PATTERSON UTI ENERGY INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Resilience: Patterson-UTI has shown resilience, with teams executing well in a challenging environment, optimizing business and lowering cost structure.
• Market Outlook: U.S. shale picture constructive, oil prices resilient, natural gas outlook favorable. Industry activity below levels to hold U.S. production flat.
• Segment Performances:
  • Drilling Services: Rig count stabilized, revenue per day in low to mid-30s. Directional drilling performing well with technology integration.
  • Completion Services: Steady activity, margins improved, new EOS platform deployed with Vertex automation controls, Fleet Stream, and IntelliStim.
  • Drilling Products: Strong in U.S. and Canada, international revenue expected to increase.
  • Emerald Fleet: High demand, new direct drive pumps delivered.
• Digital and Technology Investments: Significant investments in digital solutions, AI, and machine learning across drilling and completions, driving operational efficiency and revenue opportunities.

Segment Performance

• Drilling Services: Third quarter revenue was $380 million with adjusted gross profit $134 million. U.S. contract drilling had 8,737 operating days with an average rig count of 95 rigs. Fourth quarter expected average rig count similar to third quarter, with adjusted gross profit down ~5% from Q3.
• Completion Services: Third quarter revenue totaled $705 million with adjusted gross profit $111 million. Flat activity on pump hour basis compared to Q2, margins benefited from improved efficiency. Fourth quarter expected adjusted gross profit ~$85 million with less seasonality.
• Drilling Products: Third quarter revenue $86 million with adjusted gross profit $36 million. Strong in U.S. and Canada, international revenue impacted by Saudi Arabia but expected to increase in Q4. Fourth quarter expected adjusted gross profit to improve slightly.
• Other Revenue: $5 million in Q3 with adjusted gross profit $2 million, expected steady in Q4.

Guidance

• Expect lower capital expenditures in 2026 compared to 2025.
• Fourth quarter expected to be strongest free cash flow quarter of the year.
• Board approved $0.08 per share dividend for Q4 2025.
• Expect adjusted gross profit in Drilling Services to be down ~5% in Q4, Completion Services adjusted gross profit ~$85 million, Drilling Products adjusted gross profit to improve slightly.

Risks

• Macro uncertainties including OPEC+ oil supply growth, shifting demand patterns, global macroeconomic conditions.
• Competitive market conditions in completions and drilling services.
• Dependence on technology adoption by customers and potential delays in technology deployment.

Question and Answer

• Q: Elaborate on differential performance in completion services despite pricing moderation
  A: Teams executing high-end work, using natural gas efficiently, delivering fuel savings, and avoiding pricing pressure.
• Q: Fleet renewal programs and Completion Services investments
  A: Excited about 100% natural gas direct drive Emerald systems, focusing on capital allocation for high returns.
• Q: Oilfield production power opportunity
  A: Discussions with customers, but competitive market; focus on delivering free cash flow.
• Q: Frac optimization software deployment
  A: EOS platform rolled out, Vertex automation on all fleets by year-end, contributing to segment performance.
• Q: 2026 shareholder returns and capital allocation
  A: Early in budget cycle, focus on performance and efficiency, with plans to return at least 50% free cash flow to shareholders.
• Q: Drilling services guide for Q4 and drivers of 5% adjusted gross profit decline
  A: Slight pricing softening and industry rig count decline, expected to be steady going forward.
• Q: Rig technology and customer requests
  A: Structural upgrades, automation, and AI/machine learning integration for longer wells and efficiency.
• Q: Digital suite revenue opportunity
  A: Early days, but software investments with revenue upside, leveraging data science and AI.
• Q: Emerald fleet size and technology comparison
  A: Emerald fleet around 250,000 horsepower, direct drive pumps offer capital and cost efficiency compared to electric fleets.
• Q: Completion seasonal slowdown and technology requests
  A: No idled fleets, shuffling of horsepower for higher intensity fracs; technology requests from customers and internal initiatives.
• Q: M&A and industry consolidation
  A: Happy with current position, no immediate M&A plans, competitive market for power solutions.