UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission file number 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 73-0679879 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
222 North Detroit Avenue, Tulsa, Oklahoma 74103
(Address of principal executive offices) (Zip Code)
(918) 742-5531
(Registrant’s telephone number, including area code)
1437 South Boulder Avenue, Suite 1400, Tulsa, Oklahoma 74119
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock ($0.10 par value) | HP | New York Stock Exchange | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
| CLASS | OUTSTANDING AT July 18, 2024 | |||||||
| Common Stock, $0.10 par value | 98,755,412 | |||||||
| HELMERICH & PAYNE, INC. |  | |||||||
| INDEX TO FORM 10‑Q | ||||||||
Q3 FY24 FORM 10-Q | 2PART I. FINANCIAL INFORMATION | ||||||||||||||
ITEM 1. FINANCIAL STATEMENTS | ||||||||||||||
| HELMERICH & PAYNE, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| June 30, | September 30, | ||||||||||
| (in thousands except share data) | 2024 | 2023 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 203,633 | $ | 257,174 | |||||||
| Restricted cash | 78,369 | 59,064 | |||||||||
| Short-term investments | 86,088 | 93,600 | |||||||||
Accounts receivable, net of allowance of $2,377 and $2,688, respectively | 415,395 | 404,188 | |||||||||
| Inventories of materials and supplies, net | 115,312 | 94,227 | |||||||||
| Prepaid expenses and other, net | 71,522 | 97,727 | |||||||||
| Assets held-for-sale | — | 645 | |||||||||
| Total current assets | 970,319 | 1,006,625 | |||||||||
| Investments | 292,229 | 264,947 | |||||||||
| Property, plant and equipment, net | 3,014,345 | 2,921,695 | |||||||||
| Other Noncurrent Assets: | |||||||||||
| Goodwill | 45,653 | 45,653 | |||||||||
| Intangible assets, net | 55,752 | 60,575 | |||||||||
| Operating lease right-of-use assets | 57,315 | 50,400 | |||||||||
| Other assets, net | 49,369 | 32,061 | |||||||||
| Total other noncurrent assets | 208,089 | 188,689 | |||||||||
| Total assets | $ | 4,484,982 | $ | 4,381,956 | |||||||
| LIABILITIES & SHAREHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 158,896 | $ | 130,852 | |||||||
| Dividends payable | 42,045 | 25,194 | |||||||||
| Accrued liabilities | 255,851 | 262,885 | |||||||||
| Total current liabilities | 456,792 | 418,931 | |||||||||
| Noncurrent Liabilities: | |||||||||||
| Long-term debt, net | 545,589 | 545,144 | |||||||||
| Deferred income taxes | 494,412 | 517,809 | |||||||||
| Other | 131,344 | 128,129 | |||||||||
| Total noncurrent liabilities | 1,171,345 | 1,191,082 | |||||||||
Commitments and Contingencies (Note 11) | |||||||||||
| Shareholders' Equity: | |||||||||||
Common stock, $0.10 par value, 160,000,000 shares authorized, 112,222,865 shares issued as of June 30, 2024 and September 30, 2023, and 98,755,412 and 99,426,526 shares outstanding as of June 30, 2024 and September 30, 2023, respectively | 11,222 | 11,222 | |||||||||
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued | — | — | |||||||||
| Additional paid-in capital | 510,379 | 525,369 | |||||||||
| Retained earnings | 2,833,136 | 2,707,715 | |||||||||
| Accumulated other comprehensive loss | (8,499) | (7,981) | |||||||||
Treasury stock, at cost, 13,467,453 shares and 12,796,339 shares as of June 30, 2024 and September 30, 2023, respectively | (489,393) | (464,382) | |||||||||
| Total shareholders’ equity | 2,856,845 | 2,771,943 | |||||||||
| Total liabilities and shareholders' equity | $ | 4,484,982 | $ | 4,381,956 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 3| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
| Drilling services | $ | 695,139 | $ | 721,567 | $ | 2,054,835 | $ | 2,205,419 | |||||||||||||||
| Other | 2,585 | 2,389 | 7,979 | 7,396 | |||||||||||||||||||
| 697,724 | 723,956 | 2,062,814 | 2,212,815 | ||||||||||||||||||||
| OPERATING COSTS AND EXPENSES | |||||||||||||||||||||||
| Drilling services operating expenses, excluding depreciation and amortization | 417,028 | 429,182 | 1,222,182 | 1,306,543 | |||||||||||||||||||
| Other operating expenses | 1,144 | 1,003 | 3,307 | 3,317 | |||||||||||||||||||
| Depreciation and amortization | 97,816 | 94,811 | 296,352 | 287,721 | |||||||||||||||||||
| Research and development | 10,555 | 7,085 | 32,105 | 22,720 | |||||||||||||||||||
| Selling, general and administrative | 66,870 | 49,271 | 185,484 | 150,581 | |||||||||||||||||||
| Asset impairment charges | — | — | — | 12,097 | |||||||||||||||||||
| Gain on reimbursement of drilling equipment | (9,732) | (10,642) | (24,687) | (37,940) | |||||||||||||||||||
| Other (gain) loss on sale of assets | 2,730 | 4,504 | 2,718 | (394) | |||||||||||||||||||
| 586,411 | 575,214 | 1,717,461 | 1,744,645 | ||||||||||||||||||||
OPERATING INCOME | 111,313 | 148,742 | 345,353 | 468,170 | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest and dividend income | 11,888 | 10,748 | 29,189 | 20,508 | |||||||||||||||||||
| Interest expense | (4,336) | (4,324) | (12,969) | (12,918) | |||||||||||||||||||
| Gain (loss) on investment securities | 389 | (18,538) | 102 | 6,123 | |||||||||||||||||||
| Other | 3,134 | (672) | 2,991 | (1,218) | |||||||||||||||||||
| 11,075 | (12,786) | 19,313 | 12,495 | ||||||||||||||||||||
| Income before income taxes | 122,388 | 135,956 | 364,666 | 480,665 | |||||||||||||||||||
| Income tax expense | 33,703 | 40,663 | 95,977 | 124,187 | |||||||||||||||||||
| NET INCOME | $ | 88,685 | $ | 95,293 | $ | 268,689 | $ | 356,478 | |||||||||||||||
| Basic earnings per common share | $ | 0.89 | $ | 0.93 | $ | 2.68 | $ | 3.40 | |||||||||||||||
| Diluted earnings per common share: | $ | 0.88 | $ | 0.93 | $ | 2.67 | $ | 3.39 | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 98,752 | 101,163 | 98,891 | 103,464 | |||||||||||||||||||
| Diluted | 99,007 | 101,550 | 99,116 | 103,852 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 4| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | 88,685 | $ | 95,293 | $ | 268,689 | $ | 356,478 | |||||||||||||||
Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||
Net change related to employee benefit plans, net of income taxes of $(39.5) thousand and $(118.5) thousand for the three and nine months ended June 30, 2024, respectively, and $(59.6) thousand and $(209.8) thousand for the three and nine months ended June 30, 2023, respectively | 134 | 255 | 402 | 767 | |||||||||||||||||||
Unrealized loss on available-for-sale debt security, net of income taxes of $270.9 thousand for the three and nine months ended June 30, 2024, respectively | (920) | — | (920) | — | |||||||||||||||||||
Other comprehensive income (loss) | (786) | 255 | (518) | 767 | |||||||||||||||||||
| Comprehensive income | $ | 87,899 | $ | 95,548 | $ | 268,171 | $ | 357,245 | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 5| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||
Three and Nine Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | 112,222 | $ | 11,222 | $ | 525,369 | $ | 2,707,715 | $ | (7,981) | 12,796 | $ | (464,382) | $ | 2,771,943 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 95,173 | — | — | — | 95,173 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 134 | — | — | 134 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.34 supplemental per share) | — | — | — | (59,094) | — | — | — | (59,094) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (26,661) | — | — | (495) | 17,841 | (8,820) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,672 | — | — | — | — | 7,672 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 1,298 | (47,654) | (47,654) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | 292 | — | — | — | — | 292 | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 112,222 | $ | 11,222 | $ | 506,672 | $ | 2,743,794 | $ | (7,847) | 13,599 | $ | (494,195) | $ | 2,759,646 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 84,831 | — | — | — | 84,831 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 134 | — | — | 134 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.17 supplemental per share) | — | — | — | (42,130) | — | — | — | (42,130) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (12,012) | — | — | (230) | 8,656 | (3,356) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,429 | — | — | — | — | 8,429 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 102 | (3,977) | (3,977) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (503) | — | — | — | — | (503) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | 112,222 | $ | 11,222 | $ | 502,586 | $ | 2,786,495 | $ | (7,713) | 13,471 | $ | (489,516) | $ | 2,803,074 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 88,685 | — | — | — | 88,685 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (786) | — | — | (786) | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share. $0.17 