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Helmerich & Payne, Inc. Announces Second Quarter Fiscal 2019 Results

April 24, 2019 5:03 PM

TULSA, Okla.--(BUSINESS WIRE)-- Helmerich & Payne, Inc. (NYSE: HP) reported income of $61 million or $0.55 per diluted share from operating revenues of $721 million for the quarter ended March 31, 2019, compared to income of $19 million, or $0.17 per diluted share, on revenues of $741 million for the quarter ended December 31, 2018. Net income per diluted share for the second and first fiscal quarters of 2019 include $(0.01) and $(0.25), respectively, of after-tax losses comprised of select items(4). For the second fiscal quarter select items(4) were comprised of:

Net cash provided by operating activities was $200 million for the second quarter of fiscal 2019 compared to $209 million for the first fiscal quarter of fiscal 2019.

President and CEO John Lindsay commented, “From the outset, this was a quarter challenged by industry uncertainty, so I am pleased to report that the Company not only stayed on target and delivered sequentially improved net income, but also achieved two significant milestones.

“Concern over crude oil prices persisted from the prior quarter which softened demand for incremental super-spec rigs, but H&P completed the planned upgrades already in its pipeline bringing our total number of super-spec FlexRigs to 230 at quarter end. Based on trends we are seeing in rig releases and current demand, we believe the Company’s active rig count will bottom-out early during this quarter with super-spec utilization in the 90%-plus range. This should be supportive of the current pricing environment.

“Crude oil prices are up approximately 40% since the beginning of the calendar year and in past cycles this would have resulted in higher activity. However, we have seen a tempered response and even reductions in activity by some in the industry. Clearly, customer behavior is changing, and their movement is towards prioritization of cash flows and returns. An additional emphasis is placed on disciplined spending and determining where value can be added to improve performance and long-term cash flows. H&P is well positioned in this type of environment with the hardware – a FlexRig fleet that is an industry leader in drilling unconventional wells, and with the software – a digital technology platform that when deployed on a rig can improve well economics, both of which help our customers achieve their goals.

“During the quarter, H&P achieved a major milestone through the commercialization of its drilling automation technology, AutoSlide. We believe AutoSlide and the other software-based offerings from our H&P Technologies (HPT) platform, Motive and MagVar, will continue to gain traction in the industry as the benefits of wellbore quality and placement become more evident as multi-well pad drilling shifts to a manufacturing-type process. The benefits of these technologies can have a meaningful impact on customer well economics by improving production dynamics and lowering the risk of wellbore interference, thereby bolstering financial returns through the life of the well. We are committed to partnering with our customers to unlock these benefits.

“A pivotal long-term objective has been to translate H&P’s position of drilling leadership in U.S. unconventional basins to key international markets where super-spec FlexRigs and HPT software solutions, including AutoSlide, can add significant value to the customer. That has started coming to fruition with the signing of a letter of intent to deploy our first super-spec FlexRig from the U.S. to Argentina later this quarter. We see this as a significant milestone and are excited about this opportunity and what it portends for H&P’s Latin America business, as well as other international markets.”

Vice President and CFO Mark Smith also commented, “Despite the head winds that prevailed in the beginning of calendar year 2019, H&P kept its focus on achieving long-term success with the commercialization of AutoSlide and a letter of intent to send a super-spec FlexRig to an international location. Both lay the groundwork for future growth opportunities for H&P. The Company’s previously reduced cadence for super-spec upgrades remains unchanged for the balance of our fiscal year, as does our capital allocation strategy. As we look ahead, we are confident in the cash flow generation potential of our upgraded super-spec FlexRig fleet.”

John Lindsay concluded, “The Company achieved excellent operational results and several technical accomplishments during the quarter. Our ability to adapt and respond to uncertain market conditions while securing new opportunities for long-term success is paramount. These achievements aren’t possible without the efforts of our people working as a team to deliver on our goals; this exemplifies H&P’s commitment to excellence, which culminated in the Company being ranked first in customer satisfaction for 11 years in a row.”

