Helmerich & Payne, Inc. — Fiscal 2022 Third Quarter 10-Q
Reporting period: Three and nine months ended June 30, 2022. The company provides drilling services and technologies across North America, the Offshore Gulf of Mexico, and international markets. Results are unaudited.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Nine months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $550.2 million | $1,427.6 million | $332.2 million; $874.8 million |
| Operating income (loss), continuing operations | $33.7 million | $(31.5) million | $(77.4) million; $(331.5) million |
| Net income (loss) | $17.8 million | $(38.6) million | $(55.6) million; $(247.0) million |
| Diluted EPS | $0.16 | $(0.37) | $(0.52); $(2.30) |
| Cash provided by operating activities | $116.6 million for nine months | $89.8 million |
- Quarterly operating margin was approximately 6.1% (operating income divided by revenue); nine-month operating margin was approximately negative 2.2%. Revenue growth reflected higher activity and pricing, while nine-month results also included a $60.1 million debt-extinguishment loss.
- North America Solutions generated $486.0 million of quarterly revenue and $57.4 million of segment operating income, versus $281.1 million and a $43.7 million loss a year earlier. Its reported non-GAAP direct margin was $167.6 million, compared with $75.0 million.
- At June 30, cash and cash equivalents were $188.7 million and short-term investments were $144.3 million, compared with cash of $917.5 million and short-term investments of $198.7 million at September 30, 2021. Total cash, cash equivalents and restricted cash declined $714.1 million during the nine months.
- Long-term debt was $542.3 million book value ($550.0 million face value); the company had no borrowings or letters of credit under its $750 million revolving facility. It reported $33.8 million outstanding under separate bilateral facilities and was in compliance with debt covenants. Current liabilities were $401.3 million and total assets were $4.32 billion.
- Investing cash outflow was $123.1 million and financing cash outflow was $707.6 million for the nine months. Capital expenditures were $175.0 million. Financing outflows included repayment of the 2025 notes, a $56.4 million make-whole premium, $77.0 million of share repurchases, and $80.7 million of dividends.
Changes versus the prior comparable period
- Quarterly revenue rose 65.6%; nine-month revenue rose 63.2%. Management attributed the improvement primarily to increased rig activity and higher pricing.
- North America Solutions averaged 174 active rigs in the quarter versus 119 a year earlier; its period-end active rig count was 175 versus 121. Company-wide contracted rigs totaled 188 at quarter-end, including 122 under fixed-term contracts.
- The nine-month net loss narrowed substantially, but the 2022 period included the $60.1 million debt-extinguishment charge and a $55.7 million gain on investment securities. The 2021 period included a $56.4 million impairment charge.
- Backlog increased to $862.2 million from $572.0 million at September 30, 2021. The company noted that backlog excludes anticipated renewals and bonuses and may be affected by contract cancellations or modifications.
Outlook, risks and unusual items
- Management expected North America Solutions’ active rig count to reach 176 in fiscal Q4 2022 and anticipated further increases in fiscal 2023 as customers reset budgets. It expected continued upward pricing pressure, citing demand for super-spec rigs, limited competitive supply, supply-chain challenges and labor constraints.
- Fiscal 2022 capital expenditure guidance remained $250–$270 million. The company said operating needs, debt service, dividends and expected capital spending were expected to be funded from cash on hand and operating cash flow; it did not anticipate drawing on the revolver.
- Management reported that inflation had not materially affected operating margins or cash flows to date, as rate increases had more than offset cumulative cost trends. This is not assurance that future cost increases will be offset.
- The company estimated an additional one-time pension settlement charge of $7–$9 million in fiscal Q4 2022. It also recorded a $33 million convertible-note investment in Galileo and had $17 million of geothermal investments.
- A Texas jury verdict against the company and an employee was reduced by voluntary remittitur from approximately $126 million to $60 million. The company and insurers were appealing; $3 million was accrued, and management expected insurance to respond above the deductible, but said the possible loss could not be estimated.
- International risks include Argentina’s currency controls, inflation and restrictions on repatriating U.S. dollars; the company reported $3.8 million of cash in Argentina. Other risks cited include commodity-price volatility, customer spending and contract termination, geopolitical conditions, labor and supply constraints, and litigation.
Important facts for investors to verify
- Whether rig count growth and improved contract pricing materialize as expected, and how quickly higher rates flow through to margins.
- Backlog conversion, contract renewal and termination terms, and the sustainability of the reported $862.2 million backlog.
- Cash generation and liquidity after the substantial debt-redemption and shareholder-return outflows; also confirm the composition and availability of investments.
- Outcome and insurance coverage of the $60 million litigation judgment, including any exposure beyond the recorded deductible.
- Potential volatility from the ADNOC Drilling investment, which generated a $17.0 million quarterly loss but a $47.8 million gain over nine months, and the valuation of other less liquid investments.