HELMERICH & PAYNE, INC. Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10Q ("Form 10Q") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans, objectives of management for
future operations, contract terms, and financing and funding are forward-looking
statements. In addition, forward-looking statements include all statements that
are not historical facts and can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "predict," "project," "target," "continue," or the negative thereof
or similar terminology. Forward-looking statements are based upon current plans,
estimates, and expectations that are subject to risks, uncertainties, and
assumptions. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. Actual results may vary materially from
those indicated or anticipated by such forward-looking statements. The inclusion
of such statements should not be regarded as a representation that such plans,
estimates, or expectations will be achieved.
These forward-looking statements include, among others, information concerning
our possible or assumed future results of operations and statements about the
following such as:
•our business strategy;
•estimates of our revenues, income, earnings per share, and market share;
•our capital structure and our ability to return cash to stockholders through dividends or share repurchases;
•the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;
•the volatility of future oil and natural gas prices;
•contracting of our rigs and actions by current or potential customers;
•the effects of actions by, or disputes among or between, members of theOrganization of Petroleum Exporting Countries ("OPEC") and other oil producing nations (together, "OPEC+") with respect to production levels or other matters related to the prices of oil and natural gas; •changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, changes in prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs, or increase our capital expenditures and the construction or acquisition of rigs; •the ongoing effect, impact, potential duration or other implications of the novel strain of coronavirus ("COVID-19") pandemic, including any variants of the virus, and the effectiveness of vaccines and distribution of vaccines to treat the virus, any reinstatement of governmental-imposed restrictions, and the pace of the economic recovery and any expectations we may have with respect thereto;
•changes in worldwide rig supply and demand, competition, or technology;
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Table of Contents •possible cancellation, suspension, renegotiation or termination (with or without cause) of our contracts as a result of general or industry-specific economic conditions, mechanical difficulties, performance or other reasons;
•expansion and growth of our business and operations;
•our belief that the final outcome of our legal proceedings will not materially affect our financial results;
•impact of federal and state legislative and regulatory actions and policies affecting our costs and increasing operation restrictions or delay and other adverse impacts on our business; •impact of geopolitical developments and tensions, war and uncertainty in oil-producing countries (including the invasion ofUkraine byRussia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy);
•global economic conditions, such as a general slowdown in the global economy and inflationary pressures, and their impact on the Company;
•environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including wreckage or debris removal), collisions, grounding, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;
•our financial condition and liquidity;
•tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;
•the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems;
•potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change-related changes in the frequency and severity of weather patterns;
•potential long-lived asset impairments; and
•our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any related reputational risks as a result of execution of this strategy.
Important factors that could cause actual results to differ materially from our expectations or results discussed in the forwardlooking statements are disclosed in our 2021 Annual Report on Form 10-K under Part I, Item 1A- "Risk Factors," and Part II, Item 7- "Management's Discussion and Analysis of Financial Condition and Results of Operations." All subsequent written and oral forwardlooking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements. Because of the underlying risks and uncertainties, we caution you against placing undue reliance on these forward-looking statements. We assume no duty to update or revise these forwardlooking statements based on changes in internal estimates, expectations or otherwise, except as required by law.
Executive Summary
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. As ofJune 30, 2022 , our drilling rig fleet included a total of 271 drilling rigs. Our reportable operating business segments consist of the North America Solutions segment with 236 rigs, the OffshoreGulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 28 rigs as ofJune 30, 2022 . At the close of the third quarter of fiscal year 2022, we had 188 contracted rigs, of which 122 were under a fixed-term contract and 66 were working well-to-well, compared to 137 contracted rigs atSeptember 30, 2021 . Our long-term strategy remains focused on innovation, technology, safety, operational excellence and reliability. As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times volatile market conditions and take advantage of future opportunities. 29
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Market Outlook
Our revenues are primarily derived from the capital expenditures of companies
involved in the exploration, development and production of crude oil and natural
gas ("E&Ps"). Generally, the level of capital expenditures is dictated by
current and expected future prices of crude oil and natural gas, which are
determined by improving supply and demand factors. Both commodities have
historically been, and we expect them to continue to be, cyclical and highly
volatile.
Our drilling services operations are organized into the following reportable
operating segments: North America Solutions, Offshore Gulf of Mexico , and
International Solutions. With respect to North America Solutions, the resurgence
of oil and natural gas production coming from the United States brought about by
unconventional shale drilling for oil has significantly impacted the supply of
oil and natural gas and the type of rig utilized in the U.S. land drilling
industry.
The technical requirements of drilling longer lateral unconventional shale wells
often necessitate the use of rigs that are commonly referred to in the industry
as super-spec rigs and have the following specific characteristics: AC drive,
minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs. hookload rating,
7,500 psi mud circulating system, and multiple-well pad capability.
There is a strong customer preference for super-spec rigs not only due to the
higher rig specifications that enable more technical drilling but also due to
the drilling efficiencies gained in utilizing a super-spec rig. As a result,
there has been a structural decline in the use of non-super-spec rigs across the
industry. We are the largest provider of super-spec rigs in the industry and
accordingly we believe we are well positioned to respond to various market
conditions.
Historically there has been a strong correlation between crude oil and natural
gas prices and the demand for drilling rigs with the rig count increasing and
decreasing with the up and down movements in the commodity prices. However,
beginning in 2021, rig activity has not moved in tandem with crude oil prices to
the same extent it had historically as a large portion of our customers
instituted a more disciplined approach to their operations and capital spending
in order to enhance their own financial returns. Those customers established
capital budgets based upon commodity price assumptions for the upcoming year and
adhered to them, not adjusting activity plans as commodity prices moved.
