Helmerich & Payne, Inc. — Fiscal 2020 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended June 30, 2020; filed July 29, 2020. H&P provides contract drilling services and related technologies. Its reporting segments were reorganized this quarter into North America Solutions, Offshore Gulf of Mexico, and International Solutions; prior-period segment data was recast.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $317.4 million | $688.0 million | $1,565.7 million | $2,149.4 million |
| Operating loss | $57.6 million | $167.9 million | $544.8 million | $18.4 million |
| Net loss | $45.6 million | $154.7 million | $435.5 million | $74.8 million |
| Diluted loss per share | $0.43 | $1.42 | $4.05 | $0.71 |
| Cash provided by operations | Not provided for quarter | Not provided for quarter | $446.3 million | $659.4 million |
- Nine-month investing cash use was $87.0 million, including $121.0 million of capital expenditures; financing cash use was $266.0 million, including $233.1 million of dividends paid and $28.5 million of share repurchases.
- At June 30, cash and cash equivalents were $426.2 million and short-term investments were $65.8 million. Management cited $492.0 million of cash and short-term investments plus $750.0 million of availability under its revolving facility, or approximately $1.2 billion in near-term liquidity. The filing also reports $50.0 million of restricted cash separately.
- Long-term debt, net, was $480.3 million, principally 4.65% senior notes due March 2025. No revolving-facility borrowings or letters of credit were outstanding; H&P reported compliance with debt covenants. Long-term debt to total capitalization was 12.5%.
- The nine-month $563.2 million asset impairment charge was non-cash and included impairments to drilling assets, inventory and goodwill. It was a major driver of the reported year-to-date loss. No further impairment was recorded in Q3.
Material changes and operating trends
- Q3 revenue fell approximately 54% year over year; nine-month revenue declined approximately 27%. The company attributed lower activity to the oil-price collapse, customer budget reductions, and COVID-19 disruption.
- At June 30, H&P had 81 contracted rigs, compared with 218 at September 30, 2019, across a 302-rig fleet. North America Solutions had 68 contracted rigs and 32% Q3 utilization, versus 62% a year earlier. Its Q3 revenue included $48.8 million of early-termination revenue.
- Q3 segment results: North America Solutions recorded a $25.2 million operating loss; Offshore Gulf of Mexico earned $3.0 million; International Solutions recorded a $9.5 million loss. International activity, revenue per day and utilization weakened; currency revaluation also weighed on results.
- Contract backlog was approximately $650.7 million at June 30, down from $1.2 billion at September 30, 2019. Management said about 73.4% was reasonably expected to be fulfilled in fiscal 2021 and later. Backlog excludes anticipated renewals and is subject to cancellation or modification.
Outlook, risks and unusual items
- Management said customer 2020 capital budgets had fallen nearly 50% from 2019 levels. It did not expect rig count to increase until customers began their 2021 capital budgets, while anticipating no further significant near-term rig-count decline. The company cautioned that the duration and effects of COVID-19 and oil-market disruption could not be reasonably estimated.
- Cost actions included lower planned fiscal 2020 capital spending, reduced overhead and SG&A, staffing and organizational changes, and a reduction in the quarterly dividend from $0.71 to $0.25 per share. Q3 restructuring charges were $15.5 million. Future dividends remain at the Board’s discretion.
- Key risks include sustained low oil prices and drilling demand, contract renegotiations or cancellations, customer credit and collection risk, rig utilization and pricing pressure, and COVID-related operating or staffing interruptions. Travel restrictions suspended drilling for a period in at least one foreign jurisdiction; a foreign customer also claimed force majeure during a suspension.
- International exposures include Argentine currency controls, limits on repatriating funds, inflation and economic instability. H&P reported $38.6 million of cash in Argentina at June 30. The Venezuela expropriation lawsuit remains pending; timing, amount and likelihood of any recovery are uncertain.
- Other notable items: H&P sold TerraVici in December 2019 for approximately $15.1 million and recorded a $15.0 million gain. It also adopted lease accounting in fiscal 2020, recognizing $47.5 million of operating lease liabilities at June 30.
Most important facts for investors to verify
- Whether rig utilization, customer budgets and backlog stabilize or improve, and how much reported backlog is ultimately realized.
- Collection of early-termination fees and receivables, including the $42.3 million of early-termination fees included in accounts receivable at June 30.
- Cash generation, capital-spending levels, liquidity availability and compliance with the credit facility’s covenants during a prolonged downturn.
- Whether the reduced dividend and cost-saving measures are sustainable, and whether further restructuring or asset impairments occur.
- Exposure to Argentine currency and repatriation restrictions, international operating interruptions, and outcomes of material legal matters.