Helmerich & Payne, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2024. Unaudited results; comparisons are with the corresponding 2023 periods. H&P provides drilling services and technology through North America Solutions, International Solutions, and Offshore Gulf of Mexico. At quarter-end it had 262 rigs in its fleet and 166 contracted rigs, including 102 on fixed-term contracts and 64 working well-to-well.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $687.9m | $769.2m | $1,365.1m | $1,488.9m |
| Operating income | $110.6m | $175.2m | $234.0m | $319.4m |
| Net income | $84.8m | $164.0m | $180.0m | $261.2m |
| Diluted EPS | $0.84 | $1.55 | $1.79 | $2.46 |
Q2 revenue declined 10.6% year over year; operating margin was approximately 16.1% versus 22.8%, and net margin approximately 12.3% versus 21.3%. Lower activity weighed on revenue and earnings. The prior-year quarter also benefited from a substantially larger investment-securities gain ($39.8m versus $3.7m in Q2 FY2024). Q2 SG&A rose to $62.0m from $52.9m, primarily due to higher labor-related expense. Six-month operating results also include no impairment charge in FY2024 versus $12.1m in FY2023.
- Segment performance, Q2: North America revenue was $613.3m, down 9.2%, with segment operating income of $147.1m, down 19.2%; average active rigs fell 14.3% to 155. International revenue was $45.9m, down 17.9%, and segment income was $3.6m. Offshore Gulf of Mexico revenue was $25.9m, down 25.9%, and segment income fell to $0.1m from $6.7m.
- Cash flow and investment: Six-month operating cash flow was $318.5m versus $326.3m. Capital expenditures were $254.7m versus $181.5m, leaving approximately $63.8m of operating cash flow after capital expenditures, before other investing and financing activity. Investing activities used $224.5m.
- Liquidity and debt: At March 31, cash and equivalents were $193.6m, restricted cash $68.5m, and short-term investments $83.4m. Long-term debt had $550.0m face value and $545.4m carrying value, consisting of 2.90% senior notes due 2031. The $750m revolving credit facility was undrawn; H&P reported compliance with debt covenants. The company expects to fund FY2024 requirements from cash and operating cash flow and does not currently anticipate drawing the facility.
- Shareholder returns: Six-month dividends paid were $84.4m, and H&P repurchased 1.4m shares for $51.6m. A $0.25 base and $0.17 supplemental dividend per share was declared for payment May 31, 2024.
Changes, outlook, and notable items
- Management expects customer capital spending in calendar 2024 to be flat to down approximately 5% versus 2023, with North American activity broadly steady from quarter-end levels. Weaker natural-gas prices have led some customers to reduce planned activity; management says its exposure is limited. It expects operating expenses to remain elevated and FY2024 SG&A to increase, citing labor and third-party service costs.
- Contract backlog increased to $1.7bn from $1.4bn at September 30, 2023, mainly reflecting finalized terms for seven super-spec rigs for Saudi Aramco. Approximately 66.6% is expected to be fulfilled in FY2025 and later; $0.6bn is expected in the remainder of FY2024, $0.5bn in FY2025, and $0.6bn in FY2026 and thereafter. Backlog excludes renewals and performance bonuses and may not be fully realized because customers can cancel or modify contracts.
- The seven Saudi rigs are expected to be delivered and accepted in the first half of FY2025, with no expected FY2024 revenue contribution. One additional Bahrain rig is also expected to begin work in the first half of FY2025. Related international expansion spending was included in the FY2024 capital budget.
- H&P recognized a $5.5m gain on insurance proceeds for a rig previously destroyed by fire; $5.0m was collected during the six-month period, with $0.5m receivable at quarter-end. Increased capital expenditures reflect equipment overhauls and long-lead items for expansion projects.
- International risks include geopolitical and regulatory uncertainty, currency controls, and Argentina’s highly inflationary economy. The Argentine peso was devalued approximately 55% in December 2023; H&P reported $2.4m of foreign-currency losses for the six months and held the equivalent of $13.0m in Argentine pesos there at quarter-end. The filing also discloses a Venezuelan expropriation lawsuit for which recovery timing and amount cannot be determined, $153.2m of equipment and supply purchase commitments, and potential tax-benefit recognition of up to $2.8m by June 30, 2024.
- Management stated there were no material changes to previously disclosed risk factors and no material changes in internal controls. It believes ordinary-course legal matters, considering reserves and insurance, will not materially adversely affect results, but cannot estimate the Venezuelan claim outcome.
Important facts for investors to verify
- Whether North American rig activity and pricing hold up against customer spending reductions, natural-gas weakness, and customer consolidation.
- Delivery, acceptance, conversion costs, and expected economics for the Saudi and Bahrain contracts, and whether backlog converts to revenue on schedule.
- Capital spending, operating costs, and cash generation relative to management’s FY2024 funding expectations.
- Investment-securities valuation volatility and the extent to which reported earnings depend on gains or losses from those holdings.
- Potential effects of Argentine currency restrictions and devaluation, contract cancellations, insurance outcomes, and the unresolved Venezuelan expropriation claim.
- The $70m portion of revolving-credit commitments scheduled to expire in November 2024 unless extended, and the timing and amount of future cash tax payments.