The capital budgets for calendar year 2022 established by our customers were
done so in a higher crude oil price environment compared to the prior year,
resulting in a higher level of capital spending and activity in calendar year
2022 compared to calendar year 2021. In the U.S. , this caused the demand for
super-spec rigs to continue to strengthen. Despite this increased demand for
super-spec rigs there is still idle super-spec rig capacity in the market;
however, much of that idle capacity represents rigs that have not been active
during the preceding two years and in some cases even longer. Consequently,
there are additional costs that would be incurred to bring those long-idled rigs
back into working condition, which resulted in upward pricing for super-spec
rigs. This supply-demand dynamic combined with the value proposition we provide
our customers through our drilling expertise, high-quality FlexRig fleet, and
automation technology resulted in an improvement in our underlying contract
economics. We believe these improvements will likely continue in the coming
quarters as an increasing number of our rigs are re-priced at higher rates.
Our North America Solutions active rig count has more than tripled from COVID
pandemic lows of 47 rigs in August 2020 to 175 rigs at June 30, 2022 .
Considering our disciplined approach to deploying capital and maintaining our
fiscal year 2022 capital budget of $250 to $270 million , and given the current
market dynamics, we expect our active count to reach 176 in the fourth fiscal
quarter of fiscal year 2022. Looking beyond our fiscal year 2022 into fiscal
2023, we do expect further increases in our rig count as customers reset their
capital budgets for calendar 2023 using higher commodity price assumptions than
were used for calendar 2022 capital budgets.. While H&P stands ready to respond
to the future demand for its super-spec rigs, we will do so by applying the same
disciplined approach, focusing on financial returns. That said, the market for
our rigs and others like them in the industry will likely remain tight as
supply-chain challenges and labor constraints experienced across the energy
industry may inhibit the industry's ability overall to supply a significant
quantity of super-specs rigs. As a result of increased customer demand and
limited competitive supply we expect the momentum of the upward pressure on
pricing to continue into fiscal 2023.
Collectively, our other business segments, Offshore Gulf of Mexico and
International Solutions, are exposed to the same macro commodity price
environment affecting our North America Solutions segment; however, activity
levels in the International Solutions segment are also subject to other various
geopolitical and financial factors specific to the countries of our operations.
While we do not expect much activity change in our Offshore Gulf of Mexico
segment, we do expect margin improvements based on recent rate increases.
Regarding our International Solutions segment, we see opportunities for
improvement in activity and the related corresponding margin improvement, but
those will likely occur on a more extended timeline compared to what we have
experienced in the North America Solutions segment.
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Table of Contents Recent Developments
Investments in Geothermal Energy
During the nine months endedJune 30, 2022 , we made an additional$14.3 million in geothermal energy investments consisting of both debt and equity securities. Investments were made in four separate companies that are pursuing technological concepts to make unconventional geothermal energy a viable economic renewable energy source. These companies are developing an enhanced geothermal system ("EGS") and closed loop concepts. The EGS concept uses horizontal drilling, induced permeability, and fiber optic sensing. The closed loop concepts use multilateral wellbores, proprietary working fluid, or coaxial pipe configurations. All of these concepts are designed to harvest geothermal heat to create carbon-free, baseload energy. Our aggregate balance of investments in geothermal energy companies was$17.0 million atJune 30, 2022 .
Investment in ADNOC Drilling
DuringSeptember 2021 , the Company made a$100.0 million cornerstone investment in ADNOC Drilling in advance of its announced IPO, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period. ADNOC Drilling's IPO was completed onOctober 3, 2021 , and its shares are listed and traded on theAbu Dhabi Securities Exchange (ADX). Our investment is classified as a long-term equity investment within Investments in our Unaudited Condensed Consolidated Balance Sheets. We have applied the guidance in Topic 820, Fair Value Measurement, in the initial accounting of the transaction and the subsequent revaluation of the investment balance, concluding that the contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value. During the three and nine months endedJune 30, 2022 , we recognized a gain (loss) of$(17.0) million and$47.8 million , respectively, in our Unaudited Condensed Consolidated Statement of Operations. As ofJune 30, 2022 , this investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange. During the three months endedJune 30, 2022 , we also received dividends in the amount of$3.2 million as a result of this investment.
Investment in Galileo Technologies
During the three months endedJune 30, 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 a convertible note. 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 ofApril 2027 or an exit event (as defined in the agreement as either an initial public offering or a sale of Galileo). If the conversion option is exercised, the note would convert into common shares of the parent ofGalileo Holdco 2 ("Galileo Parent"). Two of our Directors are independent directors ofGalileo Parent . Neither Director has a direct or indirect material interest in the transaction.
Pension Plan Lump-sum Distribution
DuringMarch 2022 , the Company's domestic noncontributory defined benefit pension plan was amended to include a limited lump sum distribution option and a special eligibility window to be available to certain participants. During the period beginning onMay 2, 2022 and ending onJune 30, 2022 , these participants could elect the limited lump sum distribution, to be paid inAugust 2022 . As a result, we estimate additional one time pension settlement charges in the range of$7.0 to$9.0 million to be incurred during the fourth fiscal quarter of 2022. 31
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Table of Contents Contract Backlog As ofJune 30, 2022 andSeptember 30, 2021 , our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was$862.2 million and$572.0 million , respectively. These amounts do not include anticipated contract renewals or expected performance bonuses. The increase in backlog atJune 30, 2022 fromSeptember 30, 2021 is primarily due to an increase in the number of fixed term drilling contracts executed. Approximately 60.7 percent of theJune 30, 2022 total backlog is reasonably expected to be fulfilled in fiscal year 2023 and thereafter. The following table sets forth the total backlog by reportable segment as ofJune 30, 2022 andSeptember 30, 2021 , and the percentage of theJune 30, 2022 backlog reasonably expected to be fulfilled in fiscal year 2023 and thereafter: Percentage Reasonably Expected to be Filled in Fiscal Year 2023 and (in millions) June 30, 2022 September 30, 2021 Thereafter North America Solutions$ 628.8 $ 429.6 53.2 % Offshore Gulf of Mexico 6.6 17.2 4.5 International Solutions 226.8 125.2 83.3$ 862.2 $ 572.0 The early termination of a contract may result in a rig being idle for an extended period of time, which could adversely affect our financial condition, results of operations and cash flows. In some limited circumstances, such as sustained unacceptable performance by us, no early termination payment would be paid to us. Early terminations could cause the actual amount of revenue earned to vary from the backlog reported. See "Item 1A. Risk Factors - Our current backlog of drilling services and solutions revenue may continue to decline and may not be ultimately realized as fixedterm contracts and may, in certain instances, be terminated without an early termination payment," in our 2021 Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC"), regarding fixed term contract risk. Additionally, see "Item 1A. Risk Factors - The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, have adversely affected and are expected to continue to adversely affect our business, financial condition and results of operations" within our 2021 Annual Report on Form 10-K.
