What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 158 added, 155 removed, 409 unchanged (43% of the section changed)

39 unchanged sentences

(“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 of March 31, 2023, our drilling rig fleet included a total of 262 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 233 rigs, the Offshore Gulf of Mexico segment with seven offshore platform rigs and the International Solutions segment with 22 rigs as of March 31, 2023.

At the close of the second quarter of fiscal year 2023, we had 198 active contracted rigs, of which 109 were under a fixed-term contract and 89 were working well-to-well, compared to 192 contracted rigs at September 30, 2022.

As of June 30, 2023, our drilling rig fleet included a total of 262 drilling rigs.

At the close of the third quarter of fiscal year 2023, we had 170 active contracted rigs, of which 103 were under a fixed-term contract and 67 were working well-to-well, compared to 192 contracted rigs at September 30, 2022.

Our long-term strategy remains focused on innovation, technology, safety, operational excellence and reliability.

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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.

While overall customer capital budgets for calendar year 2023 appear to be modestly higher than those experienced in calendar year 2022, recent commodity price volatility, particularly the weakness in natural gas prices, has resulted in some customers, typically smaller ones, reducing activity and/or shifting activity to more crude oil centric basins at least temporarily.

While overall customer capital budgets for calendar year 2023 appear to be modestly higher than those experienced in calendar year 2022, continued commodity price volatility, particularly the weakness in natural gas prices, has resulted in some customers, typically smaller ones, reducing activity and/or shifting activity to more crude oil-centric basins at least temporarily.

This has led to some idle super-spec rigs being readily available in the market.

That said, we do not expect this level of idle supply in the market to have a material impact on overall rig pricing.

We do see the potential for some of this recently idled super-spec capacity, especially as it relates to the Company's idled rigs, to be redeployed later in the calendar year 2023.

With regards to our North America Solutions segment, recent volatility in natural gas prices and resulting reduced rig demand has contributed to an increased level of rig releases in the market.

These factors, in combination with the Company's fiscally disciplined approach to deploying capital and prioritizing economic margins over rig utilization, results in our belief that our active rig count will not likely reach 191 rigs during fiscal 2023 as previously projected.

Having deployed 12 of the 16 potential fiscal 2023 rig reactivations during the first six months of fiscal year 2023, the Company's rig count sits at 179 active rigs as of March 31, 2023, with eight rigs available for rapid redeployment should customer demand warrant.

Going forward into the final six months of fiscal year 2023, we expect additional rigs releases, which we project will result in a lower average Company active rig count relative to the first six months of fiscal year 2023.

However, despite the lower activity outlook, we believe the Company's pricing discipline will result in a higher average revenue per day during the last six months of fiscal year 2023 relative to the first six months.

That said, we have not seen and do not expect this level of idle supply in the market to have a material impact on overall rig pricing.

We do see the potential for some of this recently idled super-spec capacity, especially as it relates to the Company's idled rigs, to be redeployed later in the calendar year 2023 or early in calendar year 2024.

With regards to our North America Solutions segment, volatility in natural gas prices and the related reduced rig demand contributed to an increased level of rig releases in the market during the first half of the calendar year 2023.

More recently, other non-commodity price related factors, such as customer capital budgets, drilling plans, productions levels and customer consolidations, have also led some customers to release rigs as well.

The Company's rig count sits at 153 as of June 30, 2023 and while we still see further rig releases during our fourth quarter of fiscal year 2023, the magnitude will likely be much more moderate than the 26 rigs that were idled during third quarter of fiscal year 2023.

During fiscal year 2023, the Company has maintained a fiscally prudent approach to deploying capital and prioritizing economic margins over rig utilization, which we believe has been beneficial to the Company's overall financial results.

Going forward, we see the potential for the Company's active rig count to increase in the first and second fiscal quarters of 2024 as customers reset their capital budgets for 2024.

Furthermore, we still believe the supply and demand dynamics surrounding our North America Solutions segment remain constructive for future activity and pricing levels.

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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.

