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

ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49
ITEM 5.
Other Information
49
ITEM 6.
Exhibits
50
Signature


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)
September 30, 2024December 31, 2023
ASSETS
Current assets:
Cash, cash equivalents and restricted cash$ $ 
Accounts receivable, net of allowance for credit losses of $ and $ at
  September 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
  September 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 September 30, 2024
  and December 31, 2023, respectively
  
Additional paid-in capital  
Retained earnings (deficit) () 
Accumulated other comprehensive income (loss)() 
Treasury stock, at cost, and shares at September 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.
3

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
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    
Impairment of goodwill    
Selling, general and administrative    
Credit loss expense    
Merger and integration expense    
Other operating expense (income), net ()()()
Total operating costs and expenses    
Operating income (loss)() () 
Other income (expense):
Interest income    
Interest expense, net of amount capitalized()()()()
Other income (expense)()()  
Total other expense()()()()
Income (loss) before income taxes()()() 
Income tax expense (benefit)()()  
Net income (loss)()()() 
Net income (loss) attributable to noncontrolling interest () ()
Net income (loss) attributable to common stockholders$()$ $()$ 
Net income (loss) 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.
4

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Net income (loss)$()$()$()$ 
Other comprehensive income (loss):
Foreign currency translation adjustment, net of taxes of $ for
  all periods
 ()()()
Comprehensive income (loss)()()() 
Less: comprehensive income (loss) attributable to noncontrolling interest () ()
Comprehensive income (loss) attributable to common stockholders$()$()$()$ 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
Common StockAdditional
Paid-in
Capital 		Retained Earnings
(Deficit) 		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$ $ $ $()$()$ $ 
Net income (loss)—— — ()— —  ()
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, September 30, 2024$ $ $()$()$()$ $ 
6


Common StockAdditional
Paid-in
Capital 		Retained
 Earnings
(Deficit) 		Accumulated Other
Comprehensive
Loss		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$ $ $ $ $()$ $ 
Net income (loss)—— —  — — ()()
Noncontrolling interest—— — — — —   
Foreign currency translation adjustment—— — — ()— — ()
Issuance of common stock - Ulterra acquisition  — — — —  
Issuance of common stock - NexTier merger  — — — —  
Issuance of replacement awards related to NexTier merger——  — — — —  
Vesting of restricted stock units ()— — — —  
Stock-based compensation——  — — — —  
Payment of cash dividends ($ per share)
—— — ()— — — ()
Dividend equivalents—— — ()— — — ()
Purchase of treasury stock—— — — — ()— ()
Balance, September 30, 2023$ $ $ $()$()$ $ 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended
September 30,
20242023
Cash flows from operating activities:
Net income (loss)$()$ 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and impairment  
Impairment of goodwill  
Deferred income tax expense  
Stock-based compensation  
Net (gain) loss 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:
Acquisitions, net of cash acquired - NexTier ()
Acquisitions, net of cash acquired - Ulterra ()
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()()
Proceeds from borrowings under revolving credit facility  
Repayment of borrowings under revolving credit facility()()
Proceeds from issuance of senior notes  
Payments of finance leases()()
Repayment of senior notes ()
Other()()
Net cash (used in) provided by financing activities() 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash() 
Net decrease 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 in payables for purchases of property and equipment$()$()
Net decrease in deposits on equipment purchases  
Purchases of property and equipment through exchange of lease right of use asset  
Derecognition of right of use asset()()
Issuance of common stock for business combinations  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
 $ Restricted cash  Total cash, cash equivalents and restricted cash$ $ 
9

2.
 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. The purchase price allocation was finalized in the third quarter of 2024. The valuation period adjustments did not have a material impact on our consolidated financial statements.
10

