PATTERSON UTI ENERGY INC - Quarter Report: 2024 June (Form 10-Q)

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 5.

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

June 30, 2024

December 31, 2023

ASSETS

Current assets:

Cash, cash equivalents and restricted cash

Accounts receivable, net of allowance for credit losses of $ and $ at June 30, 2024 and

December 31, 2023, respectively

Inventory

Other current assets

Total current assets

Property and equipment, net

Operating lease right of use asset

Finance lease right of use asset

Goodwill

Intangible assets, net

Deposits on equipment purchases

Other assets

Deferred tax assets, net

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued liabilities

Operating lease liability

Finance lease liability

Current maturities of long-term debt

Total current liabilities

Long-term operating lease liability

Long-term finance lease liability

Long-term debt, net of debt discount and issuance costs of $ and $ at June 30, 2024 and

December 31, 2023, respectively

Deferred tax liabilities, net

Other liabilities

Total liabilities

Commitments and contingencies (see Note 10)

; authorized shares, shares issued

Common stock, par value $; authorized shares with and

issued and and outstanding at June 30, 2024 and December 31, 2023,

respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

()

Treasury stock, at cost, and shares at June 30, 2024 and

December 31, 2023, respectively

()

Total stockholders’ equity attributable to controlling interests

Noncontrolling interest

Total equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)


	Three Months Ended June 30,		Six Months Ended June 30,
	2024	2023	2024	2023
Operating revenues:
Drilling Services	$	$	$	$
Completion Services
Drilling Products
Other
Total operating revenues
Operating costs and expenses:
Drilling Services
Completion Services
Drilling Products
Other
Depreciation, depletion, amortization and impairment
Selling, general and administrative
Credit loss expense	()
Merger and integration expense
Other operating income, net	()	()	()	()
Total operating costs and expenses
Operating income

Other income (expense):
Interest income
Interest expense, net of amount capitalized	()	()	()	()
Other income
Total other expense	()	()	()	()

Income before income taxes

Income tax expense

Net income

Net income attributable to noncontrolling interest

Net income attributable to common stockholders	$	$	$	$

Net income attributable to common stockholder per common share:
Basic	$	$	$	$
Diluted	$	$	$	$

Weighted average number of common shares outstanding:
Basic
Diluted
Cash dividends per common share	$	$	$	$

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three Months Ended June 30,		Six Months Ended June 30,
	2024	2023	2024	2023
Net income	$	$	$	$
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes of $ for all periods	()		()

Comprehensive income
Less: comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to common stockholders	$	$	$	$

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

Common Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated Other
Comprehensive
Income (Loss)

Treasury
Stock

Noncontrolling
Interest

Total

Number of
Shares

Amount

Balance, December 31, 2023

()

Net income

—

Foreign currency translation adjustment

—

()

—

()

Vesting of restricted stock units

()

—

Stock-based compensation

—

Payment of cash dividends ($ per share)

—

()

—

()

Dividend equivalents

—

()

—

()

Purchase of treasury stock

—

()

—

()

Balance, March 31, 2024

()

Net income

—

Foreign currency translation adjustment

—

()

—

()

Issuance of restricted stock

()

—

Vesting of restricted stock units

()

—

Stock-based compensation

—

Payment of cash dividends ($ per share)

—

()

—

()

Dividend equivalents

—

()

—

()

Purchase of treasury stock

—

()

—

()

Balance, June 30, 2024

()

Common Stock

Additional
Paid-in
Capital

Retained
(Deficit) Earnings

Accumulated Other
Comprehensive
Income

Treasury
Stock

Noncontrolling
Interest

Total

Number of
Shares

Amount

Balance, December 31, 2022

()

Net income

—

Vesting of restricted stock units

()

—

Stock-based compensation

—

()

—

()

Payment of cash dividends ($ per share)

—

()

—

()

Dividend equivalents

—

()

—

()

Purchase of treasury stock

—

()

—

()

Balance, March 31, 2023

()

Net income

—

Issuance of restricted stock

()

—

Vesting of restricted stock units

()

—

Stock-based compensation

—

Payment of cash dividends ($ per share)

—

()

—

()

Dividend equivalents

—

()

—

()

Purchase of treasury stock

—

()

—

()

Balance, June 30, 2023

()

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$		$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and impairment
Deferred income tax expense
Stock-based compensation
Net gain on asset disposals	()		()


Credit loss expense
Other			()
Changes in operating assets and liabilities:
Accounts receivable
Inventory	()		()
Other current assets	()		()
Other assets
Accounts payable	()		()
Accrued liabilities	()		()
Other liabilities	()		()
Net cash provided by operating activities

Cash flows from investing activities:


Purchases of property and equipment	()		()
Proceeds from disposal of assets
Other	()		()
Net cash used in investing activities	()		()

Cash flows from financing activities:
Purchases of treasury stock	()		()
Dividends paid	()		()




Payments of finance leases	()
Other	()		()

Net cash used in financing activities	()		()
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents and restricted cash	()
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period	$		$

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest, net of capitalized interest of $ in 2024 and $ in 2023	$	()	$	()
Income taxes	()		()
Non-cash investing and financing activities:
Net (decrease) increase in payables for purchases of property and equipment	$	()	$
Net increase in deposits on equipment purchases	()		()

Purchases of property and equipment through exchange of lease right of use asset
Derecognition of right of use asset	()

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$ Restricted cash Total cash, cash equivalents and restricted cash$ $

million shares of our common stock and payment of approximately $ million of cash (after purchase price adjustments), which based on the closing price of our common stock of $ on August 14, 2023, valued the transaction at closing at approximately $ million. Our common stock price on August 14, 2023$ Common stock equity consideration$

Plus net cash consideration (1)

Total consideration transferred$

(1)Net cash consideration included $ million cash consideration as adjusted for customary purchase price adjustments set forth in the Ulterra merger agreement relating to cash, net working capital, indebtedness and transaction expenses of Ulterra as of the closing.

The acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date.

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the business combination. We applied significant judgment in estimating the fair value of assets acquired and liabilities assumed, which involved the use of significant estimates and assumptions with respect to future rig counts, cash flow projections, estimated economic useful lives, operating and capital cost estimates, customer attrition rates, contributory asset charges, royalty rates and discount rate (%). The carrying amounts of cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued liabilities approximate their fair values due to their nature or the short-term maturity of instruments. The remaining assets acquired and liabilities assumed are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of inventory and rental equipment was determined using a replacement cost approach. Intangible assets primarily consist of customer relationships and developed technology, the fair values of which were determined using an income approach. Property and equipment was valued using a combination of indirect cost and a market approach. The fair value was estimated by using a multi-period excess earnings method for customer relationships and a relief from royalty method for trade name and developed technology. Certain data necessary to complete the purchase price allocation is not yet available, including final tax returns that provide the underlying tax basis of Ulterra’s assets and liabilities. The measurement period adjustments since the closing of the Ulterra acquisition have not had a material impact on our consolidated financial statements. We will complete the purchase price allocation during the 12-month period following the acquisition date.