We do not foresee much activity or margin change in our Offshore Gulf of Mexico segment during the third fiscal quarter.

However, one current active offshore rigs is expected to mobilize to the yard during the fourth fiscal quarter after completing its current contract.

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.

Currently, activity levels in these business segments look to remain relatively steady at current levels for the foreseeable future.

Recent Developments

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Investment in Tamboran

In October 2022, we made a $14.1 million equity investment, representing 106 million common shares (approximately 7.5 percent ownership stake), in Tamboran Resources Limited ("Tamboran"), a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO 2 gas resource within Australia's Beetaloo Sub-basin.

Concurrent with the investment agreement, we entered into a fixed-term drilling services agreement with the same investee for which mobilization is expected to commence later this fiscal year.

Approximately $30.3 million in revenue is expected to be earned over the term of the contract, and, as such, this amount is included within our contract backlog as of March 31, 2023.

In April 2023, Tamboran appointed an executive of the Company to its Board of Directors.

During the three and six months ended March 31, 2023, we recognized a gain (loss) of $(3.0) million and $0.1 million, respectively, recorded within Gain on investment securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.

In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran, a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO 2 gas resource within Australia's Beetaloo Sub-basin.

Concurrent with the investment agreement, we entered into a fixed-term drilling services agreement with the same investee.

Mobilization of the rig commenced during the three months ended June 30, 2023, and, as a result, we recorded $6.7 million in receivables and $5.7 million as a contract liability on our Unaudited Condensed Consolidated Balance Sheet as of June 30, 2023.

We expect to earn $35.2 million in revenue over the term of the contract, and, as such, this amount is included within our contract backlog as of June 30, 2023.

Drilling services are expected to commence in the fourth fiscal quarter of 2023.

During the three and nine months ended June 30, 2023, we recognized a loss of $1.6 million and $1.5 million, respectively, recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.

Subsequent to the fiscal quarter ended June 30, 2023, we entered into a $9.0 million convertible note with Tamboran.

Refer to Note 14—Subsequent Events to the Unaudited Condensed Consolidated Financial Statements for additional details.

Q3FY23 FORM 10-Q | 33

Significant Lease Not Yet Commenced

During the six months ended March 31, 2023, we entered into a lease agreement for our new Tulsa corporate office.

During the nine months ended June 30, 2023, we entered into a lease agreement for our new Tulsa corporate office.

This lease is expected to commence sometime during the first half of calendar year 2024.

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Contract Backlog

As of March 31, 2023 and September 30, 2022, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.3 billion and $1.2 billion, respectively.

As of June 30, 2023 and September 30, 2022, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.1 billion and $1.2 billion, respectively.

These amounts do not include anticipated contract renewals or expected performance bonuses.

The increase in backlog at March 31, 2023 from September 30, 2022 is primarily due to the increase in contract pricing for fixed term drilling contracts executed during the period.

Approximately 45.1 percent of the March 31, 2023 total backlog is reasonably expected to be fulfilled in fiscal year 2024 and thereafter.

The following table sets forth the total backlog by reportable segment as of March 31, 2023 and September 30, 2022, and the percentage of the March 31, 2023 backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:

(in billions) March 31, 2023 September 30, 2022 Percentage Reasonably

The decrease in backlog at June 30, 2023 from September 30, 2022 is primarily driven by a decrease in the number of fixed term drilling contracts executed.

Approximately 65.3 percent of the June 30, 2023 total backlog is reasonably expected to be fulfilled in fiscal year 2024 and thereafter.

The following table sets forth the total backlog by reportable segment as of June 30, 2023 and September 30, 2022, and the percentage of the June 30, 2023 backlog reasonably expected to be fulfilled in fiscal year 2024 and thereafter:

(in billions) June 30, 2023 September 30, 2022 Percentage Reasonably

Expected to be Fulfilled in Fiscal Year 2024

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Additionally, see Item 1A—"Risk Factors— The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations" within our 2022 Annual Report on Form 10-K.

