Helmerich & Payne(HP) - 2022 Q1 - Quarterly Report

Form 10-Q Filing Information This section provides the basic filing information for Helmerich & Payne, Inc.'s Form 10-Q for the quarterly period ended December 31, 2021 Registrant Information This section details Helmerich & Payne, Inc.'s basic filing information, including incorporation, trading symbol, and filer status for the Form 10-Q - Registrant: HELMERICH & PAYNE, INC., incorporated in Delaware[2] - Common Stock ($0.10 par value) trades under symbol HP on the New York Stock Exchange[3] Filer Status | Filer Status | Status | | :-------------------- | :------ | | Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☐ | Common Stock Outstanding | CLASS | OUTSTANDING AT January 24, 2022 | | :------------------------ | :------------------------------ | | Common Stock, $0.10 par value | 105,504,645 | PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Helmerich & Payne, Inc., along with detailed notes Unaudited Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity Unaudited Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | December 31, 2021 | September 30, 2021 | | :------------------------------ | :---------------- | :----------------- | | ASSETS | | | | Cash and cash equivalents | $ 234,196 | $ 917,534 | | Total current assets | 954,694 | 1,586,566 | | Total assets | $ 4,392,254 | $ 5,034,128 | | LIABILITIES & SHAREHOLDERS' EQUITY | | | | Total current liabilities | 398,976 | 866,306 | | Total noncurrent liabilities | 1,216,687 | 1,255,204 | | Total shareholders' equity | 2,776,591 | 2,912,618 | | Total liabilities and shareholders' equity | $ 4,392,254 | $ 5,034,128 | Unaudited Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including operating revenues, operating loss, and net loss for the period Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | | :--------------------------------------- | :----------------------------------- | :----------------------------------- | | OPERATING REVENUES | $ 409,782 | $ 246,377 | | OPERATING LOSS FROM CONTINUING OPERATIONS | (42,611) | (93,223) | | Loss from continuing operations before income taxes | (58,899) | (96,039) | | NET LOSS | $ (51,362) | $ (70,431) | | Basic earnings (loss) per common share: Net loss | $ (0.48) | $ (0.66) | | Diluted earnings (loss) per common share: Net loss | $ (0.48) | $ (0.66) | Unaudited Condensed Consolidated Statements of Comprehensive Loss This section presents the net loss and other comprehensive income, culminating in the total comprehensive loss for the period Unaudited Condensed Consolidated Statements of Comprehensive Loss (in thousands) | (in thousands) | Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | | :----------------------- | :----------------------------------- | :----------------------------------- | | Net loss | $ (51,362) | $ (70,431) | | Other comprehensive income | 394 | 457 | | Comprehensive loss | $ (50,968) | $ (69,974) | Unaudited Condensed Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, including net loss, dividends, and share repurchases Unaudited Condensed Consolidated Statements of Shareholders' Equity (in thousands) | (in thousands) | Balance, September 30, 2021 | Balance, December 31, 2021 | | :------------------------- | :-------------------------- | :------------------------- | | Total Shareholders' Equity | $ 2,912,618 | $ 2,776,591 | | Net loss | (51,362) | (51,362) | | Dividends declared | (26,807) | (26,807) | | Share repurchases | (60,358) | (60,358) | Unaudited Condensed Consolidated Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities, showing the net change in cash and equivalents Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Three Months Ended December 31, 2021 | Three Months Ended December 31, 2020 | | :-------------------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $ (3,718) | $ (19,604) | | Net cash used in investing activities | $ (44,729) | $ (65,203) | | Net cash used in financing activities | $ (635,610) | $ (29,287) | | Net decrease in cash and cash equivalents and restricted cash | $ (684,057) | $ (114,094) | | Cash and cash equivalents and restricted cash, end of period | $ 252,659 | $ 422,653 | NOTE 1 NATURE OF OPERATIONS This note describes Helmerich & Payne, Inc.'s core business of providing drilling solutions and its operating segments - Helmerich & Payne, Inc. (H&P) provides performance-driven drilling solutions and technologies for oil and gas exploration and production companies[13] - Operating segments include North America Solutions, Offshore Gulf of Mexico, and International Solutions (Argentina, Bahrain, Colombia, UAE), with real estate and R&D in 'Other'[14][15][16] NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES This note outlines the company's significant accounting policies, details risks from global events like COVID-19, and discusses foreign currency and debt extinguishment impacts - Interim financial statements are prepared in accordance with GAAP and SEC rules for interim information, not including all disclosures required for complete