Results of Operations for the Three Months Ended
Consolidated Results of Operations
Net Income (Loss) We reported income from continuing operations of$17.5 million ($0.16 per diluted share) on operating revenues of$550.2 million for the three months endedJune 30, 2022 compared to a loss from continuing operations of$56.7 million ($0.53 loss per diluted share) on operating revenues of$332.2 million for the three months endedJune 30, 2021 . Included in net income for the three months endedJune 30, 2022 is income of$0.3 million (with no impact on a per diluted share basis) from discontinued operations. Including discontinued operations, we recorded net income of$17.8 million ($0.16 per diluted share) for the three months endedJune 30, 2022 compared to a net loss of$55.6 million ($0.52 loss per diluted share) for the three months endedJune 30, 2021 . Selling, General and Administrative Expense Selling, general and administrative expenses increased to$44.9 million during the three months endedJune 30, 2022 compared to$41.7 million during the three months endedJune 30, 2021 . The$3.2 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in labor and IT infrastructure expense. Asset Impairment Charge During the three months endedJune 30, 2022 , we reported no asset impairment charges compared to an impairment charge of$2.1 million for the three months endedJune 30, 2021 as three Domestic non super-spec rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their fair value less cost to sell of$0.4 million . Loss on Investment Securities During the three months endedJune 30, 2022 , we recognized an aggregate net loss of$14.3 million on investment securities. This loss was primarily comprised of a$17.0 million loss on our equity investment in ADNOC Drilling caused by a decrease in the fair market value of the stock. InSeptember 2021 , the Company made a cornerstone equity investment consisting of 159.7 million shares for$100.0 million as part of ADNOC Drilling's initial public offering. This investment is subject to a three-year lock-up period. During the three months endedJune 30, 2022 , we sold our remaining equity securities of approximately 467.5 thousand shares in Schlumberger, Ltd. and received proceeds of approximately$22.0 million . For the three months endedJune 30, 2022 , we recorded a gain of$2.7 million related to this investment, which included a$0.5 million gain recognized upon the sale of our investment and a$2.2 million gain related to valuation adjustments. 32
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Income Taxes We had income tax expense of$1.7 million for the three months endedJune 30, 2022 (which includes discrete tax expense of approximately$6.5 million primarily related to an increase in our deferred state income tax rate and return to provision adjustments) compared to an income tax benefit of$23.7 million for the three months endedJune 30, 2021 (which includes discrete tax benefits of approximately$5.8 million related to a decrease in our deferred state income tax rate and return to provision adjustments). Our statutory federal income tax rate for fiscal year 2022 is 21.0 percent (before incremental state and foreign taxes). North America Solutions Three Months Ended June 30, (in thousands, except operating statistics) 2022 2021 % Change Operating revenues$ 486,004 $ 281,132 72.9 Direct operating expenses 318,400 206,172 54.4 Depreciation and amortization 93,612 96,997 (3.5) Research and development 6,545 5,605 16.8 Selling, general and administrative expense 10,069 12,583 (20.0) Asset impairment charge - 2,130 (100.0) Restructuring charges 25 1,388 (98.2) Segment operating income (loss)$ 57,353 $ (43,743) (231.1) Financial Data and Other Operating Statistics1: Direct margin (Non-GAAP)2 167,604 74,960 123.6 Revenue days3 15,796 10,854 45.5 Average active rigs4 174 119 46.2 Number of active rigs at the end of period5 175 121 44.6 Number of available rigs at the end of period 236 242 (2.5) Reimbursements of "out-of-pocket" expenses $ 67,218$ 33,282 102.0 (1)These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2)Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See - Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 91 days for the three months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were$486.0 million and$281.1 million in the three months endedJune 30, 2022 and 2021, respectively. The 72.9 percent increase in operating revenue is primarily due to a 45.5 percent increase in activity levels and higher pricing levels. Direct Operating Expenses Direct operating expenses increased to$318.4 million during the three months endedJune 30, 2022 as compared to$206.2 million during the three months endedJune 30, 2021 . The increase in direct operating expense was due to higher activity levels and an increase in field wages in December of 2021. Depreciation and Amortization Depreciation and amortization decreased to$93.6 million during the three months endedJune 30, 2022 as compared to$97.0 million during the three months endedJune 30, 2021 . The decrease was primarily attributable to the termination of depreciation on six rigs located in theU.S. that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures. Asset Impairment Charge During the three months endedJune 30, 2022 , we reported no asset impairment charge, compared to an impairment charge of$2.1 million for the three months endedJune 30, 2021 as three Domestic non super-spec rigs were reclassified as assets held-for sale and the book values of these rigs were written down to their fair value less cost to sell of$0.4 million . 33
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Table of Contents OffshoreGulf of Mexico Three Months Ended June 30, (in thousands, except operating statistics) 2022 2021 % Change Operating revenues$ 32,701 $ 33,364 (2.0) Direct operating expenses 23,922 24,127 (0.8) Depreciation 2,328 2,938 (20.8) Selling, general and administrative expense 579 592 (2.2) Segment operating income$ 5,872 $ 5,707 2.9 Financial Data and Other Operating Statistics1: Direct margin (Non-GAAP)2 8,779 9,237 (5.0) Revenue days3 364 364 - Average active rigs4 4 4 - Number of active rigs at the end of period5 4 4 - Number of available rigs at the end of period 7 7 - Reimbursements of "out-of-pocket" expenses$ 7,219 $ 8,342 (13.5) (1)These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2)Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See - Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 91 days for the three months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were$32.7 million and$33.4 million in the three months endedJune 30, 2022 and 2021, respectively. The 2.0 percent decrease was primarily driven by the mix of rigs working at full rates as compared to being on lower standby or mobilization rates as well as a$1.1 million decrease in reimbursable expenses. Direct Operating Expenses Direct operating expenses decreased to$23.9 million during the three months endedJune 30, 2022 as compared to$24.1 million during the three months endedJune 30, 2021 . The decrease was primarily driven by the factors described above. 34