Accounts receivable

Inventory (1)

Rental equipment (2)

Property and equipment Intangible assets Operating lease right of use asset Finance lease right of use asset Other assets Total assets acquired Liabilities assumed:Accounts payable Accrued liabilities Operating lease liability Finance lease liability Deferred tax liabilities Total liabilities assumed Less: noncontrolling interest()Net assets acquired Goodwill Total consideration transferred$

(1)We recorded an adjustment of $ million to write-up acquired drill bits classified as inventory to estimated fair value. This adjustment will be recorded as direct operating expense as acquired drill bits are sold.

(2)We recorded an adjustment of $ million to write-up acquired drill bits classified as long-lived assets to estimated fair value. This adjustment will be depreciated as acquired drill bits are rented over a weighted-average estimated useful life of runs.

The goodwill recognized in the acquisition represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill represents the potential for new growth opportunities internationally with the acquisition of Ulterra as well as the recognition of deferred taxes for the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. Goodwill is not deductible for tax purposes. All of the goodwill was assigned to our Drilling Products segment. See Note 7.

NexTier Oilfield Solutions Inc.

On September 1, 2023, we completed our merger (the “NexTier merger”) with NexTier Oilfield Solutions Inc. (“NexTier”). Under the terms of the merger agreement, NexTier became our wholly-owned subsidiary. Each share of NexTier common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive shares of our common stock. Additionally, certain equity awards that were granted and outstanding under NexTier long-term incentive plans were assumed by us, and such equity awards were converted into equity awards in respect of our common stock in accordance with the merger agreement.

NexTier is a predominately U.S. land-focused oilfield service provider, with a diverse set of well completion and production services across a variety of active basins.

Multiplied by the exchange ratioNumber of shares of Patterson-UTI Energy, Inc. common stock issued in connection with the mergerPatterson-UTI Energy, Inc. common stock price on September 1, 2023$ Common stock equity consideration Acceleration of RSU awards

Fair value of replacement equity awards (1)

NexTier long-term debt repaid by Patterson-UTI Energy, Inc. Consideration transferred$

(1)In connection with the merger, each of the share-based awards held by legacy NexTier employees were replaced with our share-based awards on the merger date. The fair value of the replacement awards has been allocated between each employee’s pre-combination and post-combination services. Amounts allocated to pre-combination services have been included as consideration transferred as part of the merger. See Note 12 for replacement awards details.

The transaction has been accounted for as a business combination using the acquisition method with Patterson-UTI Energy, Inc. determined to be the acquirer. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date.

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based on preliminary estimated fair values as of the date of the business combination. We applied significant judgment in estimating the fair value of assets acquired and liabilities assumed, which involved the use of significant estimates and assumptions with respect to future rig counts, cash flow projections, estimated economic useful lives, operating and capital cost estimates, customer attrition rates, contributory asset charges, royalty rates and discount rate (%.) The carrying amounts of cash and cash equivalents, accounts receivable, inventory, other assets, accounts payable, accrued liabilities, and other liabilities approximate their fair values due to their nature or the short-term maturity of instruments. The remaining assets acquired and liabilities assumed are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of property and equipment was determined using a combination of replacement cost and indirect cost. Intangible assets were valued using an income approach. The fair value was estimated by using multi-period excess earnings method for customer relationships and a relief from royalty method for trade name and developed technology. Certain data necessary to complete the purchase price allocation is not yet available, including final tax returns that provide the underlying tax basis of NexTier’s assets and liabilities. The measurement period adjustments since the closing of the NexTier merger closed have not had a material impact on our consolidated financial statements. We will complete the purchase price allocation during the 12-month period following the acquisition date.

Accounts receivable Inventory

Property and equipment (1)

Intangible assets Operating lease right of use asset Finance lease right of use asset Other assets Total assets acquired Liabilities assumed:Accounts payable Accrued liabilities Operating lease liability Finance lease liability Deferred tax liabilities Long-term debt Other liabilities Total liabilities assumed Net assets acquired Goodwill Total consideration transferred$

million to write-up acquired property and equipment to estimated fair value. This adjustment will be depreciated on a straight-line basis over a weighted average period of .

The goodwill recognized in the merger represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. Goodwill largely consisted of the expected synergies and economies of scale from the combined operations of Patterson-UTI and NexTier as well as the recognition of deferred taxes for the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. The goodwill is not deductible for tax purposes. All of the goodwill was assigned to our completion services segment. See Note 7.

and do not provide customers with options to purchase the underlying asset.

Accounts Receivable and Contract Liabilities

Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from to days.

We do not have any significant contract asset balances. Contract liabilities include prepayments received from customers prior to the requested services being completed. Also included in contract liabilities are payments received from customers for reactivation or initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site. These payments are allocated to the overall performance obligation and amortized over the initial term of the contract. Total contract liability balances were $ million and $ million as of June 30, 2024 and December 31, 2023, respectively. We recognized $ million of revenue in the six months ended June 30, 2024 that was included in the contract liability balance at the beginning of the period. Revenue related to our contract liabilities balance is expected to be recognized through 2025. The $ million current portion of our contract liability balance is included in “Accrued liabilities” and $ million noncurrent portion of our contract liability balance is included in “Other liabilities” in our unaudited condensed consolidated balance sheets.

Contract Costs

Costs incurred for newly constructed rigs or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.

Remaining Performance Obligations

We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of June 30, 2024 was approximately $ million. Approximately % of our total contract drilling backlog in the United States at June 30, 2024 is reasonably expected to remain at June 30, 2025. We generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract. The calculation does not include any revenues related to fees for other services such as for mobilization, other than initial mobilization, demobilization and customer reimbursables, nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract. For contracts that contain variable dayrate pricing, our backlog calculation uses the dayrate in effect for periods where the dayrate is fixed, and, for periods that remain subject to variable pricing, uses commodity pricing or other related indices in effect at June 30, 2024. In addition, our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer. For contracts on which we have received notice for the rig to be placed on standby, our backlog calculation uses the standby rate for the period over which we expect to receive the standby rate. For contracts on which we have received an early termination notice, our backlog calculation includes the early termination rate, instead of the dayrate, for the period over which we expect to receive the lower rate. Please see “Our current backlog of contract drilling revenue may decline and may not ultimately be realized, as fixed-term contracts may in certain instances be terminated without an early termination payment” included in Item 1A of our Annual Report.

