Patterson-UTI Energy (PTEN) Tops Q3 EPS by 3c, Revenues Miss

Patterson-UTI Energy (NASDAQ: PTEN) reported Q3 EPS of ($0.27), $0.03 better than the analyst estimate of ($0.30). Revenue for the quarter came in at $598 million versus the consensus estimate of $605.62 million.

Andy Hendricks, Patterson-UTI's Chief Executive Officer, stated, "We exceeded our expectation for cash flow generation during the third quarter. We reduced our capital expenditures and, excluding charges discussed below, Adjusted EBITDA for the third quarter exceeded capital expenditures by $74.9 million. During the third quarter, we also reduced debt by $150 million, repurchased $75 million of our shares, and paid dividends totaling $7.8 million."

"As of September 30, 2019, we had term contracts for drilling rigs providing for approximately $645 million of future dayrate drilling revenue. Based on contracts currently in place, we expect an average of 73 rigs operating under term contracts during the fourth quarter, and an average of 55 rigs operating under term contracts during the 12 months ending September 30, 2020.

"In pressure pumping, lower activity levels and increased pricing pressure negatively impacted third quarter results. Pressure pumping revenues for the third quarter were $209 million compared to $251 million in the second quarter, and gross profit was $32.3 million in the third quarter compared to $44.9 million in the second quarter. We ended the third quarter with 14 active spreads, and we idled another spread early in the fourth quarter. As pressure pumping activity is expected to fall further in the fourth quarter, we will continue to evaluate the economics of working versus idling spreads on a spread-by-spread basis.

"During the third quarter, we incurred pre-tax, non-cash impairment charges in the pressure pumping segment of $20.5 million related to the retirement of approximately 300,000 horsepower. During the third quarter, we undertook a thorough process to evaluate the economic opportunity for our fleet and concluded that in the current market the cost to reactivate this retired equipment would be prohibitive. Any components from this retired equipment with remaining value will be used as parts to support our active equipment.

"In directional drilling, revenues for the third quarter were $47.0 million compared to $50.2 million in the second quarter. We had a negative gross margin of $9.2 million in the third quarter, which included the impact of a $17.0 million pre-tax, non-cash charge primarily related to the write-off of inventory.

"In our Warrior Rig Technologies business, we implemented several cost cutting initiatives during the third quarter. These initiatives included the transition away from our engineering and manufacturing efforts in Calgary, which resulted in a $12.4 million pre-tax, non-cash charge related to the write-off of inventory and $2.2 million for severance.

Mr. Hendricks concluded, "Despite some primarily non-cash accounting charges during the third quarter, we generated strong cash flow. We reduced our third quarter capex to only $68.0 million from $96.9 million in the second quarter, and we now expect capital expenditures of approximately $350 million in 2019, down from our prior estimate of $400 million."

Mark S. Siegel, Chairman of Patterson-UTI, stated, "We remained disciplined with our capital allocation during the third quarter, and our strong financial position allowed us to focus on debt reduction and share repurchases. During the third quarter, we reduced debt by $150 million, repurchased $75 million of our common stock, and paid dividends totaling $7.8 million. Since the beginning of 2019, we have used our strong cash flow to repurchase 20.0 million shares or 9.4% of the shares outstanding at the beginning of the year, and our net debt to total capital ratio was only 21.6% at the end of the third quarter.

"Given our current public market equity valuation, our cash balance and expected future cash flow generation, we will likely allocate additional capital to both share repurchases and debt repayment," he concluded.

For earnings history and earnings-related data on Patterson-UTI Energy (PTEN) click here.

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