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International Solutions
Three Months Ended June 30,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 29,118 $ 15,278 90.6
Direct operating expenses 32,364 16,690 93.9
Depreciation 1,175 573 105.1
Selling, general and administrative expense 2,129 1,346 58.2
Restructuring charges - 207 (100.0)
Segment operating loss $ (6,550) $ (3,538) 85.1
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 (3,246) (1,412) 129.9
Revenue days3 718 488 47.1
Average active rigs4 8 5 60.0
Number of active rigs at the end of period5 9 6 50.0
Number of available rigs at the end of period 28 32 (12.5)
Reimbursements of "out-of-pocket" expenses $ 699 $ 1,152 (39.3)
(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 91 days for the three months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues increased to$29.1 million during the three months endedJune 30, 2022 as compared to$15.3 million during the three months endedJune 30, 2021 . The change was primarily driven by a 47.1 percent increase in activity as well as the mix of rigs working. Direct Operating Expenses Direct operating expenses increased to$32.4 million during the three months endedJune 30, 2022 as compared to$16.7 million during the three months endedJune 30, 2021 . This increase was primarily driven by the factors described above. Selling, General and Administrative Expense We recognized a$0.8 million increase in selling, general and administrative costs during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . This increase was primarily driven by higher compensation expense due to an increase in sales personnel. Other Operations Results of our other operations, excluding corporate restructuring charges, corporate selling, general and administrative costs and corporate depreciation, are as follows: Three Months Ended June 30, (in thousands) 2022 2021 % Change Operating revenues$ 17,135 $ 11,818 45.0 Direct operating expenses 14,690 15,865 (7.4) Depreciation 480 357 34.5 Research and development - 5 (100.0) Selling, general and administrative expense - 261 (100.0) Operating income (loss)$ 1,965 $ (4,670) (142.1) Operating Revenues OnOctober 1, 2019 , we elected to capitalize a new Captive insurance company to insure the deductibles for our domestic workers' compensation, general liability and automobile liability claims programs, and to continue the practice of insuring deductibles from the Company's international casualty and rig property programs. Intercompany premium revenues recorded by the Captives during the three months endedJune 30, 2022 and 2021 amounted to$14.7 million and$9.4 million , respectively, which were eliminated upon consolidation. 35
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Direct Operating Expenses Direct operating costs consisted primarily of$3.1 million and$6.0 million in adjustments to accruals for estimated losses allocated to the Captives and rig casualty insurance premiums of$9.4 million and$5.6 million during the three months endedJune 30, 2022 and 2021, respectively. The decrease in estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.
Results of Operations for the Nine Months Ended
Consolidated Results of Operations
Net Loss We reported a loss from continuing operations of$38.5 million ($0.37 loss per diluted share) on operating revenues of$1.4 billion for the nine months endedJune 30, 2022 compared to a loss from continuing operations of$257.9 million ($2.40 loss per diluted share) on operating revenues of$0.9 billion for the nine months endedJune 30, 2021 . Included in the net loss for the nine months endedJune 30, 2022 is a loss of$0.1 million (with no impact on a per diluted share basis) from discontinued operations. Including discontinued operations, we recorded a net loss of$38.6 million ($0.37 loss per diluted share) for the nine months endedJune 30, 2022 compared to a net loss of$247.0 million ($2.30 loss per diluted share) for the nine months endedJune 30, 2021 . Selling, General and Administrative Expense Selling, general and administrative expenses increased to$135.7 million during the nine months endedJune 30, 2022 compared to$120.4 million during the nine months endedJune 30, 2021 . The$15.3 million increase in fiscal year 2022 compared to the same period in fiscal year 2021 is primarily due to increases in professional services fees, IT infrastructure spending and labor expense. Asset Impairment Charge During the nine months endedJune 30, 2022 , we identified various assets that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of these assets was$5.4 million and were written down to their estimated fair value less cost to sell of$1.0 million , resulting in a non-cash impairment charge of$4.4 million , within our North America Solutions and International Solutions segment. The impairment charge was recorded in the Unaudited Condensed Consolidated Statement of Operations for the nine months endedJune 30, 2022 . During the nine months endedJune 30, 2021 , we undertook a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as spares, which resulted in an impairment charge of$56.4 million for the nine months endedJune 30, 2021 . Gain on Investment Securities During the nine months endedJune 30, 2022 we recognized an aggregate gain of$55.7 million on investment securities. This gain was primarily comprised of a$47.8 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock. InSeptember 2021 , the Company made a cornerstone equity investment consisting of 159.7 million shares for$100.0 million as part of ADNOC Drilling's initial public offering. This investment is subject to a three-year lock-up period. Additionally, during the nine months endedJune 30, 2022 we recognized a gain of$8.2 million on our equity investment in Schlumberger, Ltd. Loss on Extinguishment of Debt OnOctober 27, 2021 , we redeemed all of the outstanding 2025 Notes. As a result, the associated make-whole premium of$56.4 million and the write off of the unamortized discount and debt issuance costs of$3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with theOctober 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the nine months endedJune 30, 2022 . Restructuring Charges During the nine months endedJune 30, 2022 and 2021, we incurred$0.8 million and$3.9 million , respectively, in restructuring charges. The charges incurred during the nine months endedJune 30, 2021 included$0.9 million in one-time severance benefits paid to employees who were voluntarily or involuntarily terminated coupled with charges of$3.0 million related to the relocation of theHouston assembly facility and the downsizing of storage yard facilities. Income Taxes We had an income tax benefit of$3.2 million for the nine months endedJune 30, 2022 (which includes a discrete tax expense of$10.0 million primarily related to an increase in our deferred state income tax rate, return to provision adjustments and equity compensation) compared to an income tax benefit of$78.4 million (which includes a discrete tax benefit of approximately$1.9 million primarily related to a decrease in our deferred state income tax rate and equity compensation) for the nine months endedJune 30, 2021 . Our statutory federal income tax rate for fiscal year 2022 is 21.0 percent (before incremental state and foreign taxes). 36
