costs for goods, services, and labor, with prolonged trade tensions potentially leading to further cost increases - Moderate inflationary pressures and uncertain trade policies/tariffs have contributed to increases in the cost of certain goods, services, and labor[209] - Prolonged trade tensions could, among other things, increase the costs of certain products used in the businesses, such as drill pipe, parts, and electronics[209] - The company continues to actively monitor market trends primarily related to sourcing of labor, supplies and equipment[209] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Market risk exposure remains unchanged, with interest rate risk from borrowings and letters of credit, and limited foreign currency risk due to primarily USD-denominated revenue - No material changes in market risk exposure since the Annual Report[211] - Exposure to interest rate market risk exists from outstanding borrowings and letters of credit under the Credit Agreement and Reimbursement Agreement[212][213][214] - Approximately 98% of H1 2025 revenue was denominated in U.S. dollars, limiting significant foreign currency exchange rate risk, though some exposure exists from foreign currency costs or revenues[215] ITEM 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[219] - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[220] PART II — OTHER INFORMATION This section covers legal proceedings, unregistered sales of equity securities, other information, and exhibits, concluding with the report's signature ITEM 1. Legal Proceedings Ulterra subsidiaries are defendants in a patent-related breach of license agreement claim by NOV Inc., with trial scheduled for October 27, 2025, potentially impacting financial results - Ulterra Drilling Technologies, LP, a subsidiary, is a defendant in a patent-related breach of license agreement claim by NOV Inc., with trial scheduled for October 27, 2025[223][224][226] - Ulterra has asserted defenses and counterclaims, including declaratory judgments of non-infringement and no royalties after October 22, 2021[225] - An unfavorable judgment or resolution of this claim not covered by indemnity could have a material impact on financial results[226] - Other legal proceedings are not believed to have a material adverse effect on financial condition, cash flows, or results of operations[227] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company purchased 2,611,401 shares of common stock, including 2,200,000 shares under its buyback program, with $727.5 million remaining authorized Common Stock Purchases (Q2 2025) | Period Covered | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | | :------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------ | | April 2025 | 18,558 | $6.22 | — | $740,872 | | May 2029 | 2,291,007 | $6.07 | 2,200,000 | $727,501 | | June 2025 | 301,836 | $5.80 | — | $727,501 | | Total | 2,611,401 | N/A | 2,200,000 | N/A | - The company withheld 411,401 shares during the second quarter of 2025 for employees' tax withholding obligations upon the vesting of restricted stock units, not under the stock buyback program[229] - As of June 30, 2025, approximately $727.5 million remained authorized under the stock buyback program[229] ITEM 5. Other Information No director or officer adopted or terminated any trading arrangements for the sale of common stock during the three months ended June 30, 2025 - No director or officer adopted or terminated any trading arrangements for the sale of common stock during the three months ended June 30, 2025[230] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, stock award agreements, CEO/CFO certifications, and Inline XBRL documents - The report includes exhibits such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, executive officer stock award agreements, CEO and CFO certifications, and Inline XBRL documents[232] Signature The report was signed by C. Andrew Smith, Executive Vice President and Chief Financial Officer, on behalf of Patterson-UTI Energy, Inc. on July 29, 2025 - The report was signed by C. Andrew Smith, Executive Vice President and Chief Financial Officer, on July 29, 2025[235]