Operating Segment Results for the Second Quarter of Fiscal 2019

U.S. Land Operations:

Segment operating income increased by $26.5 million to $106.1 million sequentially. The increase in operating results was primarily driven by a legal settlement cost that adversely impacted the prior quarter and the sequential increase in the adjusted average rig margin per day. The number of quarterly revenue days decreased sequentially by approximately 3% as expected. Adjusted average rig revenue per day improved by $468 to $25,624(1) largely due to the average dayrate increasing during the quarter.

The adjusted average rig expense per day decreased sequentially by $427 to $14,195(1) as the quarter benefitted from favorable adjustments to self-insurance expenses and lower reactivation costs associated with the Company’s slower upgrade cadence. Corresponding adjusted average rig margin per day increased $895 to $11,429(1).

The segment’s depreciation expense for the quarter includes non-cash charges of $5.3 million for abandonments and accelerated depreciation of used drilling rig components related to rig upgrades, compared to similar non-cash charges of $3.5 million during the first fiscal quarter of 2019.

International Land Operations:

Segment operating income increased by $1.3 million to $8.0 million sequentially. The increase in operating income was attributable to a higher adjusted average rig margin offset to some extent by less revenue days as some rigs in Colombia became idle. Revenue days decreased during the quarter by 11% to 1,559 while the adjusted average rig margin per day increased by $1,679 to $11,861(1).

Offshore Operations:

Segment operating income decreased by $2.6 million to $4.5 million sequentially. The number of quarterly revenue days on H&P-owned platform rigs increased sequentially by approximately 3%, while the average rig margin per day decreased sequentially by $4,578 to $5,420 due to unfavorable adjustments to self-insurance expenses and a rig moving to a standby rate during the quarter. Management contracts on customer-owned platform rigs contributed approximately $4.7 million to the segment’s operating income, compared to approximately $5.4 million during the prior quarter.

H&P Technologies:

The segment had an operating loss of $7.9 million this quarter as compared to an operating loss of $10.3 million during the previous quarter. The $2.4 million sequential decrease in the operating loss was due primarily to lower costs incurred during the quarter.

Operational Outlook for the Third Quarter of Fiscal 2019

U.S. Land Operations:

International Land Operations:

Offshore Operations:

HP Technologies:

Other Estimates for Fiscal 2019

Select Items Included in Net Income per Diluted Share

Second Quarter of Fiscal 2019 net income of $0.55 per diluted share included $(0.01) in after-tax losses comprised of the following:

First Quarter of Fiscal 2019 net income of $0.17 per diluted share included $(0.25) in after-tax losses comprised of the following:

Conference Call

A conference call will be held on Thursday, April 25, 2019 at 11:00 a.m. (EDT) with John Lindsay, President and CEO, Mark Smith, Vice President and CFO, and Dave Wilson, Director of Investor Relations to discuss the Company’s fiscal second quarter 2019 results. Dial-in information for the conference call is (877) 876-9173 for domestic callers or (785) 424-1667 for international callers. The call access code is ‘Helmerich’. You may also listen to the conference call that will be broadcast live over the Internet by logging on to the Company’s website at http://www.hpinc.com and accessing the corresponding link through the Investor Relations section by clicking on “INVESTORS” and then clicking on “Event Calendar” to find the event and the link to the webcast.

About Helmerich�& Payne,�Inc.

Founded in 1920, Helmerich & Payne, Inc. (H&P) (NYSE: HP) is committed to delivering industry leading levels of drilling productivity and reliability. H&P operates with the highest level of integrity, safety and innovation to deliver superior results for its customers and returns for shareholders. Through its subsidiaries, the Company designs, fabricates and operates high-performance drilling rigs in conventional and unconventional plays around the world. H&P also develops and implements advanced automation, directional drilling and survey management technologies. H&P’s fleet includes 350 land rigs in the U.S., 32 international land rigs and eight offshore platform rigs. For more information, see H&P online at www.hpinc.com.