annual financial statements[17] - The COVID-19 pandemic and OPEC+ production impacts have caused significant global economic disruption and crude oil price volatility, adversely affecting business, financial condition, and results of operations[20][21][22] - The Company self-insures employee health plan exposures and uses wholly-owned captive insurance companies, with direct operating costs of $(2.2) million and $0.5 million in adjustments to accruals for estimated losses for the three months ended December 31, 2021 and 2020, respectively[31] - International operations, particularly in Argentina, face risks from currency exchange rate fluctuations, controls, political/economic instability, and difficulties repatriating U.S. dollars[32][33] Foreign Currency Losses (in millions) | Period | Foreign Currency Losses (in millions) | | :----------------------------------- | :------------------------------------ | | Three months ended Dec 31, 2021 | $1.0 | | Three months ended Dec 31, 2020 | $1.8 | Cash, Cash Equivalents, and Restricted Cash (in thousands) | Item | December 31, 2021 | September 30, 2021 | | :-------------------------------------- | :---------------- | :----------------- | | Cash and cash equivalents | $ 234,196 | $ 917,534 | | Restricted cash (Prepaid expenses & other) | 17,681 | 18,350 | | Restricted cash (Other assets) | 782 | 832 | | Total cash, cash equivalents, and restricted cash | $ 252,659 | $ 936,716 | | Net decrease in cash, cash equivalents, and restricted cash (Q1 FY22) | $ (684,057) | | - The Company redeemed all outstanding 2025 Notes on October 27, 2021, resulting in a $56.4 million make-whole premium and a $3.7 million write-off of unamortized debt costs, recorded as Loss on Extinguishment of Debt[24] - Adoption of ASU No. 2019-12 (simplifying income taxes) in the first quarter of fiscal year 2022 did not have a material effect on the financial statements[30] NOTE 3 DISCONTINUED OPERATIONS This note addresses noncurrent liabilities from discontinued operations, specifically an uncertain tax liability related to Venezuela due to currency devaluation - Noncurrent liabilities from discontinued operations include an uncertain tax liability related to Venezuela, primarily due to the devaluation of the Venezuela Bolivar[37][38] Venezuela Bolivar Exchange Rates (Bolivars per USD) | Date | DICOM Floating Rate | | :--------------- | :------------------ | | December 31, 2021 | 4,597,200 | | September 30, 2021 | 4,181,782 | | December 31, 2020 | 1,107,199 | NOTE 4 PROPERTY, PLANT AND EQUIPMENT This note details the company's property, plant, and equipment, including assets held-for-sale, impairment charges, and depreciation expense Property, Plant and Equipment, Net (in thousands) | Item | December 31, 2021 | September 30, 2021 | | :--------------------------------- | :---------------- | :----------------- | | Drilling services equipment | $ 6,256,764 | $ 6,229,011 | | Total property, plant and equipment | 7,342,912 | 7,353,541 | | Accumulated depreciation | (4,276,586) | (4,226,254) | | Property, plant and equipment, net | $ 3,066,326 | $ 3,127,287 | | Assets held-for-sale | $ 62,821 | $ 71,453 | Assets Held-for-Sale Activity (in thousands) | Item | Amount | | :---------------------------- | :-------- | | Balance at September 30, 2021 | $ 71,453 | | Plus: Asset additions | 1,025 | | Less: Sale of assets held-for-sale | (9,657) | | Balance at December 31, 2021 | $ 62,821 | - The Company plans to sell 71 Domestic non-super-spec rigs and assets related to trucking and casing running services, reclassified as held-for-sale[42][44] - Agreed to sell eight FlexRig land rigs to ADNOC Drilling for $86.5 million; no rigs delivered as of December 31, 2021, proceeds recorded in Accrued Liabilities[43] - Recognized non-cash impairment charges of $1.9 million for rig substructures (North America Solutions) and $2.5 million for international FlexRig drilling rigs (International Solutions) reclassified as held-for-sale[46] Depreciation Expense (in thousands) | Period | Amount | | :----------------------------------- | :---------- | | Three months ended Dec 31, 2021 | $ 98,600 | | Three months ended Dec 31, 2020 | $ 105,100 | Gain/Loss on Sale of Assets (in thousands) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Gain on reimbursement of drilling equipment | $ 5,254 | $ 2,191 | | Loss on sale of trucking and casing running assets | $ (3,400) | | | Gain on sale of offshore platform rig | | $ 9,200 | NOTE 5 GOODWILL AND INTANGIBLE ASSETS This note provides information on goodwill, which remained stable, and details the company's intangible assets and associated amortization expense - Goodwill balance remained $45.7 million as of December 31, 2021, with no additions or impairments during the period, all within the North America Solutions segment[49][50] Intangible Assets (in thousands) | Item | December 31, 2021 Net | September 30, 2021 Net | | :-------------------- | :-------------------- | :--------------------- | | Developed technology | $ 65,425 | $ 66,914 | | Intellectual