$ Work-in-process Finished goods Inventory$ $

$ Workers’ compensation receivable Prepaid expenses Other Other current assets$ $

$ Oil and natural gas properties Buildings Rental equipment Land Total property and equipment Less accumulated depreciation, depletion, amortization and impairment()()Property and equipment, net$ $

Depreciation and depletion expense on property and equipment of approximately $ million and $ million was recorded in the three months ended June 30, 2024 and 2023, respectively. Depreciation and depletion expense on property and equipment of approximately $ million and $ million was recorded in the six months ended June 30, 2024 and 2023, respectively.

We review our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. We estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as our expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.

$ $ Measurement period adjustment ()()

Balance at June 30, 2024

$ $ $

reporting units; completion services, which is primarily comprised of our hydraulic fracturing operations and other integrated service offerings, and cementing services.

Goodwill Impairment Assessment

During the second quarter of 2024, we lowered our expectations with respect to near-term future activity levels in certain of our operating segments. This decline was deemed a triggering event that warranted a quantitative assessment for goodwill impairment.

We estimated the fair value of the drilling products and the completion services reporting units using the income approach. Under this approach, we used a discounted cash flow model, which utilizes present values of cash flows to estimate fair value. Forecasted cash flows reflected known market conditions in the second quarter of 2024 and management’s anticipated business outlook for each reporting unit. Future cash flows were projected based on estimates of revenue, gross profit, selling, general and administrative expense, changes in working capital, and capital expenditures. The terminal period used within the discounted cash flow model for each reporting unit consisted of a % growth estimate. Future cash flows were then discounted using a market-participant, risk-adjusted weighted average cost of capital of % for the drilling products reporting unit and % for the completion services reporting unit.

The forecast for the drilling products reporting unit assumes continued growth domestically as well as in international markets. Geopolitical instability in regions in which we expect to maintain and grow market share, a global decrease in the demand of drilling products, or other unforeseen macroeconomic considerations could negatively impact the key assumptions used in our goodwill assessment for our drilling products reporting unit.

The forecast for the completion services reporting unit assumes lower activity in 2024 compared to 2023 exit levels and increases in activity of % to % beginning in 2025 through 2027, which was based on rig count forecasts in the second quarter and estimated market share. A sustained decrease in oil prices and rig count could negatively affect the key assumptions used in our goodwill assessment for completion services.

We estimated the fair value of the cementing services reporting unit using a market approach. The market approach was based on trading multiples of companies comparable to the cementing services reporting unit.

Based on the results of the goodwill impairment tests, the fair values of the drilling products, completion services, and cementing services reporting units exceeded their carrying values by approximately %, %, and %, respectively. Accordingly, impairment was recorded for any of the reporting units.

Geopolitical instability, a global decrease in the demand of drilling products, or other unforeseen macroeconomic considerations could negatively impact the key assumptions used in our goodwill assessment for our drilling products reporting unit. A sustained decrease in oil prices and rig count could negatively affect the key assumptions used in our goodwill assessment for completion services. A decrease in fair value resulting from unfavorable changes to these assumptions, or others, could result in goodwill impairment in future periods that could be material to our results of operations and financial statements as a whole.

Intangible Assets —

$()$ $ $()$ Developed technology () () Trade name () () Other () () Intangible assets, net$ $()$ $ $()$

Amortization expense on intangible assets of approximately $ million and $ million was recorded for the three months ended June 30, 2024 and 2023, respectively. Amortization expense on intangible assets of approximately $ million and $ million was recorded for the six months ended June 30, 2024 and 2023, respectively.

$ Workers’ compensation liability Property, sales, use and other taxes Insurance, other than workers’ compensation Accrued interest payable Deferred revenue Federal and state income taxes payable Accrued merger and integration expense Other Accrued liabilities$ $

% Senior Notes Due 2028$ $

% Senior Notes Due 2029

% Senior Notes Due 2033

Equipment Loans Due 2025 Less deferred financing costs and discounts()()Less current portion()()Total$ $

Credit Agreement — On April 5, 2024, we entered into a Commitment Increase Agreement (the “Commitment Increase Agreement”), which increased the commitments under our Amended and Restated Credit Agreement, dated as of March 27, 2018 (as modified by the Commitment Increase Agreement and amended to date, the “Credit Agreement”), by and among us, as borrower, Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer, swing line lender and lender and each of the other letter of credit issuers and lenders party thereto.

The Commitment Increase Agreement increased the commitments under our Credit Agreement to $ million. The maturity date for $ million of such commitments is March 27, 2026; and the maturity date for $ million of such commitments is March 27, 2025.

On August 29, 2023, we entered into Amendment No. 4 to Amended and Restated Credit Agreement (the “Credit Agreement Amendment”), which, among other things, extended the maturity date for $ million of revolving credit commitments of certain lenders under the Credit Agreement from March 27, 2025 to March 27, 2026.

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $ million, including a letter of credit facility that, at any time outstanding, is limited to $ million and a swing line facility that, at any time outstanding, is limited to the lesser of $ million and the amount of the swing line provider’s unused commitment.

Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate (subject to a % per annum adjustment) or base rate, in each case subject to a % floor. The applicable margin on SOFR rate loans varies from % to % and the applicable margin on base rate loans varies from % to %, in each case determined based on our credit rating. As of June 30, 2024, the applicable margin on SOFR rate loans was % and the applicable margin on base rate loans was %. A letter of credit fee is payable by us equal to the applicable margin for SOFR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from % to % based on our credit rating.

to 1.00 immediately before and immediately after making any restricted payment. Restricted payments include, among other things, dividend payments, repurchases of our common stock, distributions to holders of our common stock or any other payment or other distribution to third parties on account of our or our subsidiaries’ equity interests. Our credit rating is currently investment grade at both credit rating agencies. The Credit Agreement also requires that % as of the last day of each fiscal quarter. The Credit Agreement generally defines the total debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the end of the most recently ended fiscal quarter. We were in compliance with these covenants at June 30, 2024.

As of June 30, 2024, we had borrowings outstanding under our revolving credit facility. We had $ million in letters of credit outstanding under the Credit Agreement at June 30, 2024 and, as a result, had available borrowing capacity of approximately $ million at that date.

2015 Reimbursement Agreement — On March 16, 2015, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. As of June 30, 2024, we had $ million in letters of credit outstanding under the Reimbursement Agreement.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any of our letters of credit issued thereunder. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus % per annum, calculated daily and payable monthly, in arrears, on the basis of a calendar year for the actual number of days elapsed, with interest on overdue interest at the same rate as on the reimbursement amounts. A letter of credit fee is payable by us equal to % times the amount of outstanding letters of credit.

We have also agreed that if obligations under the Credit Agreement are secured by liens on any of our or our subsidiaries’ property, then our reimbursement obligations and (to the extent similar obligations would be secured under the Credit Agreement) other obligations under the Reimbursement Agreement and any letters of credit will be equally and ratably secured by all property subject to such liens securing the Credit Agreement.

