Halliburton Company — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Halliburton provides products and services to the energy industry through its Completion and Production and Drilling and Evaluation segments. Figures below are in millions of dollars except per-share data, percentages, and where noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $5,357 | $3,860 | $14,715 | $11,018 |
| Operating income | $846 | $446 | $1,731 | $1,250 |
| Net income attributable to Halliburton | $544 | $236 | $916 | $633 |
| Diluted earnings per share | $0.60 | $0.26 | $1.01 | $0.71 |
| Operating margin | 15.8% | 11.6% | 11.8% | 11.3% |
Q3 revenue increased 39% year over year, while operating income rose 90%. Both segments contributed: Completion and Production revenue grew 47% and operating income 81%; Drilling and Evaluation revenue grew 29% and operating income 75%. North America revenue advanced 63%; international revenue increased 21%. Europe/Africa/CIS revenue declined 5%, partly reflecting the Russia exit.
For the first nine months, operating cash flow was $1,079, versus $1,229 in 2021. Capital expenditures were $661, compared with $483. Receivables, inventories, and accounts payable together had a negative $907 cash impact. Cash and equivalents were $1,977 at September 30, down from $3,044 at December 31, 2021. Cash used in financing was $1,455, including $1,242 of long-term borrowing repayments and $327 of dividends.
At September 30, total assets were $22,563 and total liabilities $14,918. The balance sheet reported long-term debt of $7,927, down from $9,127 at year-end; the debt note reports total debt carrying value of $7,927 versus $9,138 at December 31, 2021. Halliburton had a $3.5 billion revolving facility fully available, expiring in 2027. Its quarterly dividend was $0.12 per share. The current ratio was approximately 2.1.
Material changes and unusual items
- Halliburton completed the sale of its Russia operations in Q3 and no longer operates there. The Q2 decision to sell, following Russia’s invasion of Ukraine and resulting sanctions, led to a $344 pre-tax write-down. A separate $22 million charge was recorded in Q1 for Ukraine assets, including a $16 million receivables allowance. Total nine-month impairments and other charges were $366 million.
- In February, the company redeemed $600 million of 3.8% notes due 2025, paying $641 million including premium and accrued interest; this resulted in a $42 million early-extinguishment loss. In September it redeemed $600 million of 3.5% notes due 2023 for $603 million including accrued interest.
- Q3 effective tax rate was 22.2%; the nine-month rate was 26.6%, higher than the prior-year 23.2%, primarily due to the Russia sale and a related increase in the valuation allowance on foreign tax credits.
- No shares were repurchased under the public buyback program during Q3. The 511,070 shares reported as purchased in the quarter were withheld from employee stock awards for taxes, not program repurchases. Approximately $5.1 billion remained authorized.
Outlook, management commentary, and risks
Management expected full-year 2022 capital spending of approximately 5%–6% of revenue and North American customer spending to increase by more than 35% versus 2021. It anticipated further international activity growth, particularly in the Middle East, into 2023. These are management expectations, not company earnings guidance. Management said it expected oil and gas demand to grow over the next several years, while noting the possibility of slower economic growth and lower prices.
Key operating pressures include inflation in inputs such as frac sand, chemicals, cement, and logistics; supply-chain and transportation constraints; potential recession and energy-price volatility; geopolitical conflict and sanctions; and customer payment delays or defaults. The primary Mexican customer represented about 9% of receivables at quarter-end; payment delays had occurred, but management did not expect material write-offs. About $2.0 billion of letters of credit, bank guarantees, or surety bonds were outstanding; management said no related triggering events had occurred and no material off-balance-sheet liabilities existed. The company reported ordinary-course legal proceedings and stated their resolution was not expected to materially adversely affect results or financial position. Management said previously disclosed risk factors had no material changes and disclosure controls were effective.
Important facts for investors to verify
- Whether higher activity and pricing can sustain segment growth and margin improvement, particularly if oil prices or customer spending weaken.
- Whether working-capital investment and customer collections improve, given the $907 million cash use from receivables, inventory, and payables during the first nine months.
- Actual full-year capital spending versus the 5%–6% of revenue expectation, and the effect on cash, dividends, and potential buybacks.
- Whether the Russia divestiture, Ukraine exposure, sanctions, and tax-credit valuation allowance create further charges or tax impacts.
- Debt and liquidity developments, including the effect of the note redemptions and any possible cash-collateral requirements under guarantees.