 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.
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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. The purchase price allocation was finalized in the third quarter of 2024. The valuation period adjustments did not have a material impact on our consolidated financial statements.
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 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.
3.
and do not provide customers with options to purchase the underlying asset.
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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 September 30, 2024 and December 31, 2023, respectively. We recognized $ million of revenue in the nine months ended September 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”.
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 September 30, 2024 was approximately $ million. Approximately % of our total contract drilling backlog in the United States at September 30, 2024 is reasonably expected to remain at September 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 September 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.
4.
 $ Work-in-process  Finished goods  Inventory$ $ 
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5.
 $ Workers’ compensation receivable  Prepaid expenses  Other  Other current assets$ $ 
6.
 $ 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 September 30, 2024 and 2023, respectively. Depreciation and depletion expense on property and equipment of approximately $ million and $ million was recorded in the nine months ended September 30, 2024 and 2023, respectively.
We review our long-lived assets, including property and equipment and definite-lived intangible assets, 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.
Negative market indicators such as lower industry-wide drilling rig count forecasts, increased volatility and pricing declines in the pressure pumping market, and continued efficiency gains and technology advancements reducing operating days have led to our reduced outlook for activity. The reduction in activity forecasts, the recent decline in the market price of our common stock, and the results of the fair value determination of certain of our reporting units, were triggering events indicating that certain of our long-lived tangible and intangible assets may be impaired. We deemed it necessary to perform recoverability tests on our asset groups within our completion services reporting unit and our Latin American contract drilling asset group as of September 30, 2024. Future cash flows were estimated over the expected remaining life of the primary asset for each asset group, and we determined that, on an undiscounted basis, expected cash flows exceeded the carrying value of the asset groups. As such, no impairment was indicated for our long-lived tangible or definite-lived intangible assets.
We then evaluated our fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type. The components comprising rigs that will no longer be marketed were evaluated, and those components with continuing utility to other marketed rigs were identified for transfer to other rigs or to yards to be used as spare equipment. The remaining components of these rigs were abandoned. During the three months ended September 30, 2024, we identified legacy, non-Tier-1 super-spec drilling rigs and related equipment to be abandoned. Based on the strong customer preference across the industry for Tier-1 super-spec drilling rigs, in addition to efficiency gains and technology advancements that have reduced the total number of rigs needed for the U.S. drilling
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rigs that were abandoned had limited commercial opportunity. The three and nine months ended September 30, 2024 included a charge of $ million related to this abandonment. similar charges were incurred in the three and nine months ended September 30, 2023.
Geopolitical instability, global or regional decreases in the demand of our services and products, or other unforeseen macroeconomic considerations could negatively impact the expected cash flows used in our recoverability tests on our asset groups. Such changes could result in impairment charges in the future, which could be material to our results of operations and financial statements as a whole.

7.
 $ $ Measurement period adjustment ()()Impairment() ()
Balance at September 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
Negative market indicators such as lower industry-wide drilling rig and pressure pumping fleet count forecasts, increased volatility and pricing declines in the pressure pumping market, and continued efficiency gains and technology advancements reducing operating days have led to our reduced outlook for activity. We viewed the reduction in activity forecasts combined with the recent decline in the market price of our common stock as a triggering event that warranted a quantitative assessment for goodwill impairment.
We estimated the fair value of the drilling products reporting unit in our drilling products operating segment and the completion services reporting unit in our completion services operating segment 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 third 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. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgment must be applied to determine whether credit market changes are a short-term or long-term trend.
We estimated the fair value of the cementing services reporting unit in our completion services operating segment using a market approach. The market approach was based on trading multiples of earnings before interest, taxes, depreciation and amortization for companies comparable to the cementing services reporting unit.
16

% to % beginning in 2026 through 2029. Those estimates were based on future drilling rig and pressure pumping fleet count forecasts during the third quarter of 2024 and estimated market share. Additionally, the forecast reflected the expectation that industry-wide pricing pressure will persist within the completions market and continue to compress adjusted gross profit. These factors negatively impacted the estimated value of the reporting unit.
Based on the results of the quantitative assessment, the fair value of the completion services reporting unit was less than its carrying value. Accordingly, we recorded an $ million impairment charge to goodwill for the completion services reporting unit during the third quarter of 2024.
The forecast for the drilling products reporting unit assumed 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.
% and %, respectively. Accordingly, impairment was recorded for the drilling products and cementing services reporting units.
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 September 30, 2024 and 2023, respectively. Amortization expense on intangible assets of approximately $ million and $ million was recorded for the nine months ended September 30, 2024 and 2023, respectively.
8.
 $ 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$ $ 
17