Pursuant to a Continuing Guaranty dated as of March 16, 2015, our payment obligations under the Reimbursement Agreement are jointly and severally guaranteed as to payment and not as to collection by our subsidiaries that from time to time guarantee payment under the Credit Agreement. None of our subsidiaries are currently required to guarantee payment under the Credit Agreement.

2028 Senior Notes, 2029 Senior Notes and 2033 Senior Notes — On January 19, 2018, we completed an offering of $ million in aggregate principal amount of our % Senior Notes due 2028 (the “2028 Notes”). On November 15, 2019, we completed an offering of $ million in aggregate principal amount of our % Senior Notes due 2029 (the “2029 Notes”). On September 13, 2023, we completed an offering of $ million in aggregate principal amount of our % Senior Notes due 2033 (the “2033 Notes”). The net proceeds before offering expenses from the offering of the 2033 Notes were approximately $ million, which we used to repay amounts outstanding under our revolving credit facility.

. The 2028 Notes will mature on . The 2028 Notes bear interest at a rate of % per annum.

. The 2029 Notes will mature on . The 2029 Notes bear interest at a rate of % per annum.

. The 2033 Notes will mature on . The 2033 Notes bear interest at a rate of % per annum.

The 2028 Notes, 2029 Notes and 2033 Notes (together, the “Senior Notes”) are our senior unsecured obligations, which rank equally with all of our other existing and future senior unsecured debt and will rank senior in right of payment to all of our other future subordinated debt. The Senior Notes will be effectively subordinated to any of our future secured debt to the extent of the value of the assets securing such debt. In addition, the Senior Notes will be structurally subordinated to the liabilities (including trade payables) of our subsidiaries that do not guarantee the Senior Notes. None of our subsidiaries are currently required to be a guarantor under the Senior Notes. If our subsidiaries guarantee the Senior Notes in the future, such guarantees (the “Guarantees”) will rank equally in right of payment with all of the guarantors’ future unsecured senior debt and senior in right of payment to all of the guarantors’ future subordinated debt. The Guarantees will be effectively subordinated to any of the guarantors’ future secured debt to the extent of the value of the assets securing such debt.

% of the principal amount of such Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the redemption date, plus a “make-whole” premium. Additionally, commencing on November 1, 2027, in the case of the 2028 Notes, on August 15, 2029, in the case of the 2029 Notes, and on July 1, 2033, in the case of the 2033 Notes, at our option, we may redeem the respective Senior Notes in whole or in part, at a redemption price equal to % of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the applicable redemption date.

The indentures pursuant to which the Senior Notes were issued include covenants that, among other things, limit our and our subsidiaries’ ability to incur certain liens, engage in sale and lease-back transactions or consolidate, merge, or transfer all or substantially all of their assets. These covenants are subject to important qualifications and limitations set forth in the indentures.

% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date.

The indentures also provide for events of default which, if any of them occurs, would permit or require the principal of, premium, if any, and accrued interest, if any, on the Senior Notes to become or to be declared due and payable.

Equipment Loans — As part of the NexTier merger, we assumed the obligations of NexTier Completions Solutions Inc. (“NCS”) under a Master Loan and Security Agreement (as amended, the “Master Agreement”) with Caterpillar Financial Services Corporation. The Master Agreement allows NCS to enter into secured equipment financing term loans from time to time (the “Equipment Loans”). The Equipment Loans may be drawn in multiple tranches, with each loan evidenced by a separate promissory note. The Master Agreement and the Equipment Loans contain customary affirmative and negative covenants, including limitations on further encumbrance of the collateral other than the applicable loans under the Master Agreement. We were in compliance with these covenants at June 30, 2024. The Equipment Loans bear interest at a rate of % per annum, and we pay interest on the 1st of each month. The Equipment Loans will mature on .

2025 2026 2027 2028 2029 Thereafter Total$

10.

million primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses that could become payable under the terms

amounts had been drawn under the letters of credit. As of June 30, 2024, we had $ million in surety bond exposure issued as financial assurance on an insurance agreement.

As of June 30, 2024, we had commitments to purchase major equipment totaling approximately $ million.

Our completion services segment has entered into agreements to purchase minimum quantities of proppants from certain vendors. As of June 30, 2024, the remaining minimum obligation under these agreements was approximately $ million, of which approximately $ million, $ million, and $ million relate to the remainder of 2024, 2025 and 2026, respectively.

We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows or results of operations.

11.

, our Board of Directors approved a cash dividend on our common stock in the amount of $ per share to be paid on September 16, 2024 to holders of record as of September 3, 2024. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.

Share Repurchases and Acquisitions — In September 2013, our Board of Directors approved a stock buyback program. In February 2024, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $ billion of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program. As of June 30, 2024, we had remaining authorization to purchase approximately $ million of our outstanding common stock under the stock buyback program. Shares of stock purchased under the buyback program are held as treasury shares.

$ Purchases pursuant to stock buyback program Acquisitions pursuant to long-term incentive plans

Treasury shares at June 30, 2024

12.

million shares (the “First Amendment”). On June 8, 2023, our stockholders approved the First Amendment. On September 1, 2023, in connection with the NexTier merger, our Board of Directors approved a second amendment to the 2021 Plan (the “Second Amendment,”) to assume approximately million shares previously reserved for issuance under the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan (the “NexTier Plan”). Subject to stockholder approval, our Board of Directors approved an amendment to the 2021 Plan to, among other things, increase the number of shares available for issuance under the 2021 Plan by million shares and eliminate the remaining share reserve of approximately million shares available under the 2021 Plan that was assumed from the NexTier Plan (the “Third Amendment” and the 2021 Plan, as amended through the Third Amendment, the “Plan”). On June 6, 2024, our stockholders approved the Third Amendment.

million.

On September 1, 2023, the Board of Directors also approved amendments to the NexTier Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan (the “Former C&J Energy Plan” and, together with the NexTier Plan, the “Assumed Plans”) to assume awards that were previously granted under the Assumed Plans (consisting of stock options, time- and performance-based restricted stock units and cash-settled performance unit awards), which, in connection with the NexTier merger, were converted into equity awards in respect of shares of Patterson-UTI Energy, Inc. common stock.

Stock Options — We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. options were granted during the six months ended June 30, 2024 or 2023.

$ Exercised$ Expired()$

Outstanding at June 30, 2024

Exercisable at June 30, 2024

Restricted Stock Units (Equity Based) — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period.

$ Granted$ Vested()$ Forfeited()$

Non-vested restricted stock units outstanding at June 30, 2024

As of June 30, 2024, we had unrecognized compensation cost related to our unvested restricted stock units totaling $ million. The weighted-average remaining vesting period for these unvested restricted stock units was years as of June 30, 2024.