supplemental per share) | — | — | — | (42,044) | — | — | — | (42,044) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (123) | — | — | (4) | 123 | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,676 | — | — | — | — | 7,676 | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | 240 | — | — | — | — | 240 | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2024 | 112,222 | $ | 11,222 | $ | 510,379 | $ | 2,833,136 | $ | (8,499) | 13,467 | $ | (489,393) | $ | 2,856,845 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 6Three and Nine Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 112,222 | $ | 11,222 | $ | 528,278 | $ | 2,473,572 | $ | (12,072) | 6,929 | $ | (235,528) | $ | 2,765,472 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 97,145 | — | — | — | 97,145 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 256 | — | — | 256 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.47 supplemental per share) | — | — | — | (76,611) | — | — | — | (76,611) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (22,776) | — | — | (449) | 13,293 | (9,483) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,273 | — | — | — | — | 8,273 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 844 | (39,060) | (39,060) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (847) | — | — | — | — | (847) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 112,222 | $ | 11,222 | $ | 512,928 | $ | 2,494,106 | $ | (11,816) | 7,324 | $ | (261,295) | $ | 2,745,145 | |||||||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 164,040 | — | — | — | 164,040 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 256 | — | — | 256 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | — | — | (50,046) | — | — | — | (50,046) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | (11,769) | — | — | (229) | 6,842 | (4,927) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,431 | — | — | — | — | 7,431 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 2,543 | (106,708) | (106,708) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | 615 | — | — | — | 615 | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 112,222 | $ | 11,222 | $ | 509,205 | $ | 2,608,100 | $ | (11,560) | 9,638 | $ | (361,161) | $ | 2,755,806 | |||||||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 95,293 | — | — | — | 95,293 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 255 | — | — | 255 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | — | — | (48,106) | — | — | — | (48,106) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,180 | — | — | — | — | 8,180 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 3,158 | (103,221) | (103,221) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (126) | — | — | — | — | (126) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 112,222 | $ | 11,222 | $ | 517,259 | $ | 2,655,287 | $ | (11,305) | 12,796 | $ | (464,382) | $ | 2,708,081 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 7| HELMERICH & PAYNE, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| Nine Months Ended June 30, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 268,689 | $ | 356,478 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 296,352 | 287,721 | |||||||||
| Asset impairment charges | — | 12,097 | |||||||||
| Provision for credit loss | (213) | 2,165 | |||||||||
| Stock-based compensation | 23,777 | 23,884 | |||||||||
Gain on investment securities | (102) | (6,123) | |||||||||
| Gain on reimbursement of drilling equipment | (24,687) | (37,940) | |||||||||
Other (gain) loss on sale of assets | 2,718 | (394) | |||||||||
| Deferred income tax expense (benefit) | (23,634) | 4,197 | |||||||||
| Other | 3,011 | 3,960 | |||||||||
Change in assets and liabilities | |||||||||||
| Accounts receivable | (6,936) | 6,529 | |||||||||
| Inventories of materials and supplies | (20,595) | (13,899) | |||||||||
| Prepaid expenses and other | (4,042) | (27,589) | |||||||||
| Other noncurrent assets | (20,165) | (3,413) | |||||||||
| Accounts payable | 21,959 | 24,408 | |||||||||
| Accrued liabilities | 7,744 | (15,366) | |||||||||
| Deferred income tax liability | 390 | (695) | |||||||||
| Other noncurrent liabilities | (8,359) | 2,980 | |||||||||
| Net cash provided by operating activities | 515,907 | 619,000 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (389,095) | (281,790) | |||||||||
| Purchase of short-term investments | (148,451) | (102,140) | |||||||||
| Purchase of long-term investments | (9,167) | (18,813) | |||||||||
| Proceeds from sale of short-term investments | 152,034 | 148,651 | |||||||||
Insurance proceeds from involuntary conversion | 5,533 | — | |||||||||
| Proceeds from asset sales | 35,148 | 63,048 | |||||||||
| Net cash used in investing activities | (353,998) | (191,044) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Dividends paid | (126,417) | (152,579) | |||||||||
| Payments for employee taxes on net settlement of equity awards | (12,176) | (14,410) | |||||||||
| Payment of contingent consideration from acquisition of business | (6,250) | (250) | |||||||||
| Share repurchases | (51,302) | (247,213) | |||||||||
| Other | — | (540) | |||||||||
| Net cash used in financing activities | (196,145) | (414,992) | |||||||||
Net increase (decrease) in cash and cash equivalents and restricted cash | (34,236) | 12,964 | |||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 316,238 | 269,009 | |||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 282,002 | $ | 281,973 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid/(received) during the period: | |||||||||||
| Interest paid | $ | 8,150 | $ | 8,958 | |||||||
| Income tax paid | 139,594 | 155,725 | |||||||||
| Income tax received | — | (26,654) | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Payments for operating leases | 10,235 | 9,049 | |||||||||
| Non-cash operating and investing activities: | |||||||||||
| Change in accounts payable and accrued liabilities related to purchases of property, plant and equipment | (9,052) | 2,031 | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3 FY24 FORM 10-Q | 8| NOTE 1 NATURE OF OPERATIONS | ||||||||||||||
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.
Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, International Solutions and Offshore Gulf of Mexico. Our real estate operations, our incubator program for new research and development projects and our wholly-owned captive insurance companies are included in "Other." Refer to Note 12—Business Segments and Geographic Information for further details on our reportable segments.
Our North America Solutions operations are primarily located in Texas, but also traditionally operate in other states, depending on demand. Such states include: Colorado, Louisiana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah, and West Virginia. Our International Solutions operations have rigs and/or services primarily located in five international locations: Argentina, Australia, Bahrain, Colombia and the United Arab Emirates. Additionally, we are preparing to commence operations in Saudi Arabia. Our Offshore Gulf of Mexico operations are conducted in Louisiana and in U.S. federal waters in the Gulf of Mexico.
We also own and operate a limited number of commercial real estate properties located in Tulsa, Oklahoma. Our real estate investments include a shopping center and undeveloped real estate.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RELATED RISKS AND UNCERTAINTIES | ||||||||||||||
Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2023 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
Income from discontinued operations was presented as a separate line item on our Unaudited Condensed Consolidated Statements of Operations during the three and nine months ended June 30, 2023. To conform with the current fiscal year presentation, we reclassified amounts previously presented in Income from discontinued operations, which were not material, to Other within Other income (expense) on our Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2023.
Principles of Consolidation
The Unaudited Condensed Consolidated Financial Statements include the accounts of H&P and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company gains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income, expenses and other comprehensive income or loss of a subsidiary acquired or disposed of during the fiscal year are included in the Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Comprehensive Income from the date the Company gains control until the date when the Company ceases to control the subsidiary. All intercompany accounts and transactions have been eliminated upon consolidation.