9.
% 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 September 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.
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 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 September 30, 2024.
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borrowings outstanding under our revolving credit facility. We had $ million in letters of credit outstanding under the Credit Agreement at September 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 September 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.
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% 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 September 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 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 September 30, 2024, amounts had been drawn under the letters of credit. As of September 30, 2024, we had $ million in surety bond exposure issued as financial assurance on an insurance agreement.
As of September 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 September 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 December 16, 2024 to holders of record as of December 2, 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,
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 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 September 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 September 30, 2024
$ 
12.
$ Exercised$ Expired()$ 
Outstanding at September 30, 2024
$ 
Exercisable at September 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.
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$ Granted$ Vested()()$ Forfeited()$ 
Non-vested restricted stock units outstanding at September 30, 2024
$ 
As of September 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 September 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 September 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 for the Performance Units is generally the 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
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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 September 30, 2023N/A$ $ $ N/ANine months ended September 30, 2024$ $ $ $ N/ANine months ended September 30, 2023N/A$ $ $ $ 
As of September 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 September 30, 2024.
13.
%, compared with % for the three months ended September 30, 2023. The difference in effective income tax rates between the periods 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 nine months ended September 30, 2024 was ()%, compared with % for the nine months ended September 30, 2023. The difference in effective income tax rates between the periods was primarily attributable to the
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14.
)$ $()$ Weighted average number of common shares outstanding, excluding non-vested restricted stock unitsBasic net income (loss) per common share$()$ $()$ DILUTED EPS:Net income (loss) 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.
The decrease in operating days for our U.S. contract drilling business reflects a modest reduction in our rig count mainly due to merger and acquisition activity for certain customers.
Depreciation, amortization and impairment increased primarily due to a charge of $114 million related to the abandonment of 42 legacy, non-Tier-1 super-spec drilling rigs and related equipment. See Note 6 of Notes to unaudited condensed consolidated financial statements for additional information.
Capital expenditures increased primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the third quarter of 2024.
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(dollars in thousands)
%
%
%
%
%
%
%
(1)Completion services represents the combination of well completion business from the NexTier merger and our legacy pressure pumping business.
(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.
Completion services direct operating costs increased disproportionately to the increase in revenues, which negatively impacted our adjusted gross profit. The higher direct operating costs resulted from unplanned gaps for several of our fleets, which impacted fixed cost leverage on those fleets.
During the three months ended September 30, 2024, we recorded an $885 million impairment charge to goodwill associated with our completion services reporting unit. See Note 7 of Notes to unaudited condensed consolidated financial statements for additional information.
Other operating income, net in the second quarter of 2024 was due to gain on legal settlement.
Capital expenditures increased due to the timing of order placement and spending on committed deliveries.
(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 increased slightly primarily due to market share gains in our U.S. and Canadian markets.
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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.
Depreciation, depletion, amortization and impairment decreased primarily due to a $3.4 million impairment recorded in our oil and natural gas properties business during the third quarter of 2024.
(dollars in thousands)
%
%
%
%
%
%
(in thousands, except per share amounts)1.07 

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Adjusted Gross Profit
We define “Adjusted gross profit” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense, which does not include impairment of goodwill). 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 September 30, 2024
Revenues$421,563 $831,567 $89,102 $14,990 
Less direct operating costs(250,877)(703,809)(47,144)(10,077)
Less depreciation, depletion, amortization and impairment (1)
(201,272)(140,930)(22,924)(8,330)
GAAP gross profit(30,586)(13,172)19,034 (3,417)
Depreciation, depletion, amortization and impairment (1)
201,272 140,930 22,924 8,330 
Adjusted gross profit$170,686 $127,758 $41,958 $4,913 
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 (1)
(98,607)(138,693)(23,176)(5,512)
GAAP gross profit80,185 13,440 16,731 686 
Depreciation, depletion, amortization and impairment (1)
98,607 138,693 23,176 5,512 
Adjusted gross profit$178,792 $152,133 $39,907 $6,198 
For the nine months ended September 30, 2024
Revenues$1,319,425 $2,581,937 $265,129 $49,285 
Less direct operating costs(784,111)(2,102,643)(141,921)(31,535)
Less depreciation, depletion, amortization and impairment (1)
(392,224)(428,303)(73,282)(19,253)
GAAP gross profit143,090 50,991 49,926 (1,503)
Depreciation, depletion, amortization and impairment (1)
392,224 428,303 73,282 19,253 
Adjusted gross profit$535,314 $479,294 $123,208 $17,750 
For the nine months ended September 30, 2023
Revenues$1,456,161 $1,003,083 $46,570 $56,325 
Less direct operating costs(842,761)(785,458)(32,071)(31,912)
Less depreciation, depletion, amortization and impairment (1)
(272,361)(135,339)(17,075)(21,946)
GAAP gross profit341,039 82,286 (2,576)2,467 
Depreciation, depletion, amortization and impairment (1)
272,361 135,339 17,075 21,946 
Adjusted gross profit$613,400 $217,625 $14,499 $24,413 
(1)Depreciation, depletion, amortization and impairment expense excludes impairment of goodwill.
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:

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Impairment of long-lived assets — We review our long-lived assets, including property and equipment and definite-lived intangible assets, 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 estimated future cash flows over the life of the respective assets or asset groupings in our assessment of its recoverability. These estimates of cash flows were based on historical trends in the industry as well as our expectations regarding the continuation of these trends in the future. As of September 30, 2024, no impairment was indicated for our long-lived tangible or definite-lived intangible assets.
While we believe our judgments and assumptions are reasonable, geopolitical instability, global or regional decreases in the demand of our services and products, or other unforeseen macroeconomic considerations could negatively impact the expected cash flows used in our recoverability tests on our asset groups. Such changes could result in impairment charges in the future, which could be material to our results of operations and financial statements as a whole.
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. The fair value of a reporting unit is determined using significant unobservable inputs, or level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts, and significant judgment.
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.
Negative market indicators such as lower industry-wide drilling rig and pressure pumping fleet count forecasts, increased volatility and pricing declines in the pressure pumping market, and continued efficiency gains and technology advancements reducing operating days have led to our reduced outlook for activity. We viewed the reduction in activity forecasts combined with the recent decline in the market price of our common stock as a triggering event that warranted a quantitative assessment for goodwill impairment.
We estimated the fair value of the drilling products reporting unit in our drilling products operating segment and the completion services reporting unit in our completion services operating segment 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 third 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 10.25% for the drilling products reporting unit and 10.75% for the completion services reporting unit. Financial and credit market volatility directly impacts our fair value measurement through the weighted average cost of capital used to determine a discount rate. During times of volatility, significant judgment must be applied to determine whether credit market changes are a short-term or long-term trend.
We estimated the fair value of the cementing services reporting unit in our completion services operating segment using a market approach. The market approach was based on trading multiples of earnings before interest, taxes, depreciation and amortization for companies comparable to the cementing services reporting unit.
The forecast for the completion services reporting unit assumed lower activity in 2025 compared to average activity levels for full year 2024 and increases in estimated activity of 2% to 8% beginning in 2026 through 2029. Those estimates were based on future drilling rig and pressure pumping fleet count forecasts during the third quarter of 2024 and estimated market share. Additionally, the forecast reflected the expectation that industry-wide pricing pressure will persist within the completions market and continue to compress adjusted gross profit. These factors negatively impacted the estimated value of the reporting unit.
Based on the results of the quantitative assessment, the fair value of the completion services reporting unit was less than its carrying value. Accordingly, we recorded an $885 million impairment charge to goodwill for the completion services reporting unit during the third quarter of 2024.
The forecast for the drilling products reporting unit assumed 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
45

products, or other unforeseen macroeconomic considerations could negatively impact the key assumptions used in our goodwill assessment for our drilling products reporting unit.
Based on the results of the goodwill impairment tests, the fair values of the drilling products and cementing services reporting units exceeded their carrying values by approximately 13% and 73%, respectively. Accordingly, no impairment was recorded for the drilling products and cementing services reporting units.
Assuming all changes are isolated, a decrease of 100 bps in our long-term revenue growth rate for our drilling products reporting unit would reduce our estimated fair value by approximately 5%, while a 100 bps increase to our discount rate would reduce our estimated fair value by approximately 10%.
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, moderately fluctuated during the second quarter of 2024 and declined in the third 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 and moderately fluctuated during the third quarter of 2024. Oil prices averaged $76.43 per barrel the third quarter of 2024, as compared to $81.81 per barrel in the second quarter of 2024. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.11 per MMBtu in the third quarter of 2024 as compared to an average of $2.07 per MMBtu in the second 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.
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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 September 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.
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 September 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. As of September 30, 2024, we had $2.1 million in letters of credit outstanding under the Credit Agreement and, as a result, had available borrowing capacity of approximately $613 million at that date.
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.
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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 September 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.
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PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
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 and results of operations.
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 September 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)
July 20241,104,423$10.29 1,098,805$807,976 
August 20242,623,234$9.20 2,600,000$784,060 
September 2024527,045$8.78 500,000$779,655 
Total4,254,702 4,198,805 
(1)We withheld 55,897 shares during the third 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 $1.0 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 September 30, 2024, no director or officer of the Company or any trading arrangements for the sale of shares of our common stock.
49

ITEM 6. Exhibits
The following exhibits are filed herewith or incorporated by reference, as indicated:
3.1
3.2
10.1+
31.1*
31.2*
32.1**
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
104The cover page from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, has been formatted in Inline XBRL.
*filed herewith.
**furnished herewith.
+management contact or compensatory plan.

50

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: October 28, 2024

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