Patterson-UTI Energy(PTEN) - 2022 Q2 - Quarterly Report

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