Q3 FY24 FORM 10-Q | 9Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We recorded restricted cash of $78.4 million and $61.4 million at June 30, 2024 and 2023, respectively, and $59.1 million and $36.9 million at September 30, 2023 and 2022, respectively. All restricted cash at June 30, 2024 represents an amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies. Of the total at September 30, 2023, $0.7 million is related to the acquisition of drilling technology companies, and $58.4 million represents an amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies. The restricted amounts are primarily invested in short-term money market securities.
Cash, cash equivalents, and restricted cash are reflected on the Unaudited Condensed Consolidated Balance Sheets as follows:
| June 30, | September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2023 | 2022 | |||||||||||||||||||
| Cash and cash equivalents | $ | 203,633 | $ | 220,609 | $ | 257,174 | $ | 232,131 | |||||||||||||||
| Restricted cash | 78,369 | 61,364 | 59,064 | 36,246 | |||||||||||||||||||
| Restricted cash - long-term: | |||||||||||||||||||||||
| Other assets, net | — | — | — | 632 | |||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 282,002 | $ | 281,973 | $ | 316,238 | $ | 269,009 | |||||||||||||||
Related Party Transactions
In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran Resources Limited ("Tamboran Resources"). In December 2023, all shares of Tamboran Resources were transferred to Tamboran Resources Corporation ("Tamboran Corp.") in exchange for depository interests in Tamboran Corp. Depository interests, referred to as CHESS Depository Interests, each representing beneficial interests of 1/200th of a share of Tamboran Corp. common stock, are listed on the Australian Stock Exchange under the ticker symbol "TBN." Tamboran Corp. is focused on developing a natural gas resource in Australia's Beetaloo Sub-basin.
On June 4, 2024, the Company entered into a convertible note agreement with Tamboran Corp. This note was utilized to relieve Tamboran's outstanding accounts receivable balance owed to the Company, and therefore no cash was exchanged as part of the transaction. The convertible note agreement provided that the notes converted into shares of common stock of Tamboran Corp. under certain circumstances in connection with an initial public offering in which its stock was listed on the New York Stock Exchange ("NYSE") or NASDAQ Stock Exchange. On June 26, 2024, Tamboran Corp. completed an initial public offering of its common stock on the NYSE and its common stock is listed on the NYSE, under the ticker "TBN". As a result of this offering, the convertible note of $9.4 million was converted into 0.5 million common shares in Tamboran Corp. Additionally and separately, one of our executive officers serves as a director of Tamboran Corp. Refer to Note 10—Fair Value Measurement of Financial Instruments for additional information related to our investment.
Concurrent with the October 2022 investment agreement, we entered into a fixed-term drilling services agreement with Tamboran Resources. As of June 30, 2024, we recorded $1.5 million in receivables and $4.5 million in contract liabilities on our Unaudited Condensed Consolidated Balance Sheets. As of September 30, 2023, we recorded $2.8 million in receivables, $8.0 million in other assets and $6.6 million in contract liabilities on our Consolidated Balance Sheets. We recorded $2.9 million and $9.9 million in revenue on our Unaudited Condensed Consolidated Statement of Operations during the three and nine months ended June 30, 2024, respectively, related to the drilling services agreement with Tamboran Resources, which commenced drilling services during the fourth fiscal quarter of 2023. We expect to earn $32.8 million in revenue over the remaining contract term, and, as such, this amount is included within our contract backlog as of June 30, 2024.
Q3 FY24 FORM 10-Q | 10Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company.
The following table provides a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:
| Standard | Description | Date of Adoption | Effect on the Financial Statements or Other Significant Matters | ||||||||
Standards that are not yet adopted as of June 30, 2024 | |||||||||||
ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update enhance annual and interim disclosure requirements, determine significant segment expense, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. This update is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the amendments is permitted. Upon adoption, the amendments shall be applied retrospectively to all prior periods presented in the financial statements. | October 1, 2024 | We plan to adopt this ASU, as required, during fiscal year 2025, with the first disclosure enhancements reflected in our FY 2025 Form 10-K. We are currently evaluating the impact this ASU will have on our disclosures. | ||||||||
| ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures | This ASU enhances income tax disclosure requirements. Under the ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). Specific categories that must be included in the reconciliation for each annual reporting period are specified in the amendment. This update is effective for annual periods beginning after December 15, 2024. Early adoption of the amendments is permitted. Upon adoption, the amendments shall be applied on a prospective basis. Retrospective application is permitted. | October 1, 2025 | We plan to adopt this ASU, as required, during fiscal year 2026, with the first disclosure enhancements reflected in our FY 2026 Form 10-K. We are currently evaluating the impact this ASU will have on our disclosures. | ||||||||
Self-Insurance
We continue to use our captive insurance companies to insure the deductibles for our domestic workers’ compensation, general liability, automobile liability claims programs, and medical stop-loss program and to insure the deductibles from the Company's international casualty and property programs. Our operating subsidiaries are paying premiums to the Captives, typically on a monthly basis, for the estimated losses based on an external actuarial analysis. These premiums are currently held in a restricted cash account, resulting in a transfer of risk from our operating subsidiaries to the Captives. Direct operating costs primarily consisted of adjustments of $5.3 million and $5.5 million to accruals for estimated losses for the three months ended June 30, 2024 and 2023, respectively, and $10.4 million and $10.2 million for the nine months ended June 30, 2024 and 2023, respectively, and rig and casualty insurance premiums of $9.5 million and $9.7 million during the three months ended June 30, 2024 and 2023, respectively, and $28.5 million and $30.6 million for the nine months ended June 30, 2024 and 2023, respectively. These operating costs were recorded within Drilling services operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues recorded by the Captives during the three months ended June 30, 2024 and 2023 amounted to $14.7 million and $17.4 million, respectively, and $45.7 million and $51.4 million during the nine months ended June 30, 2024 and 2023, respectively, which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, International Solutions, and Offshore Gulf of Mexico reportable operating segments and are reflected as intersegment sales within "Other." Our medical stop loss operating expenses for the three months ended June 30, 2024 and 2023 were $4.1 million and $2.1 million, respectively, and $11.4 million and $7.4 million for the nine months ended June 30, 2024 and 2023, respectively.
Q3 FY24 FORM 10-Q | 11International Solutions Drilling Risks
International Solutions drilling operations may significantly contribute to our revenues and net operating income. There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, geopolitical developments and tensions, war and uncertainty in oil-producing countries, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations.
We have also experienced certain risks specific to our Argentine operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid the equivalent in Argentine pesos. The Central Bank of Argentina maintains certain currency controls that limit our ability to access U.S. dollars and remit funds from our Argentine operations. In the past, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. Further, there are additional concerns regarding Argentina's debt burden, notwithstanding Argentina's restructuring deal with international bondholders in August 2020, as Argentina attempts to manage its substantial sovereign debt issues. These concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments.
All of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations.
We recorded aggregate foreign currency losses of $2.1 million and $4.5 million for the three and nine months ended June 30, 2024, respectively, and $1.4 million and $1.7 million for the three and nine months ended June 30, 2023, respectively. The aggregate foreign currency loss for three and nine months ended June 30, 2024 was primarily due to Argentina's devaluation of its peso relative to the U.S. dollar by approximately 55 percent in December 2023. In the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations. As of June 30, 2024, our cash balance in Argentina was the U.S. dollar equivalent of $9.2 million in Argentine Pesos.
As mentioned above, the Central Bank of Argentina's currency controls continue to limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. The execution of certain trades known as Blue Chip Swaps effectively results in a parallel U.S. dollar exchange rate. During the three and nine months ended June 30, 2024, we entered into a Blue Chip Swap transaction, which resulted in a $7.1 million loss on investment recorded in Gain (loss) on investment securities within our Unaudited Condensed Consolidated Statements of Operations. As a result of the Blue Chip Swap transaction, $13.8 million of net cash was repatriated to the U.S. during the period.
Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the administration thereof) on terms acceptable to us.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three and nine months ended June 30, 2024, approximately 7.0 percent and 7.4 percent of our operating revenues were generated from international locations compared to 6.8 percent and 7.3 percent during the three and nine months ended June 30, 2023, respectively. During the three and nine months ended June 30, 2024, approximately 77.9 percent and 77.1 percent of operating revenues from international locations were from operations in South America compared to 84.8 percent and 87.3 percent during the three and nine months ended June 30, 2023, respectively. All of the South American operating revenues were from Argentina and Colombia. The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.
Q3 FY24 FORM 10-Q | 12NOTE 3 PROPERTY, PLANT AND EQUIPMENT | ||||||||||||||
Property, plant and equipment as of June 30, 2024 and September 30, 2023 consisted of the following:
| (in thousands) | Estimated Useful Lives | June 30, 2024 | September 30, 2023 | ||||||||||||||
| Drilling services equipment | 4 - 15 years | $ | 6,596,929 | $ | 6,396,612 | ||||||||||||
| Tubulars | 4 years | 577,231 | 564,032 | ||||||||||||||
| Real estate properties | 10 - 45 years | 48,463 | 47,313 | ||||||||||||||
| Other | 2 - 23 years | 457,879 | 443,366 | ||||||||||||||
Construction in progress1 | 124,844 | 97,374 | |||||||||||||||
| 7,805,346 | 7,548,697 | ||||||||||||||||
| Accumulated depreciation | (4,791,001) | (4,627,002) | |||||||||||||||
| Property, plant and equipment, net | $ | 3,014,345 | $ | 2,921,695 | |||||||||||||
| Assets held-for-sale | $ | — | $ | 645 | |||||||||||||
(1)Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other advances for capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.
Depreciation
Depreciation expense during the three months ended June 30, 2024 and 2023 was $96.2 million and $93.2 million, including abandonments of $0.1 million and $0.2 million, respectively. During the three months ended June 30, 2024, depreciation expense included $2.7 million of accelerated depreciation for components on rigs that are scheduled for conversion in fiscal year 2024 as compared to $0.4 million for three months ended June 30, 2023. Depreciation expense during the nine months ended June 30, 2024 and 2023 was $291.5 million and $282.7 million, including abandonments of $3.2 million and $2.4 million, respectively. During the nine months ended June 30, 2024, depreciation expense included $10.9 million of accelerated depreciation for components on rigs that are scheduled for conversion in fiscal year 2024 as compared to $2.1 million for nine months ended June 30, 2023. These expenses are recorded within Depreciation and amortization on our Unaudited Condensed Consolidated Statements of Operations.
In November 2022, a fire at a wellsite caused substantial damage to one of our super-spec rigs within our North America Solutions segment. The major components were destroyed beyond repair and considered a total loss, and, as a result, these assets were written off and the rig was removed from our available rig count. At the time of the loss, the rig was fully insured under replacement cost insurance. The loss of $9.2 million was recorded as abandonment expense within Depreciation and amortization in our Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2023 and was offset by an insurance recovery that was also recognized within Depreciation and amortization for the same amount as the loss. During the fiscal year ended September 30, 2023, we collected $9.2 million of the total expected insurance proceeds. During the nine months ended June 30, 2024, we recognized a gain on involuntary conversion of the rig of $5.5 million and fully collected $5.5 million in proceeds. The total insurance proceeds received during the period exceeds the recognized loss and therefore was recognized as a gain within operating income during the nine months ended June 30, 2024.
Impairment Charges
Fiscal Year 2024 Activity
We did not record any impairment charges during the three and nine months ended June 30, 2024.
Fiscal Year 2023 Activity
During the nine months ended June 30, 2023, our North America Solutions assets that were previously classified as Assets held-for-sale at September 30, 2022 were either sold or written down to scrap value. The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million during the nine months ended June 30, 2023. During the same period, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the nine months ended June 30, 2023. These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidated Statement of Operations.
Q3 FY24 FORM 10-Q | 13During the nine months ended June 30, 2023, the Company initiated a plan to decommission and scrap four international FlexRig® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling. As a result, these rigs were reclassified to Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023. The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2023.
Gain on Reimbursement of Drilling Equipment
We recognized gains of $9.7 million and $24.7 million during the three and nine months ended June 30, 2024, respectively, and $10.6 million and $37.9 million during the three and nine months ended June 30, 2023, respectively, related to customer reimbursement for the current replacement value of lost or damaged drill pipe. Gains related to these asset sales are recorded in Gains on reimbursement of drilling equipment within our Unaudited Condensed Consolidated Statements of Operations.
NOTE 4 GOODWILL AND INTANGIBLE ASSETS | ||||||||||||||
Goodwill
During the three and nine months ended June 30, 2024, there were no additions or impairments to goodwill. As of June 30, 2024 and September 30, 2023, the goodwill balance was $45.7 million.
Intangible Assets
Our intangible assets are recorded within our North America Solutions reportable segment and consist of the following:
| June 30, 2024 | September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Weighted Average Estimated Useful Lives | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||||
| Finite-lived intangible asset: | |||||||||||||||||||||||||||||||||||||||||
| Developed technology | 15 years | $ | 89,096 | $ | 38,558 | $ | 50,538 | $ | 89,096 | $ | 34,092 | $ | 55,004 | ||||||||||||||||||||||||||||
| Intellectual property | 13 years | 2,000 | 622 | 1,378 | 2,000 | 503 | 1,497 | ||||||||||||||||||||||||||||||||||
| Trade name | 20 years | 5,865 | 2,029 | 3,836 | 5,865 | 1,791 | 4,074 | ||||||||||||||||||||||||||||||||||
| $ | 96,961 | $ | 41,209 | $ | 55,752 | $ | 96,961 | $ | 36,386 | $ | 60,575 | ||||||||||||||||||||||||||||||
Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.6 million for the three months ended June 30, 2024 and 2023, respectively and $4.8 million and $5.0 million for the nine months ended June 30, 2024 and 2023, respectively. Amortization expense is estimated to be approximately $1.6 million for the remainder of fiscal year 2024, and approximately $6.4 million for fiscal year 2025 through 2028.
NOTE 5 DEBT | ||||||||||||||
We have the following unsecured long-term debt outstanding with maturity shown in the following table:
| June 30, 2024 | September 30, 2023 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Face Amount | Unamortized Discount and Debt Issuance Cost | Book Value | Face Amount | Unamortized Discount and Debt Issuance Cost | Book Value | |||||||||||||||||||||||||||||
| Unsecured senior notes: | |||||||||||||||||||||||||||||||||||
| Due September 29, 2031 | $ | 550,000 | $ | (4,411) | $ | 545,589 | $ | 550,000 | $ | (4,856) | $ | 545,144 | |||||||||||||||||||||||
| Long-term debt | $ | 550,000 | $ | (4,411) | $ | 545,589 | $ | 550,000 | $ | (4,856) | $ | 545,144 | |||||||||||||||||||||||
2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”). Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022.
Q3 FY24 FORM 10-Q | 14In June 2022, we settled a registered exchange offer (the “Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes. All of the 2031 Notes were exchanged in the Registered Exchange Offer.
The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes.
Credit Facility
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024. On April 16, 2021, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit Facility were amended in connection with this extension. On March 8, 2022, we entered into the second amendment to the 2018 Credit Facility, which, among other things, raised the number of potential future extensions of the maturity date applicable to extending lenders from one to two such potential extensions and replaced provisions in respect of interest rate determinations that were based on the London Interbank Offered Rate with provisions based on the Secured Overnight Financing Rate. Additionally, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 12, 2025 to November 11, 2026. On February 10, 2023, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 11, 2026 to November 12, 2027. The remaining $70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date.
