Helmerich & Payne, Inc. — Q1 FY2024 10-Q
Reporting period: Three months ended December 31, 2023; comparisons are with the three months ended December 31, 2022 unless stated otherwise. H&P provides drilling services and technology solutions through North America Solutions, Offshore Gulf of Mexico, and International Solutions. Its fleet had 262 rigs; 166 were contracted at quarter-end.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $677.1 million | $719.6 million |
| Operating income | $123.5 million | $144.2 million |
| Operating margin | 18.2% | 20.0% |
| Net income | $95.2 million | $97.1 million |
| Diluted EPS | $0.94 | $0.91 |
| Cash from operations | $174.8 million | $185.4 million |
| Capital expenditures | $136.4 million | $96.0 million |
- Revenue fell 5.9% and operating income fell 14.4%; net income declined 2.0%, while diluted EPS rose from $0.91 to $0.94, alongside lower weighted-average share counts.
- Operating cash flow less capital expenditures was approximately $38.4 million, versus $89.3 million a year earlier. Investing outflows increased primarily with capital spending; cash and restricted cash declined by $37.0 million during the quarter.
- At December 31, cash and cash equivalents were $214.1 million, restricted cash $65.1 million, and short-term investments $84.1 million. Restricted cash is designated primarily for potential captive-insurance claims.
- Long-term debt was $545.3 million net carrying value ($550 million face value), consisting of 2.90% senior notes due 2031. The company had no revolver borrowings and $750 million available under its credit facility; it reported compliance with debt covenants. Debt-to-total-capitalization was 16.6%.
- Quarter-end backlog was $1.3 billion, down from $1.4 billion at September 30, 2023. About $0.7 billion is expected to be recognized in the remainder of FY2024, $0.4 billion in FY2025, and $0.2 billion in FY2026 and later; backlog excludes anticipated renewals and performance bonuses and can be affected by customer cancellations or changes.
Material changes and segment performance
- North America Solutions: Revenue declined 5.2% to $594.3 million. Revenue days and average active rigs each fell 17.3%; higher average pricing partly offset lower activity. Segment operating income was nearly flat at $144.5 million.
- Offshore Gulf of Mexico: Revenue declined 27.4% to $25.5 million, primarily due to lower activity and more rigs working at standby rates. Segment operating income fell 54.8% to $3.1 million.
- International Solutions: Revenue was essentially unchanged at $54.8 million. Higher direct costs were partly offset by the absence of the prior-year impairment charge; segment operating income rose to $5.4 million from $1.6 million.
- Consolidated SG&A increased to $56.6 million from $48.5 million, mainly due to higher labor and labor-related expenses. No impairment charge was recorded this quarter, compared with $12.1 million in Q1 FY2023.
- Investment securities generated a $4.0 million loss, versus a $15.1 million loss in the prior-year quarter. The current-quarter result included a $10.4 million ADNOC Drilling valuation loss partly offset by a $6.3 million Tamboran gain.
- The company declared $59.1 million in dividends, including base and supplemental dividends, and repurchased 1.3 million shares for $47.7 million during the quarter.
Outlook, commentary, and risks
- Management expects customer capital spending in calendar 2024 to be flat to down approximately 5% versus 2023, and does not expect much change in activity levels over the calendar year. It expects a modest North America rig-activity increase in the first half of FY2024—3 to 8 additional rigs in Q2 after four net additions in Q1—followed by relatively stable activity in the second half.
- Management plans to prioritize economic margins over utilization. It expects operating expenses to remain elevated due to service intensity and expects FY2024 SG&A to increase, including pressure from labor and third-party costs. It says inflationary pressures have abated and contract pass-throughs have partly mitigated cost increases.
- After quarter-end, H&P received preliminary notice, subject to final contract agreements, of an award for seven super-spec rigs in the Middle East. Delivery is currently expected in the first half of FY2025, with no anticipated FY2024 revenue impact. A separate Bahrain rig is expected to begin work in the second half of FY2024.
- Management expects FY2024 operating requirements, declared dividends, debt service, and estimated capital expenditures to be funded from cash on hand and operating cash flows; it does not currently anticipate drawing on the revolver.
- International operations face geopolitical, regulatory, currency, and repatriation risks. Argentina’s peso depreciated approximately 55% against the U.S. dollar during the quarter; H&P recorded $1.8 million in aggregate foreign-currency losses and held the equivalent of $6.9 million in Argentine pesos there at quarter-end.
- Other notable exposures include $121.7 million of equipment, parts, and supply purchase commitments; an amended Tulsa facility lease extending through June 2035; and a Venezuelan expropriation lawsuit for which recovery timing, amount, and likelihood cannot be determined. Management says other ordinary-course legal matters, after reserves and insurance, are not expected to materially affect results.
Key facts for investors to verify
- Whether North America activity and pricing develop as management expects, including the anticipated Q2 rig additions and stable second-half activity.
- Final contract terms, delivery schedules, and economics for the seven Middle East rigs, and timing and performance of the Bahrain contract.
- Backlog conversion and exposure to cancellations, renewals, and performance bonuses.
- Capital spending and cash generation relative to dividends and share repurchases, and the remaining availability and terms of the credit facility.
- Effects of Argentina’s currency restrictions and devaluation, and changes in the fair value of equity investments, especially ADNOC Drilling and Tamboran.
- Whether elevated operating costs and SG&A affect margins, and whether disclosed purchase commitments or legal and insurance contingencies change materially.