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North America Solutions
Nine Months Ended June 30,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 1,235,852 $ 733,061 68.6
Direct operating expenses 869,365 549,322 58.3
Depreciation and amortization 283,050 297,238 (4.8)
Research and development 19,533 16,400 19.1
Selling, general and administrative expense 31,781 37,223 (14.6)
Asset impairment charge 1,868 56,414 (96.7)
Restructuring charges 498 2,969 (83.2)
Segment operating income (loss) $ 29,757 $ (226,505) (113.1)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 366,487 183,739 99.5
Revenue days3 43,494 27,770 56.6
Average active rigs4 159 102 55.9
Number of active rigs at the end of period5 175 121 44.6
Number of available rigs at the end of period 236 242 (2.5)
Reimbursements of "out-of-pocket" expenses $ 157,010 $ 79,361 97.8
(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 273 days for the nine months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were$1.2 billion and$0.7 billion during the nine months endedJune 30, 2022 and 2021, respectively. The 68.6 percent increase in operating revenue is primarily due to a 56.6 percent increase in activity levels and higher pricing levels, partially offset by a decrease in early termination revenue. For the nine months endedJune 30, 2022 , we reported$0.2 million in early termination revenue associated with term contracts compared to$5.8 million during the same period of fiscal year 2021. Direct Operating Expenses Direct operating expenses increased to$869.4 million during the nine months endedJune 30, 2022 as compared to$549.3 million during the nine months endedJune 30, 2021 . The increase in direct operating expense was primarily due to higher activity levels and higher rig recommissioning expenses. Depreciation and Amortization Depreciation and amortization decreased to$283.1 million during the nine months endedJune 30, 2022 as compared to$297.2 million during the nine months endedJune 30, 2021 . The decrease was primarily attributable to the termination of depreciation on six rigs located in theU.S. that were included in the ADNOC sale during the fourth quarter of fiscal year 2021 coupled with ongoing relatively low levels of capital expenditures. Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of these assets of$2.0 million were written down to their estimated scrap value of$0.1 million , resulting in a non-cash impairment charge of$1.9 million during the nine months endedJune 30, 2022 in the Unaudited Condensed Consolidated Statement of Operations. During the nine months endedJune 30, 2021 , we undertook a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as spares, which resulted in an impairment charge of$56.4 million for the nine months endedJune 30, 2021 . Restructuring Charges During the nine months endedJune 30, 2022 and 2021, we incurred$0.5 million and$3.0 million in restructuring charges respectively. The restructuring charges during the nine months endedJune 30, 2021 primarily related to the relocation of theHouston assembly facility and the downsizing of storage yard facilities. 37
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Table of Contents OffshoreGulf of Mexico Nine Months Ended June 30, (in thousands, except operating statistics) 2022 2021 % Change Operating revenues$ 91,162 $ 94,911 (4.0) Direct operating expenses 65,517 73,452 (10.8) Depreciation 7,109 8,137 (12.6) Selling, general and administrative expense 1,920 1,895 1.3 Segment operating income$ 16,616 $ 11,427 45.4 Financial Data and Other Operating Statistics1: Direct margin (Non-GAAP)2 25,645 21,459 19.5 Revenue days3 1,092 1,184 (7.8) Average active rigs4 4 4 - Number of active rigs at the end of period5 4 4 - Number of available rigs at the end of period 7 7 - Reimbursements of "out-of-pocket" expenses$ 19,103 $ 21,403 (10.7) (1)These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2)Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See - Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 273 days for the nine months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were$91.2 million and$94.9 million in the nine months endedJune 30, 2022 and 2021, respectively. The 4.0 percent decrease was primarily driven by lower reimbursable expenses and the mix of rigs working at full rates as compared to being on lower standby or mobilization rates. Direct Operating Expenses Direct operating expenses decreased to$65.5 million during the nine months endedJune 30, 2021 as compared to$73.5 million during the nine months endedJune 30, 2021 . The decrease was primarily driven by a favorable adjustment in self-insurance liabilities related to prior period claims as well as the factors described above. 38
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International Solutions
Nine Months Ended June 30,
(in thousands, except operating statistics) 2022 2021 % Change
Operating revenues $ 93,699 $ 40,609 130.7
Direct operating expenses 81,666 50,931 60.3
Depreciation 2,979 1,361 118.9
Selling, general and administrative expense 5,908 3,463 70.6
Asset impairment charge 2,495 - 100.0
Restructuring charges - 207 (100.0)
Segment operating income (loss) $ 651 $ (15,353) (104.2)
Financial Data and Other Operating Statistics1:
Direct margin (Non-GAAP)2 12,033 (10,322) (216.6)
Revenue days3 2,010 1,229 63.5
Average active rigs4 7 5 40.0
Number of active rigs at the end of period5 9 6 50.0
Number of available rigs at the end of period 28 32 (12.5)
Reimbursements of "out-of-pocket" expenses $ 3,368 $ 5,324 (36.7)
(1)These operating metrics and financial data, including average active rigs,
are provided to allow investors to analyze the various components of segment
financial results in terms of activity, utilization and other key results.