The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. As of June 30, 2024, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility. For a full description of the 2018 Credit Facility, see Note 6—Debt to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K.
As of June 30, 2024, we had $120.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $120.0 million, $41.7 million was outstanding as of June 30, 2024. Separately, we had $5.0 million in standby letters of credit and bank guarantees outstanding. In total, we had $46.7 million outstanding as of June 30, 2024.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At June 30, 2024, we were in compliance with all debt covenants.
NOTE 6 INCOME TAXES | ||||||||||||||
We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and estimates could occur during the year as information and assumptions change which could include, but are not limited to, changes to the forecasted amounts, estimates of permanent book versus tax differences, and changes to tax laws and rates.
Our income tax expense for the three months ended June 30, 2024 and 2023 was $33.7 million and $40.7 million, respectively, resulting in effective tax rates of 27.5 percent and 29.9 percent, respectively. Our income tax expense for the nine months ended June 30, 2024 and 2023 was $96.0 million and $124.2 million, respectively, resulting in effective tax rates of 26.3 percent and 25.9 percent, respectively. Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for the three months ended June 30, 2024, primarily due to state and foreign income taxes, permanent non-deductible items and a discrete benefit of $0.8 million primarily related to provision to return adjustments. The effective tax rate for the nine months ended June 30, 2024 differs from U.S. federal statutory rate of 21.0 percent primarily due to state and foreign income taxes, permanent non-deductible items and a discrete tax benefit of $1.6 million primarily related to equity compensation and provision to return adjustments.
Q3 FY24 FORM 10-Q | 15Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for the three months ended June 30, 2023 primarily due to state and foreign income taxes, permanent non-deductible items and discrete tax expense of $2.4 million primarily related to an increase in our deferred state income tax rate. The effective tax rate for the nine months ended June 30, 2023, differs from the U.S. federal statutory rate of 21.0 percent primarily due to state and foreign income taxes, permanent non-deductible items and a discrete tax expense of $2.3 million primarily related to an increase in deferred state income tax rate and equity compensation.
As of June 30, 2024, we have recorded unrecognized tax benefits and related interest and penalties of approximately $0.7 million. During the three months ended June 30, 2024, $2.7 million of the unrecognized tax benefits, interest and penalties was recognized as a result of a lapse of the statute of limitations. We cannot predict with certainty if we will achieve ultimate resolution of any additional uncertain tax positions associated with our U.S. and international operations resulting in any additional material increases or decreases of our unrecognized tax benefits for the next twelve months.
NOTE 7 SHAREHOLDERS’ EQUITY | ||||||||||||||
The Company has an evergreen authorization from the Board of Directors ("the Board") for the repurchase of up to four million common shares in any calendar year. The repurchases may be made using our cash and cash equivalents or other available sources. We did not make any share repurchases during the three months ended June 30, 2024. During the nine months ended June 30, 2024, we repurchased 1.4 million common shares at an aggregate cost of $51.6 million, including excise tax of $0.3 million. During the three and nine months ended June 30, 2023, we repurchased 3.2 million and 6.5 million common shares at an aggregate cost of $103.2 million and $249.0 million, including excise tax of $1.0 million and $1.8 million, respectively.
During the three and nine months ended June 30, 2024, we declared $42.0 million and $143.3 million, respectively, in cash dividends. A base cash dividend of $0.25 per share and a supplemental dividend of $0.17 per share was declared on June 5, 2024 for shareholders of record on August 16, 2024, payable on August 30, 2024. As a result, we recorded a Dividend payable of $42.0 million on our Unaudited Condensed Consolidated Balance Sheets as of June 30, 2024.
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss were as follows:
| June 30, | September 30, | ||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| Pre-tax amounts: | |||||||||||
| Unrealized pension actuarial loss | $ | (9,886) | $ | (10,407) | |||||||
Unrealized loss on available-for-sale debt security | (1,191) | — | |||||||||
| $ | (11,077) | $ | (10,407) | ||||||||
| After-tax amounts: | |||||||||||
| Unrealized pension actuarial loss | $ | (7,579) | $ | (7,981) | |||||||
Unrealized loss on available-for-sale debt security | (920) | — | |||||||||
| $ | (8,499) | $ | (7,981) | ||||||||
Fluctuations in pension actuarial gains and losses are primarily due to changes in the discount rate and investment returns related to the defined benefit pension plan.
Investments classified as available-for-sale debt securities are reported at fair value with unrealized gains and losses excluded from net income (loss) and reported in other comprehensive income (loss).
The following is a summary of the changes in accumulated other comprehensive loss, net of tax, for the three and nine months ended June 30, 2024:
| Three Months Ended June 30, 2024 | |||||||||||||||||
| (in thousands) | Unrealized Loss on Available-for-Sale Securities | Defined Benefit Pension Plan | Total | ||||||||||||||
| Balance at beginning of period | $ | — | $ | (7,713) | $ | (7,713) | |||||||||||
Other comprehensive loss before reclassifications | (920) | — | (920) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | 134 | 134 | ||||||||||||||
Net current-period other comprehensive loss | (920) | 134 | (786) | ||||||||||||||
| Balance at June 30 2024 | $ | (920) | $ | (7,579) | $ | (8,499) | |||||||||||
Q3 FY24 FORM 10-Q | 16| Nine Months Ended June 30, 2024 | |||||||||||||||||
| (in thousands) | Unrealized Loss on Available-for-Sale Securities | Defined Benefit Pension Plan | Total | ||||||||||||||
| Balance at beginning of period | $ | — | $ | (7,981) | $ | (7,981) | |||||||||||
Other comprehensive loss before reclassifications | (920) | — | (920) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | 402 | 402 | ||||||||||||||
Net current-period other comprehensive loss | (920) | 402 | (518) | ||||||||||||||
| Balance at June 30 2024 | $ | (920) | $ | (7,579) | $ | (8,499) | |||||||||||
NOTE 8 REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||||||||||||
Drilling Services Revenue
The majority of our drilling services are performed on a “daywork” contract basis, under which we charge a rate per day, with the price determined by the location, depth and complexity of the well to be drilled, operating conditions, the duration of the contract, and the competitive forces of the market. These drilling services, including our technology solutions, represent a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. Because our customers benefit equally throughout the service period and our efforts in providing drilling services are incurred relatively evenly over the period of performance, revenue is recognized over time using a time-based input measure as we provide services to the customer. For any contracts that include a provision for pooled term days at contract inception, followed by the assignment of days to specific rigs throughout the contract term, we have elected, as a practical expedient, to recognize revenue in the amount for which the entity has a right to invoice, as permitted by ASC 606.
Performance-based contracts are contracts pursuant to which we are compensated partly based upon our performance against a mutually agreed upon set of predetermined targets. These types of contracts are relatively new to the industry and typically have a lower base dayrate, but give us the opportunity to receive additional compensation by meeting or exceeding certain performance targets agreed to by our customers. The variable consideration that we expect to receive is estimated at the most likely amount, and constrained to an amount such that it is probable a significant reversal of revenue previously recognized will not occur based on the performance targets. Total revenue recognized from performance contracts, including performance bonuses, was $294.4 million and $880.4 million, of which $11.8 million and $37.4 million was related to performance bonuses recognized due to the achievement of performance targets during the three and nine months ended June 30, 2024, respectively. Total revenue recognized from performance contracts, including performance bonuses, was $316.2 million and $883.3 million, of which $11.4 million and $33.0 million was related to performance bonuses recognized due to the achievement of performance targets during the three and nine months ended June 30, 2023, respectively.
Contract Costs
We had capitalized fulfillment costs of $11.6 million and $11.4 million as of June 30, 2024 and September 30, 2023, respectively.
