Patterson-UTI Energy, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company provides drilling services, completion services and drilling products. Results reflect the NexTier merger (September 2023) and Ulterra acquisition (August 2023); therefore, year-over-year comparisons are substantially affected by acquisitions.
Financial performance
Unless noted otherwise, amounts are in millions of dollars.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $1,510.4 | $791.8 |
| Operating income | $87.0 | $126.0 |
| Net income attributable to common stockholders | $51.2 | $99.7 |
| Diluted EPS | $0.13 | $0.46 |
| Adjusted EBITDA (non-GAAP) | $375.0 | $255.6 |
| Cash from operating activities | $365.9 | $234.3 |
| Capital expenditures | $226.9 | $117.6 |
- Revenue rose 91% year over year, mainly reflecting the acquired completion and drilling-products businesses. Operating income fell 31%; net income attributable to common stockholders fell 49%. Operating margin was about 5.8%, versus 15.9% a year earlier.
- Adjusted EBITDA increased year over year but declined from $409.1 million in Q4 2023. It is a company-defined non-GAAP measure and should be considered alongside GAAP results.
- Operating cash flow less capital expenditures was approximately $138.9 million. Cash, cash equivalents and restricted cash were $170.2 million at quarter-end, down from $192.7 million at year-end 2023.
- Working capital was approximately $437.8 million. Long-term debt, including current maturities and before debt discounts, was $1.242 billion; cash-adjusted debt was approximately $1.072 billion. No revolving-credit borrowings were outstanding, and approximately $548 million was available at March 31.
- Current assets were $1.355 billion and current liabilities $916.9 million. The company reported compliance with its debt covenants and investment-grade ratings at both Moody’s and S&P.
Segments and material changes
- Drilling Services: Revenue of $457.6 million, down 4.2% year over year; segment operating income of $89.6 million, down 11.5%. Lower U.S. operating days were partly offset by improved average revenue per operating day.
- Completion Services: Revenue of $945.0 million and segment operating income of $49.6 million. Revenue increased 222% year over year, primarily due to the NexTier merger; the filing says a meaningful comparison excluding the merger is not available. Sequentially, revenue declined 6.8% and segment operating income 29.4%, mainly due to lower activity.
- Drilling Products: Revenue of $90.0 million and segment operating income of $6.5 million. The segment reflects Ulterra, acquired in August 2023, so there is no Q1 2023 comparison. Purchase-accounting step-ups increased current-quarter costs.
- Interest expense rose 108% year over year to $18.3 million, primarily following the 7.15% senior-note issuance in 2023. Depreciation, depletion, amortization and impairment increased to $275.0 million from $128.2 million, reflecting acquired assets and purchase-accounting effects.
- Credit-loss expense was $5.2 million, which management attributed to deterioration in a customer’s financial condition. The allowance for credit losses was $12.9 million at March 31, versus $3.5 million at December 31.
Liquidity, capital allocation and outlook
- Q1 cash uses included $226.9 million of capital expenditures, $97.8 million of share repurchases, $32.6 million of dividends and $27.2 million of finance-lease payments. The board approved a $0.08-per-share dividend payable June 17, 2024.
- The company increased its repurchase authorization in February 2024 to $1.0 billion; approximately $944.6 million remained at March 31. Repurchases are discretionary.
- On April 5, 2024, after quarter-end, the company increased revolving-credit commitments to $615 million. The filing states that $567 million matures March 27, 2026 and $48.3 million matures March 27, 2025.
- Management expects U.S. rig count to average approximately 114 rigs in Q2 2024, versus 121 in Q1. Based on contracts in place as of May 1, it expects an average of 70 rigs under U.S. term contracts in Q2 and 41 over the four quarters ending March 31, 2025. U.S. contract-drilling backlog was approximately $527 million at March 31; about 14% was reasonably expected to remain at March 31, 2025. Contracts may be terminable, and backlog may not be realized.
- Management expects completion-services activity to be affected by natural-gas prices and customer schedule gaps in Q2, with activity expected to improve in Q3 as certain customers resume work. Drilling Products activity is expected to be consistent with Q1. Q2 capital expenditures are forecast at approximately $180 million.
- Management believes liquidity and expected operating cash flow should fund current plans, debt service, dividends and repurchases for at least 12 months. This is an expectation, not a guarantee; access to additional financing is not assured.
Risks, contingencies and unusual items
- Demand and pricing depend on oil and natural-gas prices, customer spending, economic conditions and geopolitical developments. Q1 average oil price was $77.50 per barrel; Henry Hub natural gas averaged $2.31 per MMBtu. Management noted natural-gas price weakness and continued commodity volatility.
- Other risks include industry cyclicality and excess equipment capacity, customer defaults, operational hazards, weather, labor and supply constraints, competition, integration and synergy execution, cybersecurity, regulation and environmental exposures.
- The company reported $87.2 million of outstanding letters of credit, with none drawn, approximately $158 million of equipment-purchase commitments, and $31.8 million of remaining minimum proppant-purchase obligations. It reported no legal proceedings expected to have a material adverse effect.
- Completion Services reported $9.9 million of net other operating income in Q1, attributed primarily to a legal-settlement gain. Merger and integration expense was $12.2 million. No goodwill impairment was recorded in Q1; management noted that adverse market or operating changes could lead to future impairment.
- The effective tax rate was 27.9%, compared with 16.8% in Q1 2023, primarily due to valuation allowances on deferred tax assets and permanent differences.
Investor verification points
- Assess whether acquisition-driven growth translates into sustained profitability, cash generation and expected merger synergies; compare reported results with the pre-acquisition business only where disclosures permit.
- Monitor completion-services utilization and margins, the stated Q2-to-Q3 activity recovery, U.S. rig count, and the conversion and termination risk of the $527 million drilling backlog.
- Track customer credit quality and receivables, especially given the increased allowance and Q1 credit-loss expense.
- Review capital-spending requirements, debt maturities and interest costs alongside discretionary buybacks and dividends; confirm liquidity and covenant compliance in subsequent filings.
- Check for goodwill impairment indicators, acquisition purchase-accounting updates, and changes in equipment and proppant commitments.