property | 1,256 | 1,284 | | Trade name | 4,628 | 4,707 | | Customer relationships | 733 | 933 | | Total | $ 72,042 | $ 73,838 | - Amortization expense for intangible assets was $1.8 million for both the three months ended December 31, 2021 and 2020[51] NOTE 6 DEBT This note details the company's unsecured long-term debt, including the issuance of new notes, redemption of existing debt, and compliance with covenants Unsecured Long-Term Debt Outstanding (in thousands) | Item | December 31, 2021 Book Value | September 30, 2021 Book Value | | :----------------------- | :--------------------------- | :---------------------------- | | Due March 19, 2025 | $ — | $ 483,486 | | Due September 29, 2031 | 542,236 | 541,997 | | Total long-term debt | $ 542,236 | $ 541,997 | - Issued $550.0 million aggregate principal amount of 2.90% Senior Notes due 2031 on September 29, 2021[53] - Redeemed all outstanding 4.65% Senior Notes due 2025 on October 27, 2021, resulting in a $56.4 million make-whole premium and a $3.7 million write-off of unamortized debt costs, recorded as Loss on Extinguishment of Debt[56][57] - The 2018 Credit Facility has $750.0 million in aggregate availability, with no borrowings or letters of credit outstanding as of December 31, 2021[59] - The Company was in compliance with all debt covenants as of December 31, 2021[61] NOTE 7 INCOME TAXES This note presents the income tax benefit and effective tax rates, explaining deviations from the U.S. federal statutory rate Income Tax Benefit and Effective Tax Rates | Period | Income Tax Benefit (in millions) | Effective Tax Rate | | :----------------------------------- | :------------------------------- | :----------------- | | Three months ended Dec 31, 2021 | $ 7.6 | 12.8% | | Three months ended Dec 31, 2020 | $ 18.1 | 18.9% | - Effective tax rates differ from the U.S. federal statutory rate of 21.0% primarily due to state and foreign income taxes, permanent non-deductible items, and discrete adjustments (e.g., equity compensation)[63] NOTE 8 SHAREHOLDERS' EQUITY This note details changes in shareholders' equity, including share repurchases, declared dividends, and accumulated other comprehensive loss - Repurchased 2.5 million common shares at an aggregate cost of $60.4 million during the three months ended December 31, 2021[65] - Declared a cash dividend of $0.25 per share, resulting in a dividend payable of $26.8 million as of December 31, 2021[66] Accumulated Other Comprehensive Loss (in thousands) | Item | December 31, 2021 | September 30, 2021 | | :-------------------------- | :---------------- | :----------------- | | Unrecognized net actuarial loss (pre-tax) | $ (25,761) | $ (26,268) | | Unrecognized net actuarial loss (after-tax) | $ (19,850) | $ (20,244) | NOTE 9 REVENUE FROM CONTRACTS WITH CUSTOMERS This note outlines revenue recognition from customer contracts, including a dispute settlement, early termination impacts, and remaining performance obligations - Recognized $16.4 million in revenue from a drilling contract dispute settlement with YPF S.A. (Argentina) for services provided from fiscal years 2016-2019[71] - No early termination revenue associated with term contracts was recognized for the three months ended December 31, 2021, compared to $5.8 million in the prior year period[69] Remaining Performance Obligations (Backlog) (in millions) | Period | Amount | | :----------------------------------- | :-------- | | Total aggregate transaction price as of Dec 31, 2021 | $ 723.5 | | Expected to be recognized in remainder of FY2022 | $ 499.6 | | Expected to be recognized in FY2023 | $ 168.7 | | Expected to be recognized in FY2024 and thereafter | $ 74.9 | - Subsequent to December 31, 2021, an International Solutions customer notified intent to early terminate a fixed-term drilling services contract, impacting approximately $22.0 million of future dayrate revenue in backlog[74] Contract Assets and Liabilities (in thousands) | Item | December 31, 2021 | September 30, 2021 | | :------------------------ | :---------------- | :----------------- | | Contract assets, net | $ 4,784 | $ 4,513 | | Contract liabilities balance | $ 12,431 | $ 9,286 | NOTE 10 STOCK-BASED COMPENSATION This note details stock-based compensation expense, restricted stock awards, and performance units, including their vesting conditions Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :------------------------------ | :------------------------------ | :------------------------------ | | Drilling services operating | $ 1,240 | $ 1,763 | | Research and development | 353 | 335 | | Selling, general and administrative | 4,625 | 5,353 | | Total | $ 6,218 | $ 7,451 | Restricted Stock Awards Status (in thousands, except per share amounts) | Item | Shares | Weighted Average Grant Date Fair Value per Share | | :-------------------------------------- | :----- | :----------------------------------------------- | | Non-vested restricted stock outstanding at Sep 30, 2021 | 1,412 | $ 37.36 | | Granted | 689 | 24.87 | | Vested | (535) | 41.25 | | Forfeited | (3) | 28.70 | | Non-vested restricted stock outstanding at Dec 31, 2021 | 1,563 | $ 30.54 | Performance Units Status (in thousands, except per share amounts) | Item | Performance Units | Weighted Average Grant Date Fair Value per Performance Unit | | :-------------------------------------- | :---------------- | :-------------------------------------------------------- | | Non-vested performance units outstanding at Sep 30, 2021 | 699 | $ 41.55 | | Granted | 227 | 30.12 | | Dividend equivalent right performance units credited | 9 | 41.55 | | Non-vested performance units outstanding at Dec 31, 2021 | 935 | $ 38.77 | - Vesting of performance units is dependent on the Company's total shareholder return (TSR) performance relative to a peer group and continued employment over a three-year vesting period[80] NOTE 11 EARNINGS (LOSSES) PER COMMON SHARE This note presents the computation of basic and diluted earnings (loss) per common share, explaining why diluted loss per share equals basic loss per share Computation of Basic and Diluted Earnings (Loss) Per Share (in thousands, except per share amounts) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $ (51,362) | $ (70,431) | | Numerator for basic/diluted EPS | $ (51,736) | $ (70,792) | | Denominator for basic/diluted EPS (weighted-average shares) | 107,571 | 107,617 | | Basic/Diluted Net loss per common share | $ (0.48) | $ (0.66) | - Diluted loss per share was equivalent to basic loss per share because the Company had a net loss, making any assumed exercise of equity awards anti-dilutive[85] Potentially Dilutive Shares Excluded as Anti-Dilutive (in thousands) | Period | Potentially Dilutive Shares Excluded | | :----------------------------------- | :----------------------------------- | | Three months ended Dec 31, 2021 | 2,891 | | Three months ended Dec 31, 2020 | 4,494 | NOTE 12 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS This note provides fair value measurements for financial instruments, including investments, contingent consideration, and long-term debt, highlighting gains on investment securities Recurring Fair Value Measurements (in thousands) | Item | December 31, 2021 Fair Value | September 30, 2021 Fair Value | | :--------------------------------- | :--------------------------- | :---------------------------- | | Short-term investments | $ 207,068 | $ 198,700 | | Investments | $ 184,743 | $ 132,579 | | Contingent consideration (Liabilities) | $ 3,096 | $ 2,996 | - Recognized a $47.8 million gain on investment securities, primarily from a $100.0 million cornerstone investment in ADNOC Drilling, due to an increase in fair market value[94] - Purchased an additional $9.0 million in geothermal investments, bringing the aggregate balance of investments in geothermal companies to $11.8 million at December 31, 2021[98] Nonrecurring Fair Value Measurements (Equity Securities) (in thousands) | Item | December 31, 2021 Fair Value | September 30, 2021 Fair Value | | :-------------- | :--------------------------- | :---------------------------- | | Equity securities | $ 8,881 | $ 2,865 | Fair Value Information for Long-Term Fixed-Rate Debt (in millions) | Item | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | September 30, 2021 Carrying Value | September 30, 2021 Fair Value | | :--------------------------------- | :------------------------------- | :--------------------------- | :-------------------------------- | :---------------------------- | | Current portion of long-term debt | $ — | $ — | $ 483.5 | $ 541.6 | | Long-term debt, net | $ 542.2 | $ 542.5 | $ 542.0 | $ 554.3 | NOTE 13 COMMITMENTS AND CONTINGENCIES This note outlines the company's purchase commitments, contingent liabilities, and a lawsuit against Venezuela for seized property - Purchase commitments for equipment, parts, and supplies totaled approximately $62.9 million at December 31, 2021[101] - The Company is contingently liable to sureties for bonds issued in the normal course of business[102] - A lawsuit was filed against the Bolivarian Republic of Venezuela for the seizure of the Venezuelan subsidiary's property and equipment, with the timing or amount of recovery currently uncertain[103] NOTE 14 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION This note provides summarized financial information for H&P's operating segments and geographic revenues, including North America, Offshore, and International Solutions - H&P's drilling services operations are organized into North America Solutions, Offshore Gulf of Mexico, and International Solutions segments; 'Other' includes real estate, R&D, and captive insurance[105][106] Summarized Financial Information of Reportable Segments (in thousands) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | | External Sales | | | | North America Solutions | $ 341,034 | $ 201,990 | | Offshore Gulf of Mexico | $ 29,314 | $ 32,273 | | International Solutions | $ 37,159 | $ 10,518 | | Other | $ 2,275 | $ 1,596 | | Total External Sales | $ 409,782 | $ 246,377 | | Segment Operating Income (Loss) | | | | North