Remaining Performance Obligations
The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of June 30, 2024 was approximately $1.5 billion, of which approximately $0.3 billion is expected to be recognized during the remainder of fiscal year 2024, approximately $0.6 billion during fiscal year 2025, and approximately $0.6 billion in fiscal year 2026 and thereafter. These amounts do not include anticipated contract renewals or expected performance bonuses as part of its calculation. Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied performance obligations. Our contracts are subject to cancellation or modification at the election of the customer; however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past.
Q3 FY24 FORM 10-Q | 17Contract Assets and Liabilities
The following tables summarize the balances of our contract assets (net of allowance for estimated credit losses) and liabilities at the dates indicated:
| (in thousands) | June 30, 2024 | September 30, 2023 | |||||||||
| Contract assets, net | $ | 4,899 | $ | 6,560 | |||||||
| (in thousands) | June 30, 2024 | ||||
Contract liabilities balance at September 30, 2023 | $ | 28,882 | |||
| Payment received/accrued and deferred | 44,486 | ||||
| Revenue recognized during the period | (49,042) | ||||
Contract liabilities balance at June 30, 2024 | $ | 24,326 | |||
NOTE 9 EARNINGS PER COMMON SHARE | ||||||||||||||
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options, non-vested restricted stock and performance units.
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.
During the third quarter of fiscal year 2023, Income from discontinued operations was presented as a separate line item on our Unaudited Condensed Consolidated Statements of Operations. To conform with the current fiscal year presentation, we reclassified amounts previously presented in Income from discontinued operations, which were not material, to Other within Other income (expense) on our Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2023. To conform with the current fiscal year presentation, basic and diluted earnings per share for continuing and discontinued operations are presented in the aggregate, for the three and nine months ended June 30, 2023, as presented below.
Q3 FY24 FORM 10-Q | 18The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 88,685 | $ | 95,293 | $ | 268,689 | 356,478 | ||||||||||||||||
| Adjustment for basic earnings per share | |||||||||||||||||||||||
| Earnings allocated to unvested shareholders | (1,211) | (1,283) | (3,700) | (4,810) | |||||||||||||||||||
| Numerator for basic earnings per share | 87,474 | 94,010 | 264,989 | 351,668 | |||||||||||||||||||
| Adjustment for diluted earnings per share | |||||||||||||||||||||||
| Effect of reallocating undistributed earnings of unvested shareholders | 1 | 2 | 4 | 9 | |||||||||||||||||||
| Numerator for diluted earnings per share | $ | 87,475 | $ | 94,012 | $ | 264,993 | $ | 351,677 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic earnings per share - weighted-average shares | 98,752 | 101,163 | 98,891 | 103,464 | |||||||||||||||||||
| Effect of dilutive shares from restricted stock and performance share units | 255 | 387 | 225 | 388 | |||||||||||||||||||
| Denominator for diluted earnings per share - adjusted weighted-average shares | 99,007 | 101,550 | 99,116 | 103,852 | |||||||||||||||||||
| Basic earnings per common share: | $ | 0.89 | $ | 0.93 | $ | 2.68 | $ | 3.40 | |||||||||||||||
| Diluted earnings per common share: | $ | 0.88 | $ | 0.93 | $ | 2.67 | $ | 3.39 | |||||||||||||||
The following potentially dilutive average shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive:
NOTE 10 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS | ||||||||||||||
We have certain assets and liabilities that are required to be measured and disclosed at fair value. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use the following fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:
•Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
•Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Q3 FY24 FORM 10-Q | 19Fair Value Measurements
The following tables summarize our financial assets and liabilities measured at fair value and indicate the level in the fair value hierarchy in which we classify the fair value measurement as of the dates indicated below:
| June 30, 2024 | |||||||||||||||||||||||
| (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate and municipal debt securities | $ | 37,218 | $ | — | $ | 37,218 | $ | — | |||||||||||||||
| U.S. government and federal agency securities | 48,870 | 48,870 | — | — | |||||||||||||||||||
| Total | 86,088 | 48,870 | 37,218 | — | |||||||||||||||||||
| Long-term Investments: | |||||||||||||||||||||||
| Recurring fair value measurements: | |||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Non-qualified supplemental savings plan | 16,634 | 16,634 | — | — | |||||||||||||||||||
| Investment in ADNOC Drilling | 178,235 | 178,235 | — | — | |||||||||||||||||||
| Investment in Tamboran | 23,018 | 23,018 | — | — | |||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Investment in Galileo | 36,751 | — | — | 36,751 | |||||||||||||||||||
| Geothermal debt securities | 2,000 | — | — | 2,000 | |||||||||||||||||||
| Other debt securities | 4,060 | 3,810 | — | 250 | |||||||||||||||||||
| Total | 260,698 | 221,697 | — | 39,001 | |||||||||||||||||||
Nonrecurring fair value measurements1: | |||||||||||||||||||||||
| Other equity securities | 4,071 | — | — | 4,071 | |||||||||||||||||||
| Total | 4,071 | — | — | 4,071 | |||||||||||||||||||
| Total | $ | 264,769 | $ | 221,697 | $ | — | $ | 43,072 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent consideration | $ | 5,000 | $ | — | $ | — | $ | 5,000 | |||||||||||||||
(1)As of June 30, 2024, our equity security investments in geothermal energy totaled $27.2 million and our debt security investments in held to maturity bonds totaled $0.3 million. None of these investments were marked to fair value during the period. The investments are measured at cost, less any impairments.
Q3 FY24 FORM 10-Q | 20| September 30, 2023 | |||||||||||||||||||||||
| (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | 48,764 | $ | — | $ | 48,764 | $ | — | |||||||||||||||
| U.S. government and federal agency securities | 44,836 | 44,836 | — | — | |||||||||||||||||||
| Total | 93,600 | 44,836 | 48,764 | — | |||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Recurring fair value measurements: | |||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Non-qualified supplemental savings plan | 14,597 | 14,597 | — | — | |||||||||||||||||||
| Investment in ADNOC Drilling | 174,758 | 174,758 | — | — | |||||||||||||||||||
| Investment in Tamboran | 9,920 | 9,920 | — | — | |||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Investment in Galileo | 35,434 | — | — | 35,434 | |||||||||||||||||||
| Geothermal debt securities | 2,006 | — | — | 2,006 | |||||||||||||||||||
| Total | 236,715 | 199,275 | — | 37,440 | |||||||||||||||||||
Nonrecurring fair value measurements1: | |||||||||||||||||||||||
Other equity securities2 | 2,430 | — | — | 2,430 | |||||||||||||||||||
| Total | 2,430 | — | — | 2,430 | |||||||||||||||||||
| Total | $ | 239,145 | $ | 199,275 | $ | — | $ | 39,870 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent consideration | $ | 9,455 | $ | — | $ | — | $ | 9,455 | |||||||||||||||
(1)As of September 30, 2023, our equity security investments in geothermal energy totaled $25.2 million. None of these investments were marked to fair value during the period. The investments are measured at cost, less any impairments.
(2)As of September 30, 2023, our other equity securities subject to measurement at fair value on a nonrecurring basis totaled $3.0 million, of which $2.4 million has been marked to fair value. The remaining $0.6 million is measured at cost, less any impairments.
Recurring Fair Value Measurements
Short-term Investments
Short-term investments primarily include securities classified as trading securities. Both realized and unrealized gains and losses on trading securities are included in Other income (expense) in the Unaudited Condensed Consolidated Statements of Operations. These securities are recorded at fair value. Level 1 inputs include U.S. agency issued debt securities with active markets and money market funds. For these items, quoted current market prices are readily available. Level 2 inputs include corporate bonds measured using broker quotations that utilize observable market inputs.