Restricted Stock Units (Liability Based) — We converted NexTier’s cash-settled performance based units into our cash-settled restricted stock units in connection with the NexTier merger. These awards are accounted for as liability classified awards and remeasured at fair value at each reporting period. Compensation expense is recorded over the vesting period and is initially based on the fair value at the award conversion date. Compensation expense is subsequently remeasured at each reporting date during the vesting period based on the change in our stock price. Dividend cash equivalents are not paid on cash-settled units. As of June 30, 2024, $ million is included in “Accrued liabilities” in our unaudited condensed consolidated balance sheets for these awards.

Performance Unit Awards — We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance

period commencing on April 1 of the year of grant, except as described below for the Performance Units granted in May 2024.

The performance goals for the Performance Units are tied to our total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. For the performance units granted in April 2022, the peer group includes one market index. The performance goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective Performance Units. For the Performance Units granted in April 2022 and May 2023, the recipients will receive the target number of shares if our total shareholder return during the performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive times the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points.

The Performance Units granted in May 2024 are subject to separate performance periods—a performance period (the “First Performance Period”), a performance period (the “Second Performance Period”) and a performance period (the “Third Performance Period”), each commencing on April 1 of the year of grant. One-third of the total target number of shares subject to the May 2024 Performance Units may become earned in respect of each performance period based on our total shareholder return during such performance period (the target number of shares eligible to vest in the applicable performance period, the “Performance Period Target Amount”). The recipients will earn the Performance Period Target Amount if our total shareholder return during the applicable performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the applicable performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will earn times the Performance Period Target Amount. If our total shareholder return during the applicable performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only earn one-half of the Performance Period Target Amount. If our total shareholder return during the applicable performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be earned by the recipients will be determined using linear interpolation for levels of achievement between these points. Notwithstanding the foregoing, a number of shares no greater than the Performance Period Target Amount may be earned for each of the First Performance Period and the Second Performance Period, unless our total shareholder return during the Third Performance Period is greater than our total shareholder return for, as applicable, the First Performance Period and/or the Second Performance Period, in which case, the number of shares earned in respect of the First Performance and/or the Second Performance Period, as applicable, will be determined as if our total shareholder return during the Third Performance Period was our total shareholder return during the First Performance Period and/or the Second Performance Period, as applicable. If our total shareholder return during the Third Performance Period is zero or negative, no more than the aggregate target number of shares subject to the May 2024 Performance Units may be earned, regardless of results during the First Performance Period and the Second Performance Period. A full vesting period applies to the Performance Units and no shares will vest and be delivered in respect of the May 2024 Performance Units until after the completion of the Third Performance Period.

The payout under the Performance Units may not exceed the target number of shares if our absolute total shareholder return is negative or .

In May 2023, shares were issued to settle the 2020 Performance Units. In May 2024, shares were issued to settle the 2021 Performance Units. The Performance Units granted in 2022, 2023 and 2024 have not reached the end of their respective performance periods.

Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model.

$ $ $ $

These fair value amounts are charged to expense on a straight-line basis over the performance period.

$ $ N/AN/AThree months ended June 30, 2023N/A$ $ $ N/ASix months ended June 30, 2024$ $ $ $ N/ASix months ended June 30, 2023N/A$ $ $ $

As of June 30, 2024, we had unrecognized compensation cost related to our unvested Performance Units totaling $ million. The weighted-average remaining vesting period for these unvested Performance Units was years as of June 30, 2024.

13.

%, compared with % for the three months ended June 30, 2023. The higher effective income tax rate for the three months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

Our effective income tax rate for the six months ended June 30, 2024 was %, compared with % for the six months ended June 30, 2023. The higher effective income tax rate for the six months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We assess the realizability of our deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

$ $ $ Weighted average number of common shares outstanding, excluding non-vested restricted stock unitsBasic net income per common share$ $ $ $ DILUTED EPS:Net income attributable to common stockholders$ $ $ $ Weighted average number of common shares outstanding, excluding non-vested restricted stock units (dollars in thousands)%%%%%%% %%%%

(1)Drilling services segment represents our contract drilling, directional drilling, oilfield technology and electrical controls and automation businesses.

(2)Adjusted gross profit is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross profit to adjusted gross profit by segment.

(3)Operational data relates to our contract drilling business. A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day.

Generally, the revenues in our drilling services segment are most impacted by two primary factors: day rates and our average number of rigs operating.

Total revenues and direct operating costs decreased primarily due to a decrease in operating days in our contract drilling business within the United States. Average revenue and average direct operating costs per operating day were relatively flat between sequential quarters.

Capital expenditures decreased primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2024.

(dollars in thousands)

(1)Completion services represents the combination of well completion business from the NexTier merger and our legacy pressure pumping business.

Completion services revenues and direct operating costs decreased primarily due to lower activity.

Capital expenditures decreased due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2024.

(dollars in thousands)

(1)Adjusted gross profit is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross profit to adjusted gross profit by segment.

Revenues and direct operating costs were relatively flat between sequential quarters.

Direct operating costs and depreciation, amortization and impairment were approximately $1.5 million and $3.2 million higher than they would have otherwise been for the three months ended June 30, 2024, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting. For the three months ended March 31, 2024, direct operating costs and depreciation, amortization and impairment were approximately $2.2 million and $5.8 million higher, respectively, as a result of the step up to fair value of our drill bits.

Three Months Ended

(dollars in thousands)

(1)Adjusted gross profit is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross profit to adjusted gross profit by segment.

Revenue and direct operating costs decreased due to a lower volume of services provided by our oilfield rentals business.

Capital expenditures increased primarily related to incremental spending in our oilfield rentals business.

(dollars in thousands)

Corporate activities were relatively flat between sequential quarters.

Results of Operations

The following tables summarize results of operations by business segment for the six months ended June 30, 2024 and June 30, 2023:


	Six Months Ended
	June 30,		June 30,
Drilling Services (1)	2024		2023		% Change

	(dollars in thousands)
Revenues	$	897,862	$	967,386	(7.2	%)
Direct operating costs	533,234		562,834		(5.3	%)
Adjusted gross margin (2)	364,628		404,552		(9.9	%)
Selling, general and administrative	7,952		8,240		(3.5	%)
Depreciation, amortization and impairment	190,952		181,693		5.1	%
Other operating expenses, net	—		34		(100.0	%)
Operating income	$	165,724	$	214,585	(22.8	%)
Capital expenditures	$	141,219	$	171,913	(17.9	%)

Operating days - U.S. (3)	21,412		23,420		(8.6	%)
Average revenue per operating day - U.S. (3)	$	36.04	$	35.35	2.0	%
Average direct operating costs per operating day - U.S. (3)	$	19.86	$	18.96	4.8	%
Average adjusted gross margin per operating day - U.S. (3)	$	16.18	$	16.39	(1.3	%)

(1)Drilling services segment represents our contract drilling, directional drilling, oilfield technology and electrical controls and automation businesses.