America Solutions | $ (28,893) | $ (72,928) | | Offshore Gulf of Mexico | $ 5,466 | $ 2,742 | | International Solutions | $ 8,049 | $ (8,357) | | Other | $ 3,929 | $ 4,111 | | Total Segment Operating Income (Loss) | $ (12,731) | $ (76,558) | Reconciliation of Segment Operating Loss to Loss from Continuing Operations Before Income Taxes (in thousands) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Segment operating loss | $ (12,731) | $ (76,558) | | Total unallocated amounts | $ (16,288) | $ (2,816) | | Loss from continuing operations before income taxes | $ (58,899) | $ (96,039) | Segment Total Assets (in thousands) | Segment | December 31, 2021 | September 30, 2021 | | :------------------------ | :---------------- | :----------------- | | North America Solutions | $ 3,399,211 | $ 3,418,569 | | Offshore Gulf of Mexico | 84,661 | 84,580 | | International Solutions | 341,553 | 269,820 | | Other | 85,409 | 95,398 | | Investments and corporate operations | 481,420 | 1,165,761 | | Total assets | $ 4,392,254 | $ 5,034,128 | Revenues from External Customers by Country (in thousands) | Country | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :------------------ | :------------------------------ | :------------------------------ | | United States | $ 371,488 | $ 235,444 | | Argentina | 29,152 | 1,553 | | Bahrain | 7,632 | 7,549 | | United Arab Emirates | — | 990 | | Colombia | 375 | 429 | | Other Foreign | 1,135 | 412 | | Total | $ 409,782 | $ 246,377 | NOTE 15 SUBSEQUENT EVENTS This note discloses significant events occurring after the reporting period, including a contract termination and further share repurchases - Received notice from an International Solutions customer of their intent to early terminate a fixed-term drilling services contract, impacting approximately $22.0 million of future dayrate revenue in backlog as of December 31, 2021[111] - Repurchased approximately 600 thousand common shares at an aggregate cost of approximately $16.4 million from January 1, 2022, through January 28, 2022[112] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, including an executive summary, market outlook, recent developments, detailed segment performance analysis, and a discussion of liquidity and capital resources Cautionary Note Regarding Forward-Looking Statements This note advises that the report contains forward-looking statements subject to risks and uncertainties, with actual results potentially differing materially - The report contains forward-looking statements subject to risks, uncertainties, and assumptions, and actual results may vary materially from expectations[113] - Important factors that could cause actual results to differ are disclosed in the 2021 Annual Report on Form 10-K under Item 1A—"Risk Factors"[116] Executive Summary This summary provides an overview of H&P's drilling solutions, rig fleet, increased contracted rigs, and long-term strategic focus - H&P provides performance-driven drilling solutions and technologies, with a fleet of 271 drilling rigs (236 North America, 7 Offshore, 28 International) as of December 31, 2021[117] - Contracted rigs increased to 166 (88 fixed-term, 78 well-to-well) at December 31, 2021, from 137 at September 30, 2021[117] - The company's long-term strategy focuses on innovation, technology, safety, operational excellence, and reliability[117] Market Outlook This section discusses market dynamics, including the cyclical nature of E&P capital expenditures, demand for super-spec rigs, and impacts of COVID-19 - Revenues are primarily derived from E&P capital expenditures, which are highly cyclical and volatile due to crude oil and natural gas prices[118] - Unconventional shale drilling has driven demand for 'super-spec' rigs (AC drive, minimum 1,500 HP, 750,000 lbs. hookload, 7,500 psi mud system, multi-well pad capability)[119][120] - North America Solutions active rig count more than tripled from 47 rigs in August 2020 to 154 rigs at December 31, 2021, with further increases anticipated in fiscal 2022[123] - The COVID-19 pandemic caused significant financial impact, including increased costs, labor shortages, and logistics constraints, leading to pronounced pullbacks in customer operations[125] - H&P is designated as an 'essential critical infrastructure' company in the United States, allowing continued operations during potential government-imposed restrictions[127] Recent Developments This section highlights recent corporate actions, including cost reduction measures, debt refinancing, liquidity position, and strategic investments - Implemented cost reduction measures in fiscal year 2020, including a $200 million dividend reduction, $145 million capital spend reduction, and over $75 million in fixed operational overhead and SG&A savings[129] - Refinanced 2025 Notes with 2031 Notes, resulting in a $60.1 million loss on extinguishment of debt in Q1 FY2022[130] - Near-term liquidity of approximately $1.2 billion at December 31, 2021, comprising $441.3 million in cash and short-term investments and $750.0 million in 