Long-term Investments
Equity Securities Our long-term investments include debt and equity securities and assets held in a Non-Qualified Supplemental Savings Plan ("Savings Plan") and are recorded within Investments on our Unaudited Condensed Consolidated Balance Sheets. Our assets that we hold in the Savings Plan are comprised of mutual funds that are measured using Level 1 inputs.
Q3 FY24 FORM 10-Q | 21During September 2021, the Company made a $100.0 million cornerstone investment in ADNOC Drilling in advance of its announced initial public offering, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period. ADNOC Drilling’s initial public offering was completed on October 3, 2021, and its shares are listed and traded on the Abu Dhabi Securities Exchange. Our investment is classified as a long-term equity investment within Investments on our Unaudited Condensed Consolidated Balance Sheets and measured at fair value with any gains or losses recognized through net income and recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations. Consistent with the provisions of ASU No. 2022-03, contractual sale restrictions are not considered in the fair value measurement of our investment in ADNOC Drilling. During the three and nine months ended June 30, 2024, we recognized gains of $5.6 million and $3.5 million, respectively, on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment compared to gain (loss) of $(17.0) million and $7.4 million during the three and nine months ended June 30, 2023, respectively. This investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange.
Equity Securities with Fair Value Option In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran Resources. In December 2023, all shares of Tamboran Resources were transferred to Tamboran Resources Corporation ("Tamboran Corp.") in exchange for depository interests in Tamboran Corp. Depository interests, referred to as CHESS Depository Interests, each representing beneficial interests of 1/200th of a share of Tamboran Corp. common stock, are listed on the Australian Stock Exchange under the ticker symbol "TBN." Tamboran Corp. is focused on developing a natural gas resource in Australia's Beetaloo Sub-basin.
On June 4, 2024, the Company entered into a convertible note agreement with Tamboran Corp. This note was utilized to relieve Tamboran's outstanding accounts receivable balance owed to the Company, and therefore no cash was exchanged as part of the transaction. The convertible note agreement provided that the notes converted into shares of common stock of Tamboran Corp. under certain circumstances in connection with an initial public offering in which its stock was listed on the New York Stock Exchange ("NYSE") or NASDAQ Stock Exchange. On June 26, 2024, Tamboran Corp. completed an initial public offering of its common stock on the NYSE and its common stock is listed on the NYSE, under the ticker "TBN". As a result of this offering, the convertible note of $9.4 million was converted into 0.5 million common shares in Tamboran Corp. Our investment is classified as a long-term equity investment within Investments on our Unaudited Condensed Consolidated Balance Sheets and measured at fair value with any gains or losses recognized through net income and recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations. Our shares received in this initial public offering are subject to a 180-day lockup period. Consistent with the provisions of ASU No. 2022-03, contractual sale restrictions are not considered in the fair value measurement of our investment in Tamboran Resources Corporation.
We believe we have a significant influence, but not control or joint control over the investee, due to several factors, including our ownership percentage, operational involvement and role on the investee's board of directors. As of June 30, 2024, our combined equity ownership was approximately 7.2 percent representing 1.0 million common shares in Tamboran Corp. We consider this investment to have a readily determinable fair value and have elected to account for this investment using the fair value option with any changes in fair value recognized through net income. Under the guidance, Topic 820, Fair Value Measurement, this investment is classified as a Level 1 investment based on the quoted stock price which is publicly available. During the three and nine months ended June 30, 2024, we recognized gains of $1.9 million and $3.7 million, respectively, recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment compared to a loss of $1.5 million during the three and nine months ended June 30, 2023, respectively.
Debt Securities During April 2022, the Company made a $33.0 million cornerstone investment in Galileo Holdco 2 Limited Technologies ("Galileo Holdco 2"), part of the group of companies known as Galileo Technologies (“Galileo”) in the form of notes with an option to convert into common shares of the parent of Galileo Holdco 2 ("Galileo parent"). Galileo specializes in liquification, natural gas compression and re-gasification modular systems and technologies to make the production, transportation, and consumption of natural gas, biomethane, and hydrogen more economically viable. The convertible note bears interest at 5.0 percent per annum with a maturity date of the earlier of April 2027 or an exit event (as defined in the agreement as either an initial public offering or a sale of Galileo). During the fiscal year ended September 30, 2023, our convertible note agreement was amended to include any interest which has accrued but not yet compounded or issued as a note. As a result, we include accrued interest in our total investment balance. We do not intend to sell this investment prior to its maturity date or an exit event. As of June 30, 2024, the fair value of the convertible note was approximately equal to the cost basis.
The following table provides quantitative information (in thousands) about our Level 3 unobservable significant inputs related to our debt security investment with Galileo at the dates included below:
| June 30, 2024 | |||||||||||||||||
| Fair Value | Valuation Technique | Unobservable Inputs | |||||||||||||||
| $ | 36,751 | Black-Scholes-Merton model | Discount rate | 20.8 | % | ||||||||||||
| Risk-free rate | 4.3 | % | |||||||||||||||
| Equity volatility | 105.0 | % | |||||||||||||||
Q3 FY24 FORM 10-Q | 22The above significant unobservable inputs are subject to change based on changes in economic and market conditions. The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. Significant increases or decreases in the discount rate, risk-free rate, and equity volatility in isolation would result in a significantly lower or higher fair value measurement. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
A majority of our long-term debt securities, including our investment in Galileo, are classified as available-for-sale and are measured using Level 3 unobservable inputs based on the absence of market activity. The following table reconciles changes in the fair value of our Level 3 assets for the periods presented below:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Assets at beginning of period | $ | 38,551 | $ | 35,140 | $ | 37,440 | $ | 33,565 | |||||||||||||||
| Purchases | — | 41 | 250 | 2,116 | |||||||||||||||||||
| Accrued interest | 450 | 2,001 | 1,316 | 2,001 | |||||||||||||||||||
| Transfers out | — | — | — | (500) | |||||||||||||||||||
| Reserves | — | — | (5) | — | |||||||||||||||||||
| Assets at end of period | $ | 39,001 | $ | 37,182 | $ | 39,001 | $ | 37,182 | |||||||||||||||
Nonrecurring Fair Value Measurements
We have certain assets that are subject to measurement at fair value on a nonrecurring basis. For these nonfinancial assets, measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired. These assets generally include property, plant and equipment, goodwill, intangible assets, and operating lease right-of-use assets. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy. Further details on any changes in valuation of these assets is provided in their respective footnotes.
Equity Securities
We also hold various other equity securities without readily determinable fair values, primarily comprised of geothermal investments. These equity securities are initially measured at cost, less any impairments, and will be marked to fair value once observable price changes in identical or similar investments from the same issuer occur. All of our long-term equity securities are measured using Level 3 unobservable inputs based on the absence of market activity.
The following table reconciles changes in the balance of our equity securities, without readily determinable fair values, including investments that have been subsequently marked to fair value, for the periods presented below:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Assets at beginning of period | $ | 30,152 | $ | 26,301 | $ | 28,232 | $ | 23,745 | |||||||||||||||
| Purchases | 1,105 | — | 3,641 | 2,556 | |||||||||||||||||||
Disposals | — | — | (616) | — | |||||||||||||||||||
| Assets at end of period | $ | 31,257 | $ | 26,301 | $ | 31,257 | $ | 26,301 | |||||||||||||||
Q3 FY24 FORM 10-Q | 23Contingent Consideration
Other financial instruments measured using Level 3 unobservable inputs primarily consist of potential earnout payments associated with our business acquisition in fiscal year 2019 (for which the measurement period concluded as of June 30, 2024). Contingent consideration is recorded in Accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of milestone achievements. The following table reconciles changes in the fair value of our Level 3 liabilities for the periods presented below:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Liabilities at beginning of period | $ | 14,000 | $ | 5,030 | $ | 9,455 | $ | 4,022 | |||||||||||||||
| Additions | — | — | — | 500 | |||||||||||||||||||
| Total gains or losses: | |||||||||||||||||||||||
| Included in earnings | 1,000 | 4,050 | 6,670 | 5,808 | |||||||||||||||||||
Settlements1 | (10,000) | (500) | (11,125) | (1,750) | |||||||||||||||||||
| Liabilities at end of period | $ | 5,000 | $ | 8,580 | $ | 5,000 | $ | 8,580 | |||||||||||||||
(1)Settlements represent earnout payments that have been paid or earned during the period.