Forward-Looking Statements

This release includes “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and such statements are based on current expectations and assumptions that are subject to risks and uncertainties. All statements other than statements of historical facts included in this release, including, without limitation, statements regarding the registrant’s future financial position, operations outlook, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. For information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s SEC filings, including but not limited to its annual report on Form 10-K and quarterly reports on Form 10-Q. As a result of these factors, Helmerich & Payne, Inc.’s actual results may differ materially from those indicated or implied by such forward-looking statements. We undertake no duty to update or revise our forward-looking statements based on changes in internal estimates, expectations or otherwise, except as required by law.

Note Regarding Trademarks. Helmerich & Payne, Inc. owns or has rights to the use of trademarks, service marks and trade names that it uses in conjunction with the operation of its business. Some of the trademarks that appear in this release or otherwise used by H&P include FlexRig, FlexApp and AutoSlide, which may be registered or trademarked in the U.S. and other jurisdictions.

(1) See the Selected Statistical & Operational Highlights table(s) for details on the revenues or charges excluded on a per revenue day basis. The inclusion or exclusion of these amounts results in adjusted revenue, expense, and/or margin per day figures, which are all non-GAAP measures.

(2) The term “super-spec” herein refers to rigs with the following specifications: AC drive, 1,500 hp drawworks, 750,000 lbs. hookload rating, 7,500 psi mud circulating system and multiple-well pad capability.

(3) EnergyPoint Research published its annual Oilfield Products & Services Customer Satisfaction Survey results on February 5, 2019. Many in the industry use this independent survey as a benchmark for measuring customer satisfaction within oilfield services.

(4) See the corresponding section of this release for details regarding the select items.

� � � � � � �

HELMERICH�& PAYNE,�INC.

Unaudited

(in thousands, except per share data)

�
Three Months Ended Six Months Ended
March 31 December 31 March 31 March 31
CONSOLIDATED STATEMENTS OF OPERATIONS 2019 2018 2018 2019 2018
As adjusted As adjusted
Operating Revenues:
Contract drilling $ 717,653 $ 737,358 $ 574,471 $ 1,455,011 $ 1,135,540
Other � 3,215 � � 3,240 � � 3,013 � � 6,455 � � 6,031 �
$ 720,868 � $ 740,598 � $ 577,484 � $ 1,461,466 � $ 1,141,571 �
�
Operating costs and expenses:
Contract drilling operating expenses, excluding depreciation and amortization 441,719 487,593 384,419 929,312 756,335
Operating expenses applicable to other revenues 1,620 1,274 1,137 2,894 2,304
Depreciation and amortization 143,161 141,460 145,675 284,620 288,942
Research and development 7,262 7,019 4,436 14,281 7,670
Selling, general and administrative 43,506 54,508 48,236 98,014 94,695
Gain on sale of assets � (11,546 ) � (5,545 ) � (5,255 ) � (17,090 ) � (10,820 )
� 625,722 � � 686,309 � � 578,648 � � 1,312,031 � � 1,139,126 �
�
Operating income (loss) from continuing operations 95,146 54,289 (1,164 ) 149,435 2,445
�
Other income (expense):
Interest and dividend income 2,061 2,450 1,847 4,512 3,571
Interest expense (6,167 ) (4,720 ) (6,028 ) (10,888 ) (11,801 )
Gain (loss) on investment securities 5,878 (42,844 ) — (36,957 ) —
Other � 17 � � 541 � � (210 ) � 548 � � 231 �
� 1,789 � � (44,573 ) � (4,391 ) � (42,785 ) � (7,999 )
�
Income (loss) from continuing operations before income taxes 96,935 9,716 (5,555 ) 106,650 (5,554 )
Income tax provision (benefit) � 25,078 � � 1,352 � � (3,922 ) � 26,429 � � (504,563 )
Income (loss) from continuing operations 71,857 8,364 (1,633 ) 80,221 499,009
�
Income from discontinued operations, before income taxes 2,889 12,665 1,263 15,554 744
Income tax provision � 13,855 � � 2,070 � � 11,509 � � 15,925 � � 11,526 �
Income (loss) from discontinued operations � (10,966 ) � 10,595 � � (10,246 ) � (371 ) � (10,782 )
�
Net income (loss) $ 60,891 � $ 18,959 � $ (11,879 ) $ 79,850 � $ 488,227 �
�
Basic earnings (loss) per common share:
Income (loss) from continuing operations $ 0.65 $ 0.07 $ (0.03 ) $ 0.72 $ 4.55
Income (loss) from discontinued operations $ (0.10 ) $ 0.10 � $ (0.09 ) $ — � $ (0.10 )
�
Net income (loss) $ 0.55 � $ 0.17 � $ (0.12 ) $ 0.72 � $ 4.45 �
�
Diluted earnings (loss) per common share:
Income (loss) from continuing operations $ 0.65 $ 0.07 $ (0.03 ) $ 0.72 $ 4.53
Income (loss) from discontinued operations $ (0.10 ) $ 0.10 � $ (0.09 ) $ — � $ (0.10 )
�
Net income (loss) $ 0.55 � $ 0.17 � $ (0.12 ) $ 0.72 � $ 4.43 �
�
Weighted average shares outstanding:
Basic 109,406 109,142 108,868 109,273 108,775
Diluted 109,503 109,425 108,868 109,452 109,212
�
� � � �

