Helmerich & Payne, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2010, three months ended December 31, 2009; comparison is the three months ended December 31, 2008. The filing was dated February 3, 2010. The company provides contract drilling services through U.S. Land, Offshore, and International Land segments.
Financial performance
| Metric | Q1 FY2010 | Q1 FY2009 |
|---|---|---|
| Revenue | $399.8 million | $623.8 million |
| Operating income | $102.4 million | $222.4 million |
| Net income | $63.2 million | $145.3 million |
| Diluted EPS | $0.59 | $1.36 |
| Operating cash flow | $120.2 million | $254.6 million |
| Capital expenditures | $64.8 million | $250.4 million |
- Revenue declined approximately 36% year over year; net income declined approximately 56%. Operating margin was approximately 25.6%, versus 35.7% a year earlier.
- Cash and cash equivalents were $153.1 million at December 31, up from $141.5 million at September 30, 2009. Total current assets were $580.5 million and current liabilities were $320.3 million.
- Total debt was $485 million: $105 million short-term and $380 million long-term. Debt declined $40 million during the quarter. The company reported compliance with debt covenants and $348.1 million available on its $400 million credit facility at December 31.
- Cash increased by $11.6 million during the quarter. Investing activities used $62.3 million, while financing activities used $46.3 million.
- Quarterly dividend declared was $0.05 per common share.
Segment results and changes
- U.S. Land: Revenue was $285.1 million versus $475.2 million; segment operating income was $91.5 million versus $194.0 million. Utilization fell to 62% from 95%, and average revenue per rig day declined to $24,113 from $27,066, mainly reflecting lower dayrates and reduced activity.
- Offshore: Revenue increased to $52.3 million from $50.5 million and segment operating income rose to $15.1 million from $14.7 million. Utilization was 85%, compared with 89%.
- International Land: Revenue was $59.4 million versus $95.2 million; segment operating income was $8.4 million versus $22.6 million. Utilization fell to 44% from 98%, chiefly because all 11 Venezuela rigs were idle by quarter-end.
- Lower U.S. Land and International Land activity drove the consolidated decline. The prior-year quarter included $5.9 million of after-tax equity income from an affiliate; the company discontinued equity-method accounting effective April 1, 2009.
Outlook, risks, and unusual items
- Management estimated fiscal 2010 capital expenditures of $265 million, increased by $40 million from its prior estimate. It cited FlexRig component availability, maintenance, selected projects, and flexibility to build additional rigs at up to one per month beginning in May, subject to market conditions.
- Three contracted FlexRigs remained to be completed by the end of April 2010. Contract drilling backlog was $2.349 billion at December 31, down from $2.528 billion at September 30; approximately 69.9% was not expected to be filled in fiscal 2010. Backlog can vary with customer termination rights, rig delivery, and other contract conditions.
- Management said operating cash flow, available cash, and credit facilities were expected to fund operations and estimated fiscal 2010 capital spending, while cautioning that future cash generation and access to financing are not assured.
- Venezuelan collection and currency risks are significant. The company recognized Venezuela revenue as cash was collected; approximately $41.9 million of revenue remained unrecognized pending collection. PDVSA receivables were reported at $13.0 million before the January 2010 currency adjustment. Eleven Venezuela rigs were idle, and management was not planning to commit them to new contracts until collection and currency-conversion progress improved.
- After quarter-end, Venezuela devalued its currency on January 8, 2010. The company expected an approximately $20 million exchange loss in Q2 FY2010. It also reported subsequent PDVSA receipts and a pending application to convert local-currency cash balances into U.S. dollars.
- The $105 million unsecured line matured in January 2010 and was repaid using operating cash flow and borrowings under the $400 million facility. The company subsequently repaid $10 million of that facility.
- General and administrative expense rose to $20.8 million from $15.1 million, primarily due to a $4.4 million charge from amended retirement-related vesting terms for stock awards. Stock-based compensation totaled $7.0 million versus $2.2 million.
- Other identified risks include drilling-market and commodity-price volatility, early contract termination, customer credit and collection risk, limited-source rig-component suppliers, foreign political and currency exposure, and weather or operational disruption. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether PDVSA receivables are collected and Venezuelan cash can be converted and remitted; also assess the realized impact of the devaluation and expected Q2 exchange loss.
- U.S. Land and International Land rig utilization, dayrates, and customer spending trends, and whether the reported recovery in U.S. rig count continues.
- Execution of the $265 million fiscal 2010 capital program, contracted FlexRig delivery schedule, and any additional rig builds.
- Backlog conversion, contract termination exposure, and the availability and delivery timing of key rig components.
- Debt balances, credit-facility availability, covenant compliance, and liquidity after the January 2010 debt repayment and subsequent borrowing.