(2)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

(3)Operational data relates to our contract drilling business. A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day.

Total revenues and direct operating costs decreased primarily due to a decrease in operating days in our contract drilling business within the United States. Average revenue and direct operating costs per operating day were relatively flat between sequential quarters.

Capital expenditures decreased primarily due to reduced investment in our ancillary drilling services not included within our contract drilling business.


	Six Months Ended
	June 30,		June 30,
Completion Services (1)	2024		2023		% Change

	(dollars in thousands)
Revenues	$	1,750,370	$	543,509	222.0	%
Direct operating costs	1,398,834		416,589		235.8	%
Adjusted gross margin (2)	351,536		126,920		177.0	%
Selling, general and administrative	21,601		5,183		316.8	%
Depreciation, amortization and impairment	287,373		52,001		452.6	%
Other operating income, net	(17,792)		—		NA
Operating income	$	60,354	$	69,736	(13.5)	%
Capital expenditures	$	172,105	$	51,065	237.0	%

(1)Completion services represents the combination of well completion business from the NexTier merger and our legacy pressure pumping business.

The changes for the six months ended June 30, 2024 as compared to June 30, 2023 can be primarily attributed to the NexTier merger, which closed on September 1, 2023. The NexTier merger had a material impact on our reported results of operations. The results for the six months ended June 30, 2024 represent the combination of the well completion business from the NexTier merger and our legacy pressure pumping business. Due to the full integration of our legacy pressure pumping business into the NexTier legal entity in the first quarter of 2024, we are unable to provide a meaningful year-over-year comparison excluding the impact of the NexTier merger.


	Six Months Ended
	June 30,		June 30,
Drilling Products	2024		2023		% Change

	(dollars in thousands)
Revenues	$	176,027	$	—	NA
Direct operating costs	94,777		—		NA
Adjusted gross margin (1)	81,250		—		NA
Selling, general and administrative	15,753		—		NA
Depreciation, amortization and impairment	50,358		—		NA
Operating income	$	15,139	$	—	NA
Capital expenditures	$	29,544	$	—	NA

(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

The results of our drilling products segment reflect the operations of our Ulterra acquisition, which closed on August 14, 2023. As such, there were no comparable results for the six months ended June 30, 2023.

Direct operating costs and depreciation, amortization and impairment were approximately $3.8 million and $9.1 million higher than they would have otherwise been for the six months ended June 30, 2024, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting.


	Six Months Ended
	June 30,		June 30,
Other	2024		2023		% Change

	(dollars in thousands)
Revenues	$	34,295	$	39,792	(13.8)	%
Direct operating costs	21,458		21,321		0.6	%
Adjusted gross margin (1)	12,837		18,471		(30.5)	%
Selling, general and administrative	493		468		5.3	%
Depreciation, depletion, amortization and impairment	10,923		16,627		(34.3	%)
Operating income	$	1,421	$	1,376	3.3	%
Capital expenditures	$	13,010	$	12,415	4.8	%

(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Revenue decreased due to a lower volume of services provided by our oilfield rentals business.

Depreciation, depletion, amortization and impairment decreased primarily due to a $5.8 million impairment recorded in our oil and natural gas business during the six months ended June 30, 2023.


	Six Months Ended
	June 30,		June 30,
Corporate	2024		2023		% Change

	(dollars in thousands)
Selling, general and administrative	$	83,763	$	49,932	67.8	%
Merger and integration expense	$	22,878	$	7,940	188.1	%
Depreciation	$	2,988	$	4,673	(36.1	%)
Credit loss expense	$	4,958	$	—	NA
Other operating income, net	$	(4,176)	$	(7,393)	(43.5)	%
Interest income	$	4,056	$	2,452	65.4	%
Interest expense	$	(36,248)	$	(18,564)	95.3	%
Other income	$	1,074	$	3,809	(71.8)	%
Capital expenditures	$	1,571	$	14,602	(89.2	%)

Selling, general and administrative expense increased primarily due to the reorganization of acquired Ulterra and NexTier support personnel to corporate following the NexTier merger and the Ulterra acquisition.

Merger and integration expense increased due to the NexTier merger and the Ulterra acquisition. The increase was primarily attributable to compensation associated with severance and retention payments.

Credit loss expense increased due to a deterioration in the financial condition of a customer.

Interest expense increased primarily due to the offering of 2033 Notes in the third quarter of 2023. See Note 9 of Notes to unaudited condensed consolidated financial statements for additional information on our long-term debt.

The decrease in capital expenditures was primarily due to the purchase of an aircraft in the second quarter of 2023.

Income Taxes

Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.

Our effective income tax rate for the three months ended June 30, 2024 was 60.5%, compared with 27.9% for the three months ended March 31, 2024. The higher effective income tax rate for the six months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

Our effective income tax rate for the six months ended June 30, 2024 was 37.4%, compared with 15.6% for the six months ended June 30, 2023. The higher effective income tax rate for the six months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of June 30, 2024, we had approximately $428 million in working capital, including $75 million of cash and cash equivalents, and approximately $613 million available under our revolving credit facility.

As part of the NexTier merger, we assumed the obligations of NexTier Completions Solutions Inc. (“NCS”) under a Master Loan and Security Agreement (as amended, the “Master Agreement”) with Caterpillar Financial Services Corporation. The Master Agreement allows NCS to enter into secured equipment financing term loans from time to time (the “Equipment Loans”). The

Equipment Loans may be drawn in multiple tranches, with each loan evidenced by a separate promissory note. The Master Agreement and the Equipment Loans contain customary affirmative and negative covenants, including limitations on further encumbrance of the collateral other than the applicable loans under the Master Agreement. We were in compliance with these covenants at June 30, 2024. The Equipment Loans bear interest at a rate of 5.25% per annum, and we pay interest on the 1st of each month. The Equipment Loans will mature on June 1, 2025.

On April 5, 2024, we entered into the Commitment Increase Agreement, which increased the commitments under our Credit Agreement to $615 million. The maturity date for $567 million of such commitments is March 27, 2026; and the maturity date for $48.3 million of such commitments is March 27, 2025.

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $615 million, including a letter of credit facility that, at any time outstanding, is limited to $100 million and a swing line facility that, at any time outstanding, is limited to the lesser of $50.0 million and the amount of the swing line provider’s unused commitment.

Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate (subject to a 0.10% per annum adjustment) or base rate, in each case subject to a 0% floor. The applicable margin on SOFR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based on our credit rating. As of June 30, 2024, the applicable margin on SOFR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. A letter of credit fee is payable by us equal to the applicable margin for SOFR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on our credit rating.