Management uses these metrics to analyze historical segment financial results
and as the key inputs for forecasting and budgeting segment financial results.
(2)Direct margin, which is considered a non-GAAP metric, is defined as operating
revenues less direct operating expenses and is included as a supplemental
disclosure because we believe it is useful in assessing and understanding our
current operational performance, especially in making comparisons over time. See
- Non-GAAP Measurements below for a reconciliation of segment operating income
(loss) to direct margin.
(3)Defined as the number of contractual days we recognized revenue for during the period.
(4)Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (e.g. 273 days for the nine months endedJune 30, 2022 and 2021).
(5)Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues increased to$93.7 million during the nine months endedJune 30, 2022 as compared to$40.6 million during the nine months endedJune 30, 2021 . The change was primarily driven by a 63.5 percent increase in activity as well as the settlement of a contractual dispute that was recognized in operating revenues during the nine months endedJune 30, 2022 . Refer to Note 9-Revenue from Contracts with Customers for additional details. For the nine months endedJune 30, 2022 , we reported$0.5 million in early termination revenue associated with term contracts compared to$1.9 million during the same period of fiscal year 2021. Direct Operating Expenses Direct operating expenses increased to$81.7 million during the nine months endedJune 30, 2022 as compared to$50.9 million during the nine months endedJune 30, 2021 . This increase was primarily driven by higher activity levels partially offset by fixed cost leverage. Selling, General and Administrative Expense We recognized a$2.4 million increase in selling, general and administrative costs during the nine months endedJune 30, 2022 compared to the nine months endedJune 30, 2021 . This increase was primarily driven by primarily driven by higher compensation expense due to an increase in sales personnel. Asset Impairment Charge During the first quarter of fiscal year 2022, we identified two international FlexRig® drilling rigs that met the asset held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. In conjunction with establishing a plan to sell these rigs we recognized a non-cash impairment charge of$2.5 million during the nine months endedJune 30, 2022 in the Unaudited Condensed Consolidated Statement of Operations, as the aggregate net book value of$3.4 million exceeded the fair value less estimated cost to sell of$0.9 million . 39
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Other Operations
Results of our other operations, excluding corporate restructuring charges,
corporate selling, general and administrative costs and corporate depreciation,
are as follows:
Nine Months Ended June 30,
(in thousands) 2022 2021 % Change
Operating revenues $ 48,476 $ 31,361 54.6
Direct operating expenses 37,288 30,837 20.9
Depreciation 1,195 1,075 11.2
Research and development - 127 (100.0)
Selling, general and administrative expense 932 953 (2.2)
Operating income (loss) $ 9,061 $ (1,631) (655.5)
Operating Revenues On October 1, 2019 , we elected to capitalize a new Captive
insurance company to insure the deductibles for our domestic workers'
compensation, general liability and automobile liability claims programs, and to
continue the practice of insuring deductibles from the Company's international
casualty and rig property programs. Intercompany premium revenues recorded by
the Captives during the nine months ended June 30, 2022 and 2021 amounted to
$41.6 million and $25.2 million , respectively, which were eliminated upon
consolidation.
Direct Operating Expenses Direct operating costs consisted primarily of $2.7
million and $8.8 million in adjustments to accruals for estimated losses
allocated to the Captives and rig casualty insurance premiums of $26.2 million
and $13.1 million during the nine months ended June 30, 2022 and 2021,
respectively. The decrease in estimated losses is primarily due to actuarial
valuation adjustments by our third-party actuary.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of available liquidity include existing cash balances on hand, cash flows from operations, and availability under the 2018 Credit Facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital expenditure projects, paying dividends declared, and repaying our outstanding indebtedness. Historically, we have financed operations primarily through internally generated cash flows. During periods when internally generated cash flows are not sufficient to meet liquidity needs, we may utilize cash on hand, borrow from available credit sources, access capital markets or sell our investments. Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we may invest in highly rated shortterm money market and debt securities. These investments can includeU.S. Treasury securities,U.S. Agency issued debt securities, highly rated corporate bonds and commercial paper, certificates of deposit and money market funds. However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable. See-Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties-International Solutions Drilling Risks. We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under the 2018 Credit Facility. Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating, market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our capital expenditure commitments.
Cash Flows
Our cash flows fluctuate depending on a number of factors, including, among
others, the number of our drilling rigs under contract, the revenue we receive
under those contracts, the efficiency with which we operate our drilling rigs,
the timing of collections on outstanding accounts receivable, the timing of
payments to our vendors for operating costs, and capital expenditures. As our
revenues increase, operating net working capital is typically a use of capital,
while conversely, as our revenues decrease, operating net working capital is
typically a source of capital. To date, general inflationary trends have not had
a material effect on our operating margins or cash flows as we have been able to
more than offset these cumulative cost trends with rate increases.
