PATTERSON UTI ENERGY INC Q4 FY2025 earnings call

• 2025 ended with strong fourth quarter results, delivering steady performance in seasonally soft period. • Delivered $416 million in adjusted free cash flow in 2025, with fourth quarter being highest since 2023 strategic transformation. • Increased quarterly dividend by 25% to $0.10 per share in first quarter. • Reduced gross CapEx budget by around 15% to roughly $500 million in 2026, with CapEx net of asset sales expected below $500 million. • U.S. Contract Drilling saw steady activity and pricing, with focus on investing in assets and technologies for better drilling performance. • Completion Services delivered strong results in fourth quarter, with segment adjusted EBITDA higher in second half. • Launched proprietary eos Completions Digital Platform in fourth quarter. • Drilling Products had strong quarter in North America, with revenue per industry rig near record levels, and international revenue had slight decline but growth in some regions.

Drilling Services: Fourth quarter revenue was $361 million, adjusted gross profit totaled $132 million. U.S. Contract Drilling had 8,596 operating days with an average operating rig count of 93 rigs. First quarter average rig count expected to be in low to mid-90s, adjusted gross profit in Drilling Services expected to decline less than 5% from fourth quarter. Completion Services: Fourth quarter revenue totaled $702 million with adjusted gross profit of $111 million. First quarter Completion Services adjusted gross profit expected to be approximately $95 million with slightly lower activity due to winter weather. Drilling Products: Fourth quarter revenue totaled $84 million with adjusted gross profit of $34 million. First quarter Drilling Products adjusted gross profit expected to improve slightly with slightly lower revenue in U.S. offset by increase in activity and revenue from international business, especially in Saudi Arabia with new manufacturing facility.

• 2026 gross CapEx budget reduced by around 15% to roughly $500 million, with CapEx net of asset sales expected below $500 million. • First quarter average rig count in Drilling Services expected to be in low to mid-90s, adjusted gross profit in Drilling Services expected to decline less than 5% from fourth quarter. • First quarter Completion Services adjusted gross profit expected to be approximately $95 million with slightly lower activity due to winter weather. • First quarter Drilling Products adjusted gross profit expected to improve slightly with slightly lower revenue in U.S. offset by increase in activity and revenue from international business. • Board approved 25% increase in quarterly dividend to $0.10 per share, payable on March 16.

• Uncertainties regarding sustainability of U.S. oil production at current pace of activity. • Commodity prices remain unpredictable. • Severe winter weather in January 2026 disrupted operations and had negative impact on first quarter adjusted gross profit, particularly in Completion Services segment. • Frac industry evolving with trends like larger fleets at well site and continuous pumping having technical limitations and cost implications.

Q: How do you see the U.S. frac supply/demand balance today given the enlargement of the average fleet and fleet utilization?

A: Public data shows reduction in fleet count but horsepower deployed remains steady as more horsepower is put on well sites, and fleet activity continues with measured pace in 2026, reducing overall supply in frac market.

Q: Can you provide color on Current Power's initiative to supply energy storage systems outside of oil and gas?

A: Current Power has an electrical engineering division, but it's early to see if it pans out to significant opportunities outside of oil and gas for data centers etc.

Q: Talk about differentiation and pricing power in the market.

A: Teams have improved execution, funding new technology differentiates the company, pricing has held up better than previous cycles with technology being a big driver, though there's still competition in some areas.

Q: How much incremental demand would it take for soft pricing power to come back?

A: Increase in activity in natural gas basins, especially for completions equipment, would drive increase in pricing as assets would need to be added.

Q: Quantify weather impact on first quarter guidance?

A: Impact in range of $5 million to $10 million, included in guidance.

Q: What are you doing to bring cost structure down?

A: Efforts in maintenance CapEx, being more efficient in crew sizes, consolidating support structure footprint, and integrating back office to control SG&A costs.

Q: Philosophy on capital allocation given dividend hike and free cash flow?

A: Focus on maximizing free cash flow, considering various capital allocation options like buybacks, M&A based on cash flow per share accretion, nothing has changed philosophically.

Q: Comments on exploring international regions like Argentina and UAE?

A: Argentina has similar rig specifications to U.S., allowing capital efficient deployment of rigs, and UAE has turn well JV, with activity expected to grow in these regions affecting U.S. rig supply.

Q: View on frac business consolidation and industry behavior?

A: Frac market evolving with technology differentiation, top players likely to differentiate, some E&Ps may underprice but top players focus on high-end equipment and digital platforms.

Q: View on North American rig pricing stabilization?

A: Pricing relatively stable if commodity prices stay in upper 50s to 60s, but still competitive in some areas.

Q: Unpack CapEx reduction and allocation, especially Emerald horsepower?

A: About 40% of CapEx to drilling, 45% to Completion Services, over 10% to Drilling Products, with about $65 million of Completion Services CapEx going to new Emerald equipment.

Q: Comments on continuous pumping in frac business?

A: Continuous pumping has advantages for E&Ps but E&Ps need to do earnings math on economic viability, involves additional capital for more equipment, and is evolving with efforts to reduce costs.

Q: Average fleet size in terms of horsepower?

A: No average fleet size as fleets are bespoke to different operations and change from pad to pad.

Q: Color on private versus public customer conversations?

A: Work for large public and private E&Ps in U.S., both take multiyear view, heavily weighted to largest E&Ps.

Q: Growth ramp-up in Saudi drill bit manufacturing facility?

A: Rig count announcements in Saudi will drive increase in drill bit demand, expected to consume existing bits first then call for new ones, with mix of local manufacturing and U.S. shipments initially.

Q: Technology offerings on rigs and view on robotics?

A: Cortex automation applications enhance control systems and are developed based on customer input, revenue involved, and teams are looking at robotics with some advantages and costs, depending on customer requests.

Q: Why was Q4 activity resilient?

A: Combination of resilient customer base and teams' ability to place equipment efficiently for customers.