None of our subsidiaries are currently required to be a guarantor under the Credit Agreement. However, if any subsidiary guarantees or incurs debt, which does not qualify for certain limited exceptions and is otherwise, in the aggregate with all other similar debt, in excess of Priority Debt (as defined in the Credit Agreement), such subsidiary is required to become a guarantor under the Credit Agreement.

The Credit Agreement contains representations, warranties, affirmative and negative covenants and events of default and associated remedies that we believe are customary for agreements of this nature, including certain restrictions on our ability and the ability of each of our subsidiaries to grant liens and on the ability of each of our non-guarantor subsidiaries to incur debt. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant, which would generally require us to have a Pro Forma Debt Service Coverage Ratio (as defined in the Credit Agreement) greater than or equal to 1.50 to 1.00 immediately before and immediately after making any restricted payment. Restricted payments include, among other things, dividend payments, repurchases of our common stock, distributions to holders of our common stock or any other payment or other distribution to third parties on account of our or our subsidiaries’ equity interests. Our credit rating is currently investment grade at both credit rating agencies. The Credit Agreement also requires that our total debt to capitalization ratio, expressed as a percentage, not exceed 50% as of the last day of each fiscal quarter. The Credit Agreement generally defines the total debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the end of the most recently ended fiscal quarter. We were in compliance with these covenants at June 30, 2024.

On March 16, 2015, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. As of June 30, 2024, we had $43.8 million in letters of credit outstanding under the Reimbursement Agreement.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any of our letters of credit issued thereunder. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum, calculated daily and payable monthly, in arrears, on the basis of a calendar year for the actual number of days elapsed, with interest on overdue interest at the same rate as on the reimbursement amounts. A letter of credit fee is payable by us equal to 1.50% times the amount of outstanding letters of credit.

payment under the Credit Agreement. None of our subsidiaries are currently required to guarantee payment under the Credit Agreement.

We had $48.0 million of outstanding letters of credit at June 30, 2024, which was comprised of $43.8 million outstanding under the Reimbursement Agreement, $2.3 million outstanding under the Credit Agreement, and $1.9 million outstanding with financial institutions providing for short-term borrowing capacity, overdraft protection and bonding requirements. We maintain these letters of credit primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under terms of the underlying insurance contracts and compliance with contractual obligations. These letters of credit expire annually at various times during the year and are typically renewed. As of June 30, 2024, no amounts had been drawn under the letters of credit. As of June 30, 2024, we had $35 million in surety bond exposure issued as financial assurance on an insurance agreement.

Our outstanding long-term debt at June 30, 2024 was $1.2 billion and consisted of $483 million of our 2028 Notes, $345 million of our 2029 Notes, $400 million of our 2033 Notes and $12.6 million of our Equipment Loans. We were in compliance with all covenants under the associated agreements and indentures at June 30, 2024.

For a full description of the Credit Agreement, the Reimbursement Agreement, the 2028 Notes, the 2029 Notes, the 2033 Notes and the Equipment Loans, see Note 9 of Notes to unaudited condensed consolidated financial statements.

Cash Requirements

We believe our current liquidity, together with cash expected to be generated from operations, should provide us with sufficient ability to fund our current plans to maintain and make improvements to our existing equipment, service our debt, pay cash dividends and repurchase our common stock and senior notes for at least the next 12 months.

If we pursue other opportunities that require capital, we believe we would be able to satisfy these needs through a combination of working capital, cash flows from operating activities, borrowing capacity under our revolving credit facility or additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all.

A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. For the third quarter, we expect total capital expenditures of approximately $219 million.

We anticipate $41.1 million of expenditures for the remainder of 2024 related to various contractual obligations such as certain commitments to purchase proppants and lease liabilities.

The majority of these expenditures are expected to be used for normal, recurring items necessary to support our business.

During the six months ended June 30, 2024, our sources of cash flow included:

•$563 million from operating activities, and

•$9.3 million in proceeds from the disposal of property and equipment.

During the six months ended June 30, 2024, our uses of cash flow included:

•$357 million to make capital expenditures for the betterment and refurbishment of drilling services and completion services equipment and, to a much lesser extent, equipment for our other businesses, to acquire and procure equipment to support our drilling services, completion services, drilling products, and other operations,

•$230 million for repurchases of our common stock,

•$64.4 million to pay dividends on our common stock, and

•$31.9 million for finance lease payments.

We paid cash dividends during the six months ended June 30, 2024 as follows:


	Per Share				Total
					(in thousands)
Paid on March 15, 2024	$	0.08			$	32,553
Paid on June 17, 2024	$	0.08			$	31,815

698,773			$	497,288

Adjusted Gross Profit

We define “Adjusted gross profit” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). Adjusted gross profit is included as a supplemental disclosure because it is a useful indicator of our operating performance.


	Drilling Services		Completion Services		Drilling Products		Other
	(in thousands)
For the three months ended June 30, 2024
Revenues	$	440,289	$	805,373	$	86,054	$	16,478
Less direct operating costs	(261,497)		(653,240)		(46,147)		(10,280)
Less depreciation, depletion, amortization and impairment	(98,607)		(138,693)		(23,176)		(5,512)
GAAP gross profit	80,185		13,440		16,731		686
Depreciation, depletion, amortization and impairment	98,607		138,693		23,176		5,512
Adjusted gross profit	$	178,792	$	152,133	$	39,907	$	6,198

For the three months ended March 31, 2024
Revenues	$	457,573	$	944,997	$	89,973	$	17,817
Less direct operating costs	(271,737)		(745,594)		(48,630)		(11,178)
Less depreciation, depletion, amortization and impairment	(92,345)		(148,680)		(27,182)		(5,411)
GAAP gross profit	93,491		50,723		14,161		1,228
Depreciation, depletion, amortization and impairment	92,345		148,680		27,182		5,411
Adjusted gross profit	$	185,836	$	199,403	$	41,343	$	6,639









For the six months ended June 30, 2024
Revenues	$	897,862	$	1,750,370	$	176,027	$	34,295
Less direct operating costs	(533,234)		(1,398,834)		(94,777)		(21,458)
Less depreciation, depletion, amortization and impairment	(190,952)		(287,373)		(50,358)		(10,923)
GAAP gross margin	173,676		64,163		30,892		1,914
Depreciation, depletion, amortization and impairment	190,952		287,373		50,358		10,923
Adjusted gross margin	$	364,628	$	351,536	$	81,250	$	12,837

For the six months ended June 30, 2023
Revenues	$	967,386	$	543,509	$	—	$	39,792
Less direct operating costs	(562,834)		(416,589)		—		(21,321)
Less depreciation, depletion, amortization and impairment	(181,693)		(52,001)		—		(16,627)
GAAP gross profit	222,859		74,919		—		1,844
Depreciation, depletion, amortization and impairment	181,693		52,001		—		16,627
Adjusted gross profit	$	404,552	$	126,920	$	—	$	18,471

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates. There have been no material changes to our critical accounting estimates previously disclosed in Item 7 of our Annual Report, except as follows:

Goodwill — We assess goodwill at least annually on July 31, or more frequently when events and circumstances occur indicating recorded goodwill may be impaired. Goodwill is tested at the reporting unit level, which is at or one level below our operating segments. We determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying

value after considering qualitative, market and other factors, and if that is the case, any necessary goodwill impairment is determined using a quantitative impairment test. If the resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized for the amount of the shortfall.