Other Financial Instruments
The carrying amount of cash and cash equivalents and restricted cash approximates fair value due to the short-term nature of these items. The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. Government and in federally insured deposit accounts. The carrying value of accounts receivable, other current and noncurrent assets, accounts payable, accrued liabilities and other liabilities approximated fair value at June 30, 2024 and September 30, 2023.
The following information presents the supplemental fair value information for our long-term fixed-rate debt at June 30, 2024 and September 30, 2023:
| (in millions) | June 30, 2024 | September 30, 2023 | |||||||||
| Long-term debt, net | |||||||||||
| Carrying value | $ | 545.6 | $ | 545.1 | |||||||
| Fair value | 454.5 | 435.5 | |||||||||
The fair values of the long-term fixed-rate debt is based on broker quotes at June 30, 2024 and September 30, 2023. The notes are classified within Level 2 of the fair value hierarchy as they are not actively traded in markets.
NOTE 11 COMMITMENTS AND CONTINGENCIES | ||||||||||||||
Lease Obligations
During the nine months ended June 30, 2024, we amended the lease for our Tulsa industrial facility. As part of the amendment, we extended the lease term, now continuing through June 30, 2035 with two five-year renewal options, resulting in an increase of $18.1 million to the right-of-use assets and lease liability on our Unaudited Condensed Consolidated Balance Sheet. We recognized one of the five-year renewal options as part of our right-of-use assets and lease liabilities. This contract is accounted for as an operating lease.
Purchase Commitments
Equipment, parts, and supplies are ordered in advance to promote efficient construction and capital improvement progress. At June 30, 2024, we had purchase commitments for equipment, parts and supplies of approximately $99.6 million.
Guarantee Arrangements
We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in respect of such bonds.
Q3 FY24 FORM 10-Q | 24Contingencies
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain or loss contingency. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or recognize income until realized. The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010. Our wholly-owned subsidiaries, Helmerich & Payne International Drilling Co. ("HPIDC"), and Helmerich & Payne de Venezuela, C.A. filed a lawsuit in the United States District Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. and PDVSA Petroleo, S.A., seeking damages for the seizure of their Venezuelan drilling business in violation of international law and for breach of contract. While there exists the possibility of realizing a recovery on HPIDC's expropriation claims, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.
The Company and its subsidiaries are parties to various other pending legal actions arising in the ordinary course of our business. We maintain insurance against certain business risks subject to certain deductibles. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our financial condition, cash flows, or results of operations. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed.
NOTE 12 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION | ||||||||||||||
Description of the Business
We are a performance-driven drilling solutions and technologies company based in Tulsa, Oklahoma with operations in all major U.S. onshore oil and gas producing basins as well as South America, the Middle East and Australia. Our drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies. We believe we are the recognized industry leader in drilling as well as technological innovation. We focus on offering our customers an integrated solutions-based approach by combining proprietary rig technology, automation software, and digital expertise into our rig operations rather than a product-based offering, such as a rig or separate technology package. Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, International Solutions, and Offshore Gulf of Mexico.
Each reportable operating segment is a strategic business unit that is managed separately, and consolidated revenues and expenses reflect the elimination of all material intercompany transactions. Our real estate operations, our incubator program for new research and development projects, and our wholly-owned captive insurance companies are included in "Other." External revenues included in “Other” primarily consist of rental income.
Segment Performance
We evaluate segment performance based on income (segment operating income (loss)) before income taxes which includes:
•Revenues from external and internal customers
•Direct operating expenses
•Depreciation and amortization
•Research and development
•Allocated general and administrative expenses
•Asset impairment charges
but excludes gain on reimbursement of drilling equipment, other gain (loss) on sale of assets, corporate selling, general and administrative costs, and corporate depreciation.
General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, other methods may be used which we believe to be a reasonable reflection of the utilization of services provided.
Q3 FY24 FORM 10-Q | 25Summarized financial information of our reportable segments for the three and nine months ended June 30, 2024 and 2023 is shown in the following tables:
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | International Solutions | Offshore Gulf of Mexico | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 620,040 | $ | 47,882 | $ | 27,218 | $ | 2,584 | $ | — | $ | 697,724 | |||||||||||||||||||||||
| Intersegment | — | — | — | 14,677 | (14,677) | — | |||||||||||||||||||||||||||||
| Total sales | 620,040 | 47,882 | 27,218 | 17,261 | (14,677) | 697,724 | |||||||||||||||||||||||||||||
Segment operating income (loss) | $ | 163,359 | $ | (4,844) | $ | 5,010 | $ | (4,791) | $ | (616) | $ | 158,118 | |||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | International Solutions | Offshore Gulf of Mexico | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 641,612 | $ | 48,692 | $ | 31,221 | $ | 2,431 | $ | — | $ | 723,956 | |||||||||||||||||||||||
| Intersegment | — | — | — | 17,359 | (17,359) | — | |||||||||||||||||||||||||||||
| Total sales | 641,612 | 48,692 | 31,221 | 19,790 | (17,359) | 723,956 | |||||||||||||||||||||||||||||
Segment operating income (loss) | $ | 169,499 | $ | (1,397) | $ | 4,705 | $ | 2,104 | $ | 4,470 | $ | 179,381 | |||||||||||||||||||||||
| Nine Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | International Solutions | Offshore Gulf of Mexico | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 1,827,661 | $ | 148,512 | $ | 78,662 | $ | 7,979 | $ | — | $ | 2,062,814 | |||||||||||||||||||||||
| Intersegment | — | — | — | 45,649 | (45,649) | — | |||||||||||||||||||||||||||||
| Total sales | 1,827,661 | 148,512 | 78,662 | 53,628 | (45,649) | 2,062,814 | |||||||||||||||||||||||||||||
Segment operating income (loss) | $ | 454,979 | $ | 4,148 | $ | 8,140 | $ | (2,073) | $ | (1,054) | $ | 464,140 | |||||||||||||||||||||||
| Nine Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | International Solutions | Offshore Gulf of Mexico | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 1,944,555 | $ | 159,383 | $ | 101,364 | $ | 7,513 | $ | — | $ | 2,212,815 | |||||||||||||||||||||||
| Intersegment | — | — | — | 51,423 | (51,423) | — | |||||||||||||||||||||||||||||
| Total sales | 1,944,555 | 159,383 | 101,364 | 58,936 | (51,423) | 2,212,815 | |||||||||||||||||||||||||||||
| Segment operating income | $ | 496,945 | $ | 4,132 | $ | 18,138 | $ | 13,604 | $ | 4,513 | $ | 537,332 | |||||||||||||||||||||||
The following table reconciles segment operating income per the tables above to income before income taxes as reported on the Unaudited Condensed Consolidated Statements of Operations:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Segment operating income | $ | 158,118 | $ | 179,381 | $ | 464,140 | $ | 537,332 | |||||||||||||||
| Gain on reimbursement of drilling equipment | 9,732 | 10,642 | 24,687 | 37,940 | |||||||||||||||||||
Other gain (loss) on sale of assets | (2,730) | (4,504) | (2,718) | 394 | |||||||||||||||||||
| Corporate selling, general and administrative costs and corporate depreciation | (53,807) | (36,777) | (140,756) | (107,496) | |||||||||||||||||||
| Operating income | 111,313 | 148,742 | 345,353 | 468,170 | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||