HELMERICH�& PAYNE,�INC.

Unaudited

(in thousands)

�
March 31 September 30

CONDENSED CONSOLIDATED BALANCE SHEETS

2019 2018
�
Assets
Cash and cash equivalents $ 243,912 $ 284,355
Short-term investments 26,118 41,461
Other current assets � 777,974 � 789,734
Total current assets � 1,048,004 � 1,115,550
Investments 60,247 98,696
Property, plant and equipment, net 4,886,948 4,857,382
Other noncurrent assets � 149,363 � 143,239
�
Total Assets $ 6,144,562 $ 6,214,867
�
Liabilities and Shareholders' Equity
Current liabilities $ 373,707 $ 377,168
Long-term debt 491,227 493,968
Other noncurrent liabilities 946,429 946,742
Noncurrent liabilities - discontinued operations 14,579 14,254
Total shareholders’ equity � 4,318,620 � 4,382,735
�
Total Liabilities and Shareholders' Equity $ 6,144,562 $ 6,214,867
�
� � � �

HELMERICH�& PAYNE,�INC.

Unaudited

(In thousands)

�
Six Months Ended
March 31

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

2019 2018
As adjusted
OPERATING ACTIVITIES:
Net income $ 79,850 $ 488,227
Adjustment for (income) loss from discontinued operations � 371 � � 10,782 �
Income from continuing operations 80,221 499,009
Depreciation and amortization 284,620 288,942
Amortization of debt discount and debt issuance costs 752 531
Provision for bad debt (75 ) 429
Stock-based compensation 16,589 15,546
Loss on investment securities 36,957 —
Gain on sale of assets (17,090 ) (10,820 )
Deferred income tax (benefit) expense 8,827 (506,373 )
Other (3,209 ) 5,701
Changes in assets and liabilities � 1,471 � � (85,218 )
Net cash provided by operating activities from continuing operations 409,063 207,747
Net cash used in operating activities from discontinued operations � (45 ) � (96 )
Net cash provided by operating activities � 409,018 � � 207,651 �
�
INVESTING ACTIVITIES:
Capital expenditures (329,980 ) (191,202 )
Purchase of short-term investments (42,406 ) (36,784 )
Payment for acquisition of business, net of cash acquired (2,781 ) (47,886 )
Proceeds from sale of short-term investments 58,015 32,020
Proceeds from asset sales � 24,559 � � 17,826 �
Net cash used in investing activities � (292,593 ) � (226,026 )
�
FINANCING ACTIVITIES:
Dividends paid (156,580 ) (153,433 )
Debt issuance costs paid (3,912 ) —
Proceeds from stock option exercises 2,257 1,645
Payments for employee taxes on net settlement of equity awards (6,268 ) (5,791 )
Payment of contingent consideration from acquisition of business � — � � (4,500 )

Net cash used in financing activities

� (164,503 ) � (162,079 )
�
Net decrease in cash and cash equivalents and restricted cash (48,078 ) (180,454 )
Cash and cash equivalents and restricted cash, beginning of period � 326,185 � � 560,509 �
Cash and cash equivalents and restricted cash, end of period $ 278,107 � $ 380,055 �
�
� � � � � � �
�
Three Months Ended Six Months Ended
March 31 December 31 March 31 March 31
SEGMENT REPORTING 2019 2018 2018 2019 2018
(in thousands, except operating statistics)