2018 Credit Facility availability[131] - Purchased an additional $9.0 million in geothermal investments, bringing the aggregate balance to $11.8 million at December 31, 2021[133] - Made a $100.0 million cornerstone investment in ADNOC Drilling, recognizing a $47.7 million gain in Q1 FY2022 due to an increase in fair market value[134] Contract Drilling Backlog (in millions) | Segment | December 31, 2021 | September 30, 2021 | % Expected in FY2023 and thereafter | | :------------------------ | :---------------- | :----------------- | :---------------------------------- | | North America Solutions | $ 492.5 | $ 429.6 | 20.9% | | Offshore Gulf of Mexico | 13.0 | 17.2 | — | | International Solutions | 218.0 | 125.2 | 64.5% | | Total | $ 723.5 | $ 572.0 | | Results of Operations for the Three Months Ended December 31, 2021 and 2020 This section analyzes the company's consolidated and segment-specific financial performance for the three months ended December 31, 2021 and 2020 Consolidated Results of Operations The company reported a reduced net loss for the three months ended December 31, 2021, compared to the prior year, driven by higher operating revenues and a significant gain on investment securities, despite increased SG&A and a loss on debt extinguishment Consolidated Net Loss and EPS | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Loss from continuing operations | $ (58.9) million | $ (77.9) million | | Net loss | $ (51.4) million | $ (70.4) million | | Diluted loss per share | $ (0.48) | $ (0.66) | - Selling, general and administrative expenses increased by $4.4 million to $43.7 million, primarily due to higher professional services fees[139] - Recognized $4.4 million in asset impairment charges, including $1.9 million for rig substructures (North America Solutions) and $2.5 million for international FlexRig drilling rigs (International Solutions)[140] - Recognized a $47.7 million gain on investment securities, primarily from the ADNOC Drilling cornerstone investment[141] - Incurred a $60.1 million loss on extinguishment of debt due to the redemption of the 2025 Notes[142] - Income tax benefit decreased to $7.6 million (12.8% effective rate) from $18.1 million (18.9% effective rate), influenced by the Argentina drilling contract settlement and equity compensation tax expense[143] North America Solutions The North America Solutions segment experienced significant growth in operating revenues and gross margin, driven by a substantial increase in active rig count, partially offset by a decrease in depreciation and an asset impairment charge North America Solutions Segment Financials & Operating Statistics (in thousands, except operating statistics) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | % Change | | :--------------------------------- | :------------------------------ | :------------------------------ | :------- | | Operating revenues | $ 341,034 | $ 201,990 | 68.8 | | Segment gross margin | $ 84,466 | $ 44,681 | 89.0 | | Segment operating loss | $ (28,893) | $ (72,928) | (60.4) | | Average active rigs | 141 | 81 | 74.1 | | Number of active rigs at end of period | 154 | 94 | 63.8 | - Operating revenues increased by 68.8% and segment gross margin increased by 89.0%, primarily due to a 74.1% increase in average active rig count[144][145] - Depreciation and amortization decreased by 6.7% to $93.6 million, mainly due to the termination of depreciation on rigs included in the ADNOC sale and ongoing low capital expenditures[146] - Recognized a $1.9 million non-cash impairment charge for two partial rig substructures reclassified as held-for-sale[147] Offshore Gulf of Mexico The Offshore Gulf of Mexico segment experienced a decrease in operating revenues but a notable increase in gross margin, primarily driven by favorable adjustments in self-insurance liabilities and a beneficial mix of rig activity Offshore Gulf of Mexico Segment Financials & Operating Statistics (in thousands, except operating statistics) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | % Change | | :--------------------------------- | :------------------------------ | :------------------------------ | :------- | | Operating revenues | $ 29,314 | $ 32,273 | (9.2) | | Segment gross margin | $ 8,603 | $ 6,017 | 43.0 | | Segment operating income | $ 5,466 | $ 2,742 | 99.3 | | Average active rigs | 4 | 5 | (20.0) | - Operating revenues decreased by 9.2%, but segment gross margin increased by 43.0% to $8.6 million, primarily due to a favorable adjustment in self-insurance liabilities and the mix of rigs working versus on standby[149] International Solutions The International Solutions segment saw a substantial increase in operating revenues and a shift from operating loss to income, largely due to a contractual dispute settlement and higher activity levels, despite an asset impairment charge International Solutions Segment Financials & Operating Statistics (in thousands, except operating statistics) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | % Change | | :--------------------------------- | :------------------------------ | :------------------------------ | :------- | | Operating revenues | $ 37,159 | $ 10,518 | 253.3 | | Segment gross margin | $ 13,028 | $ (7,005) | (286.0) | | Segment operating income (loss) | $ 8,049 | $ (8,357) | (196.3) | | Average active rigs | 7 | 4 | 75.0 | | Number of active rigs at end of period | 8 | 4 | 100.0 | - Operating revenues increased by 253.3% and segment gross margin improved significantly from a loss to $13.0 million, primarily driven by a contractual dispute settlement and higher activity levels[151] - Recognized a $2.5 million non-cash impairment charge for two international FlexRig drilling rigs reclassified as held-for-sale[153] Other Operations Other operations, primarily related to captive insurance companies, showed increased operating revenues and direct operating expenses, with a slight decrease in gross margin due to actuarial valuation adjustments Other Operations Financials (in thousands) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | % Change | | :------------------------ | :------------------------------ | :------------------------------ | :------- | | Operating revenues | $ 15,923 | $ 8,718 | 82.6 | | Direct operating expenses | $ 11,320 | $ 3,750 | 201.9 | | Gross margin | $ 4,603 | $ 4,968 | (7.3) | | Operating income | $ 3,929 | $ 4,111 | (4.4) | - Direct operating costs for captive insurance companies included $(2.2) million in adjustments to accruals for estimated losses and $8.8 million in rig casualty insurance premiums for Q1 FY2022[154] Liquidity and Capital Resources This section discusses the company's liquidity sources, cash flow activities, credit facilities, debt, and future cash requirements Sources of Liquidity The company's liquidity is primarily derived from existing cash, operating cash flows, and available credit facilities, with potential impacts from global economic events like COVID-19 and oil price volatility - Primary liquidity sources include cash balances, cash flows from operations, and availability under the 2018 Credit Facility[155] - The ongoing effects of the COVID-19 pandemic and the 2020 oil price collapse have had significant adverse consequences, potentially impacting cash generation and capital market access[158] Cash Flows Cash flows fluctuate based on drilling rig contracts, revenue, operational efficiency, and timing of receivables/payments, with a net decrease in cash and cash equivalents for the period Net Cash Flows by Activity (in thousands) | Item | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--------------------------------------------- | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $ (3,718) | $ (19,604) | | Net cash used in investing activities | $ (44,729) | $ (65,203) | | Net cash used in financing activities | $ (635,610) | $ (29,287) | | Net decrease in cash and cash equivalents and restricted cash | $ (684,057) | $ (114,094) | Operating Activities Cash used in operating activities decreased significantly, driven by higher operating activity and an increase in operating net working capital - Cash used in operating activities decreased to $3.7 million from $19.6 million, primarily driven by higher operating activity[161] - Operating net working capital increased to $78.5 million from $43.4 million, mainly due to higher rig activity and seasonal payments[161] Investing Activities Investing activities saw increased capital expenditures and long-term investments, alongside higher proceeds from asset sales, while net purchases of short-term investments decreased - Capital expenditures increased to $44.0 million from $14.0 million, driven by higher activity and spending on walking rig conversions[162] - Net purchases of short-term investments decreased to $9.3 million from $57.1 million due to ongoing liquidity management[163] - Purchases of long-term investments increased to $9.0 million from $1.0 million, driven by additional geothermal investments[164] - Proceeds from asset sales increased to $21.5 million from $6.8 million, driven by the sale of casing running and trucking assets and customer reimbursements[165] Financing Activities Financing activities were significantly impacted by the redemption of senior notes and share repurchases, alongside consistent dividend payments - Paid $27.3 million in dividends ($0.25 per share) during the three months ended December 31, 2021[166] - Redeemed all outstanding 2025 Notes for a cash outflow of $487.1 million, plus a $56.4 million make-whole premium[167] - Repurchased 2.5 million common shares at an aggregate cost of $60.4 million[168] Credit Facilities The company maintains substantial liquidity through its 2018 Credit Facility and other bilateral credit facilities, remaining in compliance with all debt covenants - The 2018 Credit Facility has $750.0 million in aggregate availability, with no borrowings or letters of credit outstanding as of December 31, 2021[170] - Had five separate bilateral credit facilities with an aggregate outstanding balance of $30.4 million and a $20.0 million