We determined our drilling products operating segment consists of a single reporting unit and, accordingly, goodwill acquired from the Ulterra acquisition was allocated to that reporting unit. We determined our completion services operating segment consists of two reporting units; completion services, which is primarily comprised of our hydraulic fracturing operations and other integrated service offerings, and cementing services.

We estimated the fair value of the drilling products and the completion services reporting units using the income approach. Under this approach, we used a discounted cash flow model, which utilizes present values of cash flows to estimate fair value. Forecasted cash flows considered known market conditions in the second quarter of 2024, and management's anticipated business outlook for each reporting unit. Future cash flows were projected based on estimates of revenue, gross profit, selling, general and administrative expense, changes in working capital, and capital expenditures. The terminal period used within the discounted cash flow model for each reporting unit consisted of a 1% growth estimate. Future cash flows were then discounted using a market-participant, risk-adjusted weighted average cost of capital of 11% for the drilling products reporting unit and 12% for the completion services reporting unit.

The forecast for the completion services reporting unit assumes lower activity in 2024 compared to 2023 exit levels and increases in activity of 7% to 9% beginning in 2025 through 2027, which was based on rig count forecasts in the second quarter and estimated market share. A sustained decrease in oil prices and rig count could negatively affect the key assumptions used in our goodwill assessment for completion services.

Based on the results of the goodwill impairment tests, the fair values of the drilling products, completion services, and cementing services reporting units exceeded their carrying values by approximately 10%, 9%, and 77%, respectively. Accordingly, no impairment was recorded for any of the reporting units.

Assuming all changes are isolated, a decrease of 100 bps in our long-term revenue growth rate for our drilling products and completion services reporting unit would reduce our estimated fair values by approximately 5%, while a 100 bps increase to our discount rate would reduce our estimated fair values by approximately 8%, respectively.

A decrease in fair value resulting from unfavorable changes to these assumptions, or others, could result in goodwill impairment in future periods that could be material to our results of operations and financial statements as a whole.

Recently Issued Accounting Standards

See Note 1 of Notes to unaudited condensed consolidated financial statements for a discussion of the impact of recently issued accounting standards.

Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition

Our revenues, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and expectations about future prices. The current demand for equipment and services remains dependent on macro conditions, including commodity prices, geopolitical environment, inflationary pressures, economic conditions in the United States and elsewhere, as well as customer consolidation and focus by exploration and production companies and service companies on capital returns. Commodity price volatility in the second quarter of 2023 resulted in a decline in industry activity; commodity prices subsequently increased during the third quarter before declining in the fourth quarter of 2023. Oil prices increased during the first quarter of 2024 and moderately fluctuated during the second quarter of 2024. While natural gas prices declined significantly during the first quarter of 2024, natural gas prices increased slightly during the second quarter of 2024. Oil prices averaged $81.81 per barrel the second quarter of 2024, as compared to $77.50 per barrel in the first quarter of 2024. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.07 per MMBtu in the second quarter of 2024 as compared to an average of $2.31 per MMBtu in the first quarter of 2024.

In light of these and other factors, we expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. Higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers’ expectations of future oil and natural gas prices, as well as our customers’ ability to access, and willingness to deploy, capital to fund their operating and capital expenditures. A decline in demand for oil and natural gas, prolonged low oil or natural gas prices, expectations of decreases in oil and natural gas prices or a reduction in the ability of our customers to access capital would likely result in reduced capital expenditures by our customers and decreased demand for our services, which could have a material adverse effect on our operating results, financial condition and cash flows. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report. There have been no material changes in our exposure to market risk.

As of June 30, 2024, we would have had exposure to interest rate market risk associated with any outstanding borrowings and letters of credit that we had under the Credit Agreement and amounts owed under the Reimbursement Agreement.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any of our letters of credit issued thereunder. We are obligated to pay Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum.

Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure.

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), designed to ensure that the information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2024.

Changes in Internal Control Over Financial Reporting —There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the information with respect to purchases of our common stock made by us during the quarter ended June 30, 2024.


Period Covered	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) (2)
April 2024	2,499,102	$	11.65	2,327,968	$	917,433
May 2024	5,439,894	$	11.08	5,090,167	$	861,056
June 2024	4,279,084	$	10.31	4,048,935	$	819,288
Total	12,218,080			11,467,070

(1)We withheld 751,010 shares during the second quarter of 2024 with respect to employees’ tax withholding obligations upon the vesting of restricted stock units. These shares were acquired at fair market value. These acquisitions were made pursuant to the terms of the Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan, as amended, the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan, and not pursuant to the stock buyback program.

(2)In September 2013, our Board of Directors approved a stock buyback program. In February 2024, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $ billion of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program.

ITEM 5. Other Information

(c)During the three months ended June 30, 2024, no director or officer of the Company or any trading arrangements for the sale of shares of our common stock.

ITEM 6. Exhibits

The following exhibits are filed herewith or incorporated by reference, as indicated:


3.1			Restated Certificate of Incorporation of Patterson-UTI Energy, Inc., dated as of June 6, 2024 (filed June 6, 2024 as Exhibit 4.1 to our Registration Statement on Form S-8 and incorporated herein by reference).

3.2			Amended and Restated Bylaws of Patterson-UTI Energy, Inc., effective June 14, 2023 (filed June 15, 2023 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).

10.1			Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan, as amended (filed June 6, 2024 as Exhibit 99.1 to our Registration Statement on Form S-8, and incorporated herein by reference).+

10.2*			Form of Executive Officer Share -Settled Performance Share Award Agreement .+

10.3*			Patterson-UTI Energy, Inc. Qualified Retiree Program .+

31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*			Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*			Inline XBRL Taxonomy Extension Schema Document

101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104			The cover page from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, has been formatted in Inline XBRL.


*			filed herewith.
**			furnished herewith.
+			management contact or compensatory plan.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PATTERSON-UTI ENERGY, INC.

	By:	/s/ C. Andrew Smith
		C. Andrew Smith
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: July 29, 2024

PATTERSON UTI ENERGY INC - Quarter Report: 2024 June (Form 10-Q)

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