U.S. LAND OPERATIONS

Operating revenues $ 622,204 $ 624,241 $ 482,729 $ 1,246,445 $ 944,369
Direct operating expenses 377,984 408,806 317,688 786,790 616,752
Selling, general and administrative expense 11,169 11,656 14,011 22,826 28,004
Depreciation � 126,912 � � 124,111 � � 123,955 � � 251,022 � � 247,793 �
Segment operating income $ 106,139 $ 79,668 $ 27,075 $ 185,807 $ 51,820
�
Revenue days 21,262 21,933 18,666 43,194 37,028
Average rig revenue per day $ 25,681 $ 25,265 $ 22,928 $ 25,471 $ 22,666
Average rig expense per day $ 14,195 $ 15,443 $ 14,086 $ 14,829 $ 13,818
Average rig margin per day $ 11,486 $ 9,822 $ 8,842 $ 10,642 $ 8,848
Rig utilization 67 % 68 % 59 % 68 % 58 %
�

INTERNATIONAL LAND OPERATIONS

Operating revenues $ 50,808 $ 66,287 $ 52,459 $ 117,095 $ 115,673
Direct operating expenses 33,051 47,539 39,249 80,590 85,986
Selling, general and administrative expense 794 2,281 832 3,076 1,964
Depreciation � 8,995 � � 9,837 � � 13,073 � � 18,832 � � 24,884 �
Segment operating income (loss) $ 7,968 $ 6,630 $ (695 ) $ 14,597 $ 2,839
�
Revenue days 1,559 1,758 1,530 3,318 3,117
Average rig revenue per day $ 31,130 $ 35,575 $ 32,796 $ 33,476 $ 35,465
Average rig expense per day $ 19,269 $ 22,704 $ 24,263 $ 21,083 $ 25,497
Average rig margin per day $ 11,861 $ 12,871 $ 8,533 $ 12,393 $ 9,968
Rig utilization 54 % 60 % 45 % 57 % 45 %
�
�

OFFSHORE OPERATIONS

Operating revenues $ 34,583 $ 36,910 $ 32,983 $ 71,493 $ 66,349
Direct operating expenses 26,984 26,305 23,595 53,289 44,717
Selling, general and administrative expense 805 769 1,106 1,574 2,271
Depreciation � 2,263 � � 2,668 � � 2,833 � � 4,931 � � 5,187 �
Segment operating income $ 4,531 $ 7,168 $ 5,449 $ 11,699 $ 14,174
�
Revenue days 540 525 450 1,065 910
Average rig revenue per day $ 31,361 $ 35,635 $ 33,583 $ 33,468 $ 34,692
Average rig expense per day $ 25,941 $ 25,637 $ 24,079 $ 25,791 $ 23,737
Average rig margin per day $ 5,420 $ 9,998 $ 9,504 $ 7,677 $ 10,955
Rig utilization 75 % 71 % 63 % 73 % 63 %
�
�

H&P TECHNOLOGIES

Revenues $

10,141

$ 9,920 $ 6,300 $

20,061

$ 9,149
Direct operating expenses, including research and development

11,476

12,391 8,686

23,867

17,275
General and administrative expense 4,782 6,099 4,109 10,881 5,818
Depreciation � 1,816 � � 1,774 � � 2,038 � � 3,590 � � 3,404 �
Segment operating loss $ (7,933 ) $ (10,344 ) $ (8,533 ) $ (18,277 ) $ (17,348 )
�

Operating statistics exclude the effects of offshore platform management contracts and gains and losses from translation of foreign currency transactions and do not include reimbursements of “out-of-pocket” expenses in revenue per day, expense per day and margin calculations.

