PATTERSON UTI ENERGY INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Macro Environment: The second quarter saw oil market volatility due to trade policy fears, OPEC+ production signals, and geopolitical risks. Oil prices stabilized in the mid-$60s, and natural gas side sees early signs of increased activity with LNG facilities coming online.
• Operational Positioning: The company's operational footprint, technology portfolio, and financial position enable it to create value. The PTEN Digital Performance Center supports efficiency in drilling and completions.
• Drilling Services: U.S. Contract Drilling margins remained resilient, and revenue from automation technologies increased.
• Completion Services: Emerald and Tier IV fleets were fully utilized, and automated hydraulic fracturing technology (Vertex) is on track for fleet-wide deployment by end 2025.
• Drilling Products: Had a strong quarter with higher adjusted gross profit, with U.S. revenue improving and gains in international markets.

Segment Performance

• Drilling Services: Q2 revenue was $404 million with an adjusted gross profit of $149 million. In U.S. Contract Drilling, there were 9,465 operating days with an average operating rig count of 104 rigs. As of June 30, term contracts for drilling rigs in the U.S. provided approximately $312 million of future day rate drilling revenue. For Q3, Drilling Services is expected to have an average rig count in the mid-90s and an adjusted gross profit of approximately $130 million.
• Completion Services: Q2 revenue totaled $719 million with an adjusted gross profit of $100 million. There were calendar gaps on multiple long-term dedicated fleets but most gaps were filled with spot work for new customers. For Q3, Completion Services adjusted gross profit is expected to be relatively steady sequentially.
• Drilling Products: Q2 revenue was $88 million with an adjusted gross profit of $39 million. Revenue improved in the U.S. even as industry activity moderated, and gains were made in key international markets including the Middle East. For Q3, Drilling Products adjusted gross profit is expected to improve slightly sequentially, with the U.S. impacted by lower rig count, Canada benefiting from seasonality, and international revenue expected to improve.

Guidance

• Drilling Services: Expect average rig count in the mid-90s in Q3 with adjusted gross profit of approximately $130 million.
• Completion Services: Adjusted gross profit expected to be relatively steady sequentially in Q3.
• Drilling Products: Expected adjusted gross profit to improve slightly sequentially in Q3, with U.S. impacted by lower rig count, Canada benefiting from seasonality, and international revenue expected to improve.
• Free Cash Flow: Expected to accelerate in the second half, with potential to exceed dividend.

Risks

• Volatility in oil markets affecting customer decisions and drilling/completion activity.
• Uncertainty in macro events impacting oil price stability and customer confidence.
• Seasonal factors and market competition impacting segment performances.

Question and Answer

• Q: About Completion Services 4Q outlook, A: Steady in 3Q, softening in 4Q possible but not steep decline.
• Q: On rig count stabilization, A: Movement in basins, potential steady in 4Q.
• Q: Gas-directed activity and private oil exposure, A: Gas activity expected to increase in 2026, private oil work steady with larger companies.
• Q: CapEx and other operating income, A: 2026 CapEx not guided yet, other income includes insurance settlement and JV income.
• Q: Emerald fleets and capital efficiency, A: Emerald fleets get premium pricing, more capital efficient with natural gas recip engines.
• Q: Integrated advantage offering and margin uplift, A: Gaining traction with mid-tier customers, driven by attachment rates and efficiencies.
• Q: Capital allocation and acquisitions, A: Evaluating organic technology growth, considering bolt-on acquisitions and share buybacks.
• Q: Frac supply and bundled services, A: Emerald and Tier IV fleets fully utilized, digital backbone driving competitiveness in bundled services.