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As ofJune 30, 2022 , we had$188.7 million of cash and cash equivalents on hand and$144.3 million of short-term investments. Our cash flows for the nine months endedJune 30, 2022 and 2021 are presented below: Nine Months Ended June 30, (in thousands) 2022 2021 Net cash provided by (used in): Operating activities$ 116,641 $ 89,821 Investing activities (123,146) (119,752) Financing activities (707,622) (84,944)
Net decrease in cash and cash equivalents and restricted cash
$ (114,875) Operating Activities
Our operating net working capital (non-GAAP) as of
June 30, September 30,
(in thousands) 2022 2021
Total current assets $ 946,158 $ 1,586,566
Less:
Cash and cash equivalents 188,663 917,534
Short-term investments 144,331 198,700
Assets held-for-sale 25,604 71,453
587,560 398,879
Total current liabilities 401,276 866,306
Less:
Dividends payable 26,693 27,332
Current portion of long-term debt, net - 483,486
Advance payment for sale of property, plant and equipment 35,281 86,524
$ 339,302 Operating net working capital (non-GAAP)$ 248,258
Cash flows provided by operating activities were approximately$116.6 million and$89.8 million for the nine months endedJune 30, 2022 and 2021, respectively. The change in cash provided by operating activities is primarily driven by higher activity and rates, partially offset by changes in working capital. For the nine months endedJune 30, 2022 , working capital was a source of cash. For the purpose of understanding the impact on our cash flows from operating activities, operating net working capital is calculated as current assets, excluding cash and cash equivalents, short-term investments, and assets held-for-sale, less current liabilities, excluding dividends payable, short-term debt and advance payments for sale of property, plant and equipment. Operating net working capital was$248.3 million as ofJune 30, 2022 compared to$129.9 million as ofSeptember 30, 2021 . This metric is considered a non-GAAP measure of the Company's liquidity. The Company considers operating net working capital to be a supplemental measure for presenting and analyzing trends in our cash flows from operations over time. Likewise, the Company believes that operating net working capital is useful to investors because it provides a means to evaluate the operating performance of the business using criteria that are used by our internal decision makers. The sequential increase in operating net working capital was primarily driven by higher rig activity and seasonal payments of annual incentive compensation and ad valorem taxes. Included in accounts receivable as ofJune 30, 2022 was$27.9 million of income tax receivables, a portion of which we expect to collect before the end of calendar year 2022. Investing Activities Capital Expenditures Our capital expenditures during the nine months endedJune 30, 2022 were$175.0 million compared to$49.2 million during the nine months endedJune 30, 2021 . The increase is driven by higher activity and spending on walking rig conversions.
Purchase (Sales) of Short-Term Investments Our net sales of short-term
investments during the nine months ended
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Purchase of Long-Term Investments Our net purchases of long-term investments during the nine months endedJune 30, 2022 were$25.2 million compared to$2.3 million during the nine months endedJune 30, 2021 . The increase is driven by our$33.0 million cornerstone investment in a convertible note inGalileo Holdco 2 , in addition to purchases of geothermal investments, offset by the$22.0 million of proceeds received from the liquidation of our remaining equity securities in Schlumberger, Ltd. during the nine months endedJune 30, 2022 . Sale of Assets Our proceeds from asset sales during the nine months endedJune 30, 2022 were$50.3 million compared to proceeds of$26.8 million during the nine months endedJune 30, 2021 . The increase in proceeds is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe. The increase is also attributable to the sale of our casing running and trucking assets that occurred during the nine months endedJune 30, 2022 . Financing Activities Dividends We paid dividends of$0.75 per share during both the nine months endedJune 30, 2022 and 2021. Total dividends paid were$80.7 million and$81.8 million during the nine months endedJune 30, 2022 and 2021, respectively. A cash dividend of$0.25 per share was declared onMay 31, 2022 for shareholders of record onAugust 17, 2022 , payable onSeptember 1, 2022 . The declaration and amount of future dividends is at the discretion of the Board and subject to our financial condition, results of operations, cash flows, and other factors the Board deems relevant. Redemption of 4.65% Senior Notes due 2025 OnOctober 27, 2021 , we redeemed all of the outstanding 2025 Notes, resulting in a cash outflow of$487.1 million . As a result, the associated make-whole premium of$56.4 million was paid during the first fiscal quarter of 2022 contemporaneously with theOctober 27, 2021 debt extinguishment. Repurchase of Shares We have an evergreen authorization from theBoard 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. During the nine months endedJune 30, 2022 , we repurchased 3.2 million common shares at an aggregate cost of$77.0 million , which are held as treasury shares. There were no purchases of common shares during the nine months endedJune 30, 2021 . Credit Facilities OnNovember 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 onNovember 13, 2019 , providing for an unsecured revolving credit facility (as amended, the "2018 Credit Facility"), that was set to mature onNovember 13, 2024 . OnApril 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 fromNovember 13, 2024 toNovember 12, 2025 . No other terms of the 2018 Credit Facility were amended in connection with this extension. The remaining$70.0 million of commitments under the 2018 Credit Facility will expire onNovember 13, 2024 , unless extended by the applicable lender before such date. OnMarch 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. Lenders with$680.0 million of commitments under the 2018 Credit Facility also exercised their option to extend the maturity of the 2018 Credit Facility fromNovember 12, 2025 toNovember 11, 2026 . The remaining$70.0 million of commitments under the 2018 Credit Facility will expire onNovember 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 ofJune 30, 2022 , 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 7-Debt to the consolidated financial statements in our 2021 Annual Report on Form 10-K.