unsecured line of credit with $5.8 million in financial guarantees outstanding[171] - The Company was in compliance with all debt covenants as of December 31, 2021[172] Senior Notes The company successfully refinanced its 2025 Senior Notes by issuing new 2031 Senior Notes, incurring a loss on extinguishment of debt - Issued $550.0 million aggregate principal amount of 2.90% Senior Notes due September 29, 2031[173] - Redeemed all outstanding 4.65% Senior Notes due 2025 on October 27, 2021, resulting in a $56.4 million make-whole premium and a $3.7 million write-off of unamortized debt costs[177] Future Cash Requirements Future cash requirements for operations, debt, dividends, and capital expenditures are expected to be funded by current cash and operating activities, with a significant deferred tax liability noted - Expected to fund fiscal year 2022 operating cash requirements, debt repayments, interest, dividends, and capital expenditures through current cash and cash from operating activities, with no anticipated need to draw on the 2018 Credit Facility[178] - Long-term debt to total capitalization ratio was 16.5% at December 31, 2021[180] - A $545.9 million deferred tax liability exists, primarily related to temporary differences in property, plant, and equipment[179] Material Commitments This section notes that material commitments remain largely unchanged from the prior annual report, with specific disclosures in other notes - Material commitments have not significantly changed since the 2021 Annual Report on Form 10-K, other than those disclosed in Note 6 (Debt) and Note 13 (Commitments and Contingencies)[182] Critical Accounting Policies and Estimates This section confirms no material changes in critical accounting policies and estimates since the 2021 Annual Report on Form 10-K - There have been no material changes in critical accounting policies and estimates since the 2021 Annual Report on Form 10-K[183] Recently Issued Accounting Policies This section directs readers to Note 2 for information on recently adopted and new accounting standards - Refer to Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties for information on recently adopted and new accounting standards[184] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section refers to other parts of the report and the 2021 Annual Report on Form 10-K for detailed disclosures on market risks, including equity price, interest rate, and foreign currency exchange rate risks - Market risk disclosures regarding equity price, interest rate, and foreign currency exchange rate risks are incorporated by reference from Note 12, Note 6, Note 2, and the 2021 Annual Report on Form 10-K[185] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal controls over financial reporting during the quarter - Disclosure controls and procedures were effective as of December 31, 2021, based on evaluation by management, including the CEO and CFO[185] - No material changes in internal controls over financial reporting occurred during the most recent fiscal quarter[186] PART II. OTHER INFORMATION This part includes additional information such as legal proceedings, risk factors, equity security sales, and a list of exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to Note 13 of the financial statements for detailed information regarding the company's legal proceedings - Information regarding legal proceedings is provided in Note 13—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements[187] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes in the risk factors previously disclosed in Part 1, Item 1A—"Risk Factors" in the 2021 Annual Report on Form 10-K[188] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's common share repurchase activity during the three-month period ended December 31, 2021, under its evergreen authorization Common Share Repurchases (in thousands, except per share amounts) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------- | :------------------------------- | :--------------------------- | | October 1 - October 31 | — | — | | November 1 - November 30 | — | — | | December 1 - December 31 | 2,548 | $ 23.97 | | Total | 2,548 | | - The company repurchased 2.548 million common shares at an average price of $23.97 per share in December 2021, under an evergreen authorization to repurchase up to four million common shares annually[189] ITEM 6. EXHIBITS This section lists all documents filed as exhibits to the Form 10-Q, including corporate governance documents, certifications, and XBRL financial statements - Exhibits include Amended and Restated Certificate of Incorporation, By-laws, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and XBRL formatted financial statements[191] SIGNATURES This section contains the official signatures of the registrant's authorized officers, certifying the submission of the Form 10-Q - The report was signed by John W. Lindsay, Director, President and Chief Executive Officer, and Mark W. Smith, Senior Vice President and Chief Financial Officer, on January 31, 2022[194]