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Patterson-UTI Energy(PTEN) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2023, show a significant increase in net income compared to the prior year, driven by higher revenues across key segments Condensed Consolidated Balance Sheets As of June 30, 2023, total assets were $3.12 billion, a slight decrease from $3.14 billion at December 31, 2022, primarily due to reduced accounts receivable and accrued liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $801,327 | $829,419 | | Property and equipment, net | $2,263,581 | $2,260,576 | | Total Assets | $3,117,196 | $3,143,823 | | Total Current Liabilities | $454,321 | $550,966 | | Long-term debt, net | $822,408 | $830,937 | | Total Liabilities | $1,397,027 | $1,478,300 | | Total Stockholders' Equity | $1,720,169 | $1,665,523 | Condensed Consolidated Statements of Operations For Q2 2023, net income significantly improved to $84.6 million from $21.9 million in Q2 2022, with six-month net income reaching $184.3 million, driven by substantial revenue growth in Contract Drilling and Pressure Pumping segments Key Operating Results (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $758,885 | $622,238 | $1,550,687 | $1,131,613 | | Operating Income | $104,582 | $36,762 | $230,545 | $17,881 | | Net Income (Loss) | $84,614 | $21,886 | $184,292 | $(6,891) | | Diluted EPS | $0.40 | $0.10 | $0.87 | $(0.03) | | Cash Dividends per Share | $0.08 | $0.04 | $0.16 | $0.08 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for the six months ended June 30, 2023, substantially increased to $397.2 million, primarily funding capital expenditures, share repurchases, and dividend payments Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $397,206 | $85,017 | | Net cash used in investing activities | $(242,212) | $(178,194) | | Net cash used in financing activities | $(142,259) | $(5,160) | | Net increase (decrease) in cash | $12,735 | $(97,888) | | Cash and cash equivalents at end of period | $150,288 | $19,636 | Notes to Financial Statements The notes detail significant accounting policies and events, including pending mergers with NexTier Oilfield Solutions Inc. and Ulterra Drilling Technologies, L.P., along with revenue recognition, debt, and share repurchase program specifics - On June 14, 2023, the company entered into a merger agreement with NexTier Oilfield Solutions Inc., where each share of NexTier common stock will be converted into 0.7520 shares of Patterson-UTI common stock, with the transaction expected to close in 202324 - On July 3, 2023, the company agreed to acquire Ulterra Drilling Technologies, L.P. for 34.9 million shares of common stock and $370 million in cash, with the transaction expected to close in the third quarter of 202394 - The contract drilling backlog in the United States as of June 30, 2023, was approximately $760 million, representing commitments under term contracts of six months or more35 - In April 2023, the Board of Directors increased the stock buyback program authorization to an aggregate of $300 million, with approximately $281 million remaining available for repurchase as of June 30, 202369 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the impact of volatile commodity prices on industry activity, noting a decline in Q2 2023 rig count and reduced capital expenditure forecasts, alongside details of two significant pending acquisitions and strong liquidity Management Overview and Recent Developments The company experienced a decrease in U.S. rig activity in Q2 2023 due to commodity price volatility, leading to a reduced capital expenditure forecast and the announcement of two major acquisitions - The average active rig count in the U.S. was 128 rigs for Q2 2023, down from 131 in Q1 2023, with an expected average of approximately 119 rigs during Q3 2023106 - The 2023 capital expenditure forecast has been lowered to $485 million based on the outlook for the second half of the year108 - The company entered into merger agreements to acquire Ulterra Drilling Technologies for cash and stock, and NexTier Oilfield Solutions in an all-stock transaction, both expected to close in 2023109111112 Results of Operations Q2 2023 saw increased Contract Drilling revenue and margins, while Pressure Pumping revenue and margins declined; however, for the six months ended June 30, 2023, all segments showed significant revenue and operating income growth compared to the prior year Contract Drilling Performance (Q2 2023 vs Q1 2023) | Metric | Q2 2023 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues (in thousands) | $432,375 | $419,026 | 3.2% | | Adjusted Gross Margin (in thousands) | $200,955 | $188,668 | 6.5% | | Average Rigs Operating (U.S.) | 128 | 131 | (1.8)% | | Avg. Revenue per Day (U.S.) (in thousands) | $35.94 | $34.76 | 3.4% | Pressure Pumping Performance (Q2 2023 vs Q1 2023) | Metric | Q2 2023 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues (in thousands) | $250,241 | $293,268 | (14.7)% | | Adjusted Gross Margin (in thousands) | $53,768 | $73,152 | (26.5)% | | Fracturing Jobs | 137 | 147 | (6.8)% | | Adj. Gross Margin % of Revenue | 21.5% | 24.9% | (13.9)% | Segment Operating Income (Six Months Ended June 30, in thousands) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Contract Drilling | $213,672 | $18,556 | 1,051.5% | | Pressure Pumping | $69,736 | $26,512 | 163.0% | | Directional Drilling | $3,449 | $5,816 | (40.7)% | Liquidity and Capital Resources The company maintains a strong liquidity position with $150 million in cash and $600 million available under its revolving credit facility, deemed sufficient to fund pending acquisitions, operations, debt service, and dividends for the next 12 months Liquidity Position as of June 30, 2023 (in millions) | Item | Amount | | :--- | :--- | | Working Capital | $347 | | Cash and cash equivalents | $150 | | Availability under revolving credit facility | $600 | Major Uses of Cash (Six Months Ended June 30, 2023, in millions) | Use of Cash | Amount | | :--- | :--- | | Capital Expenditures | $250 | | Repurchases of common stock | $101 | | Dividends paid | $33.5 | | Repurchases of Senior Notes | $7.8 | - The company had commitments to purchase major equipment totaling approximately $114 million as of June 30, 2023176 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risk exposure since its 2022 Annual Report, with primary risk being interest rates on variable-rate credit facilities, currently minimized by no outstanding borrowings - There have been no material changes in the company's exposure to market risk since the year ended December 31, 2022189 - The company's primary market risk is interest rate risk associated with its variable-rate credit facilities, with no borrowings outstanding under the revolving credit facility as of June 30, 2023190191 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023195 - No material changes to the company's internal control over financial reporting occurred during the most recently completed fiscal quarter196 PART II — OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business, with management not expecting a material adverse effect on financial condition or results - The company does not expect that the outcome of various legal proceedings from the normal course of business will have a material adverse effect on its financial condition or results198 Risk Factors This section introduces new material risks primarily associated with the pending mergers with NexTier and Ulterra, including completion uncertainties, integration challenges, and limitations on Net Operating Loss (NOL) carryforwards - Completion of the NexTier and Ulterra acquisitions is subject to conditions not within the company's control, and failure to complete them could negatively impact stock price and results200209 - The company expects an "ownership change" under Section 382 of the tax code due to the NexTier merger, imposing an annual limitation on the use of historic U.S. net operating loss (NOL) carryforwards202203204 - Integrating NexTier and Ulterra presents risks including inability to combine businesses, complexities in managing expanded operations, and potential loss of customers or key employees216205 - Significant non-recurring transaction costs are expected for the mergers, which will be borne by the company regardless of transaction completion211 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased approximately 1.8 million shares of common stock under its buyback program at an average price of $10.57 per share, with $281 million remaining authorized for future repurchases Share Repurchases for Quarter Ended June 30, 2023 | Month | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | :--- | | April 2023 | 153,119 | $11.69 | — | $300,000 | | May 2023 | 2,165,522 | $10.57 | 1,796,927 | $281,031 | | June 2023 | 227,570 | $11.58 | — | $281,031 | - In April 2023, the Board of Directors increased the stock buyback program authorization to allow for an aggregate of $300 million of future share repurchases230 Other Information Following a stockholder advisory vote at the June 8, 2023 meeting, the Board of Directors has determined that advisory votes on executive compensation will be held annually - Following a stockholder advisory vote, the Board of Directors has determined that advisory votes on named executive compensation will be held annually231 Exhibits This section lists the exhibits filed with the Form 10-Q, including the merger agreements with NexTier and Ulterra, corporate governance documents, and certifications by the CEO and CFO - Exhibits filed include the Agreement and Plan of Merger with NexTier Oilfield Solutions Inc. and the Agreement and Plan of Merger with Ulterra Drilling Technologies, L.P.233