Reimbursed amounts were as follows:

� � � � � � �
Three Months Ended Six Months Ended
March 31 December 31 March 31 March 31
2019 2018 2018 2019 2018
U.S. Land Operations $ 76,172 $ 70,090 $ 54,750 $ 146,262 $ 105,065
International Land Operations $ 2,277 $ 3,746 $ 2,281 $ 6,023 $ 5,142
Offshore Operations $ 5,507 $ 5,750 $ 5,199 $ 11,257 $ 9,297
�

The following table reconciles operating income (loss) per the information above to income (loss) from continuing operations before income taxes as reported on the Consolidated Statements of Operations (in thousands).

� � � � � � �
Three Months Ended Six Months Ended
March 31 December 31 March 31 March 31
2019 2018 2018 2019 2018
As adjusted As adjusted

Operating income (loss)

U.S. Land $ 106,139 $ 79,668 $ 27,075 $ 185,807 $ 51,820
International Land 7,968 6,630 (695 ) 14,597 2,839
Offshore 4,531 7,168 5,449 11,699 14,174
H&P Technologies (7,933 ) (10,344 ) (8,533 ) (18,277 ) (17,348 )
Other � 1,165 � � 1,554 � � 1,518 � � 2,719 � � 3,016 �
Segment operating income $ 111,870 $ 84,676 $ 24,814 $ 196,545 $ 54,501
Gain on sale of assets 11,546 5,545 5,255 17,090 10,820
Corporate selling, general and administrative costs and corporate depreciation � (28,270 ) � (35,932 ) � (31,233 ) � (64,200 ) � (62,876 )
Operating income (loss) $ 95,146 $ 54,289 $ (1,164 ) $ 149,435 $ 2,445
�
Other income (expense):
Interest and dividend income 2,061 2,450 1,847 4,512 3,571
Interest expense (6,167 ) (4,720 ) (6,028 ) (10,888 ) (11,801 )
Gain (loss) on investment securities 5,878 (42,844 ) — (36,957 ) —
Other � 17 � � 541 � � (210 ) � 548 � � 231 �
Total unallocated amounts � 1,789 � � (44,573 ) � (4,391 ) � (42,785 ) � (7,999 )
�
Income (loss) from continuing operations before income taxes $ 96,935 � $ 9,716 � $ (5,555 ) $ 106,650 � $ (5,554 )
�
� � � �

SUPPLEMENTARY STATISTICAL INFORMATION

Unaudited

�

SELECTED STATISTICAL�& OPERATIONAL HIGHLIGHTS

(Used to determine adjusted per revenue day statistics, which is a non-GAAP measure)

�
Three Months Ended
March 31 December 31
2019 2018
(in dollars per revenue day)
U.S. Land Operations
Total impact on U.S. Land revenue per day: $ 57 $ 109
International Land Operations
Total impact on International Land revenue per day: $ — $ 2,689
� � � � � �

U.S. LAND RIG COUNTS�& MARKETABLE FLEET STATISTICS

�
April 24 March 31 December 31 Q2FY19
2019 � 2019 � 2018 � Average
U.S. Land Operations
Term Contract Rigs 142 146 156 148.9
Spot Contract Rigs 78 80 88 87.4
Total Contracted Rigs 220 226 244 236.3
Idle or Other Rigs 130 124 106 113.7
Total Marketable Fleet 350 350 350 350.0
�
� � � � � � �

H&P GLOBAL FLEET UNDER TERM CONTRACT STATISTICS

Number of Rigs Already Under Long-Term Contracts(1)

�

(Estimated Quarterly Average�— as of 04/24/19)

�
Q3 Q4 Q1 Q2 Q3 Q4 Q1
Segment FY19 FY19 FY20 FY20 FY20 FY20 FY21
U.S. Land Operations 136.8 124.3 108.3 80.2 68.8 57.9 40.2
International Land Operations 11.0 11.0 10.0 6.2 1.1 — —
Offshore Operations 0.4 — — — — — —
Total 148.2 135.3 118.3 86.4 69.9 57.9 40.2
�

____________________

(1) All of the above rig contracts have original terms equal to or in excess of six months and include provisions for early termination fees.

Dave Wilson, Director of Investor Relations

[email protected]

(918) 588-5190

Source: Helmerich & Payne, Inc.

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