Helmerich & Payne, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited quarterly report covers the three months ended December 31, 2013, the first quarter of fiscal 2014. The company operates contract drilling businesses in U.S. Land, Offshore, and International Land markets.
Financial performance and position
- Revenue: $889.2 million, up 5.3% from $844.6 million a year earlier. U.S. Land revenue was $731.7 million; Offshore $59.1 million; International Land $95.3 million.
- Profit: Operating income was $264.0 million, up 9.8%; net income was $173.2 million, up 8.5%. Diluted EPS rose to $1.59 from $1.48. Net margin was approximately 19.5%, versus 18.9%.
- Segment results: Segment operating income, a company-defined non-GAAP measure, was $251.0 million for U.S. Land, $18.5 million Offshore, and $12.8 million International Land. U.S. Land utilization improved to 84% from 82%; International Land utilization declined to 82% from 85%.
- Cash flow and investment: Operating cash flow was $304.9 million, compared with $341.9 million. Capital expenditures were $140.6 million versus $219.4 million. Operating cash flow less capital expenditures was $164.2 million, compared with $122.5 million. Cash increased by $133.5 million to $581.4 million.
- Liquidity and debt: Total debt was $195.0 million, including $115.0 million due within one year. Cash exceeded debt by $386.4 million. The company had no revolver borrowings and $269.3 million available under its $300 million facility; it reported compliance with debt covenants.
- Dividends: The company declared a quarterly dividend of $0.625 per share, up from $0.15 in the year-earlier quarter. Cash dividends paid in the quarter were $53.9 million.
Changes versus the prior comparable quarter
- Revenue and operating income increased, supported by higher U.S. Land revenue days and improved Offshore and International Land margins per day.
- U.S. Land revenue days increased to 23,464 from 21,743. Average revenue per day rose to $28,468 from $28,040.
- Quarterly net income included approximately $3.7 million after-tax gains from asset sales. The prior-year quarter included approximately $5.5 million after-tax gains from investment securities and $3.4 million from asset sales, making reported profit comparisons affected by different gains.
- Operating cash flow declined primarily because accounts receivable increased by $8.8 million, compared with a $40.3 million decrease in the prior-year quarter. Cash dividends paid also increased substantially following the dividend increase.
Outlook, risks, and unusual items
- Outlook and capital spending: Management raised its fiscal 2014 capital spending estimate to approximately $950 million, citing demand for FlexRigs. It expected construction of about two new FlexRigs per month through the end of the second fiscal quarter, increasing to about three per month from April through fiscal year-end. Seven rigs entered service in the quarter; six more contracted rigs were completed by the end of January.
- Backlog: Contract drilling backlog was $3.3 billion at December 31, versus $2.9 billion at September 30, primarily reflecting new multiyear contracts. Approximately 62.3% was not reasonably expected to be filled in fiscal 2014. Backlog is not guaranteed revenue: contracts may be terminated, and rig delivery depends partly on limited-source suppliers.
- Commitments and contingencies: Equipment, parts, and supply purchase commitments tied to rig construction were approximately $221.7 million. The company said ordinary-course legal actions were not expected to have a material adverse effect.
- Legal matters: A subsidiary paid a $5.4 million penalty and a $1.0 million community-service payment in November 2013 under a DOJ plea agreement concerning 2010 offshore choke-manifold testing irregularities. Discussions with the Department of the Interior’s Inspector General concerning the same events remained ongoing; the outcome and timing were uncertain. The company also continued to seek damages in litigation over Venezuela’s 2010 seizure of its drilling business; any recovery was uncertain and was not recognized.
- Other exposures: Management said uncertain tax-position reserves could increase by approximately $11.2–$14.2 million over the next 12 months due to international matters. Risks include international political and currency uncertainty, customer contract terminations, operating incidents, regulation, and disruption in rig-component supply.
- The filing provides a capital-spending outlook but no specific earnings or revenue guidance. Management cautioned that interim results may not indicate full-year results.
Investor verification priorities
- Track FlexRig construction, delivery timing, and whether fiscal 2014 capital spending approaches the $950 million estimate.
- Assess utilization, dayrates, and the mix of fixed-term versus spot-market U.S. Land rigs; the filing reported 264 of 309 rigs contracted at quarter-end.
- Monitor conversion and renewal of the $3.3 billion backlog, including early-termination protections and supplier-related delivery risks.
- Review cash generation, receivables, the $115 million fiscal 2014 debt maturity, and dividend affordability alongside planned capital spending.
- Follow the Department of the Interior discussions, Venezuela litigation, and potential tax-reserve changes for material developments.