As of
As ofJune 30, 2022 , we also had a$20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the$20.0 million ,$5.8 million of financial guarantees were outstanding as ofJune 30, 2022 . 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. AtJune 30, 2022 , we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2022. 42
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Senior Notes
2.90% Senior Notes due 2031 OnSeptember 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 inthe United States pursuant to Rule 144A under the Securities Act ("Rule 144A") and to certain non-U.S. persons in transactions outsidethe United States pursuant to Regulation S under the Securities Act ("Regulation S"). Interest on the 2031 Notes is payable semi-annually onMarch 29 andSeptember 29 of each year, commencing onMarch 29, 2022 . The 2031 Notes will mature onSeptember 29, 2031 and bear interest at a rate of 2.90 percent per annum. 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. 4.65% Senior Notes due 2025 OnDecember 20, 2018 , we issued approximately$487.1 million in aggregate principal amount of the 2025 Notes. Interest on the 2025 Notes was payable semi-annually onMarch 15 andSeptember 15 of each year, commencing onMarch 15, 2019 . The debt issuance cost was being amortized straight-line over the stated life of the obligation, which approximated the effective interest method. OnSeptember 27, 2021 , the Company delivered a conditional notice of optional full redemption for all of the outstanding 2025 Notes at a redemption price calculated in accordance with the indenture governing the 2025 Notes, plus accrued and unpaid interest on the 2025 Notes to be redeemed. The Company financed the redemption of the 2025 Notes with the net proceeds from the offering of the 2031 Notes, together with cash on hand. The Company's obligation to redeem the 2025 Notes was conditioned upon the prior consummation of the issuance of the 2031 Notes, which was satisfied onSeptember 29, 2021 . OnOctober 27, 2021 , we redeemed all of the outstanding 2025 Notes. As a result, the associated make-whole premium of$56.4 million and the write off of the unamortized discount and debt issuance costs of$3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with theOctober 27, 2021 debt extinguishment and recorded in Loss on Extinguishment of Debt on our Unaudited Condensed Consolidated Statements of Operations during the nine months endedJune 30, 2021 . Future Cash Requirements Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2022 are expected to be funded through current cash and cash to be provided from operating activities. However, there can be no assurance that we will continue to generate cash flows at current levels. If needed, we may decide to obtain additional funding from our$750.0 million 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility. Our indebtedness under our unsecured senior notes totaled$550.0 million atJune 30, 2022 and matures onSeptember 29, 2031 . As ofJune 30, 2022 , we had a$527.5 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment. Our levels of capital expenditures over the last several years have been subject to accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of cash tax payments to future years. Future levels of capital expenditures and results of operations will determine the timing and amount of future cash tax payments. We expect to be able to meet any such obligations utilizing cash and investments on hand, as well as cash generated from ongoing operations.
At
The long-term debt to total capitalization ratio was 16.8 percent and 15.9 percent atJune 30, 2022 andSeptember 30, 2021 , respectively. For additional information regarding debt agreements, refer to Note 6-Debt to the Unaudited Condensed Consolidated Financial Statements.
There were no other significant changes in our financial position since
Material Commitments
Material commitments as reported in our 2021 Annual Report on Form 10-K have not
changed significantly at
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Critical Accounting Policies and Estimates
Our accounting policies and estimates that are critical or the most important to understand our financial condition and results of operations, and that require management to make the most difficult judgments, are described in our 2021 Annual Report on Form 10-K. There have been no material changes in these critical accounting policies and estimates.
Recently Issued Accounting Policies
See Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.
Non-GAAP Measurements
Direct Margin
Direct margin is considered a non-GAAP metric. We define "direct margin" as
operating revenues less direct operating expenses. Direct margin is included as
a supplemental disclosure because we believe it is useful in assessing and
understanding our current operational performance, especially in making
comparisons over time. Direct margin is not a substitute for financial measures
prepared in accordance with GAAP and should therefore be considered only as
supplemental to such GAAP financial measures.
The following table reconciles direct margin to segment operating income (loss),
which we believe is the financial measure calculated and presented in accordance
with GAAP that is most directly comparable to direct margin.
Three
Months Ended
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income (loss) $ 57,353 $ 5,872 $ (6,550)
Add back:
Depreciation and amortization 93,612 2,328 1,175
Research and development 6,545 - -
Selling, general and administrative expense 10,069 579 2,129
Restructuring charges 25 - -
Direct margin (Non-GAAP) $ 167,604 $ 8,779 $ (3,246)
Three Months Ended June 30, 2021
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income (loss) $ (43,743) $ 5,707 $ (3,538)
Add back:
Depreciation and amortization 96,997 2,938 573
Research and development 5,605 - -
Selling, general and administrative expense 12,583 592 1,346
Asset impairment charge 2,130 - -
Restructuring charges 1,388 - 207
Direct margin (Non-GAAP) $ 74,960 $ 9,237 $ (1,412)
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Nine Months Ended June 30, 2022
North America Offshore Gulf of International
(in thousands) Solutions Mexico Solutions
Segment operating income $ 29,757 $ 16,616 $ 651
Add back:
Depreciation and amortization 283,050 7,109 2,979
Research and development 19,533 - -
Selling, general and administrative expense 31,781 1,920 5,908
Asset impairment charge 1,868 - 2,495
Restructuring charges 498 - -
Direct margin (Non-GAAP) $ 366,487 $ 25,645 $ 12,033
Nine Months Ended June 30, 2021
Offshore Gulf of International
(in thousands) North America Solutions Mexico Solutions
Segment operating income (loss) $ (226,505) $ 11,427 $ (15,353)
Add back:
Depreciation and amortization 297,238 8,137 1,361
Research and development 16,400 - -
Selling, general and administrative expense 37,223 1,895 3,463
Asset impairment charge 56,414 - -
Restructuring charges 2,969 - 207
Direct Margin (Non-GAAP) $ 183,739 $ 21,459 $ (10,322) © Edgar Online, source