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Results of Operations for the Three Months Ended June 30, 2023 and 2022

Consolidated Results of Operations

Net Income (Loss) We reported income from continuing operations of $163.9 million ($1.55 per diluted share) from operating revenues of $769.2 million for the three months ended March 31, 2023 compared to a loss from continuing operations of $4.6 million ($0.05 loss per diluted share) from operating revenues of $467.6 million for the three months ended March 31, 2022.

Included in net income for the three months ended March 31, 2023 is income of $0.1 million (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded net income of $164.0 million ($1.55 per diluted share) for the three months ended March 31, 2023 compared to a net loss of $5.0 million ($0.05 loss per diluted share) for the three months ended March 31, 2022.

Operating Revenue Consolidated operating revenues were $769.2 million and $467.6 million for the three months ended March 31, 2023 and 2022, respectively.

The increase is primarily driven by an increase in average rig pricing and activity levels in our North America Solutions segment and increased activity levels in our International Solutions segment.

Net Income We reported income from continuing operations of $95.3 million ($0.93 per diluted share) from operating revenues of $724.0 million for the three months ended June 30, 2023 compared to income from continuing operations of $17.5 million ($0.16 per diluted share) from operating revenues of $550.2 million for the three months ended June 30, 2022.

Included in net income for the three months ended June 30, 2023 is income of $12.6 thousand (with no impact on a per diluted share basis) from discontinued operations.

Including discontinued operations, we recorded net income of $95.3 million ($0.93 per diluted share) for the three months ended June 30, 2023 compared to net income of $17.8 million ($0.16 per diluted share) for the three months ended June 30, 2022.

Operating Revenue Consolidated operating revenues were $724.0 million and $550.2 million for the three months ended June 30, 2023 and 2022, respectively.

The increase is primarily driven by an increase in average rig pricing in our North America Solutions segment and an increase in activity levels in our International Solutions segment.

Refer to segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $450.3 million and $340.9 million for the three months ended March 31, 2023 and 2022, respectively.

The increase was primarily attributable to the aforementioned higher activity levels as well as a North America Solutions wage increase that became effective at the end of fiscal year 2022.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $52.9 million during the three months ended March 31, 2023 compared to $47.1 million during the three months ended March 31, 2022.

The increase is primarily due to a $3.0 million increase in labor expenses and a $1.6 million increase in professional fees.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $430.2 million and $377.3 million for the three months ended June 30, 2023 and 2022, respectively.

The increase was primarily attributable to a North America Solutions wage increase that became effective at the end of fiscal year 2022, in conjunction with the aforementioned higher activity levels in our International Solutions segment.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $49.3 million during the three months ended June 30, 2023 compared to $44.9 million during the three months ended June 30, 2022.

The increase is primarily due to a $3.1 million increase in labor and labor-related expenses.

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Gain on Investment Securities During the three months ended March 31, 2023, we recognized an aggregate gain of $39.8 million on investment securities compared to a gain of $22.1 million during the three months ended March 31, 2022.

This gain was comprised of a $42.6 million gain on our equity investment in ADNOC Drilling and offset by a $3.0 million loss on our equity investment in Tamboran as a result of changes in the fair value of these investments during the period.

Comparatively, we recorded a gain of $16.7 million on our investment in ADNOC Drilling during the three months ended March 31, 2022.

Income Taxes We used an estimated annual effective tax rate for purposes of determining the income tax provision for the three months ended March 31, 2023.

We used a discrete effective tax rate method to calculate income taxes for the three months ended March 31, 2022 as we determined the estimated annual effective tax rate method would not provide a reliable estimate for the three months ended March 31, 2022.

For the three months ended March 31, 2023, we had income tax expense of $51.1 million compared to income tax expense of $2.7 million for the three months ended March 31, 2022.

Our statutory federal income tax rate for fiscal year 2023 and 2022 is 21.0 percent (before incremental state and foreign taxes).

Loss on Investment Securities During the three months ended June 30, 2023, we recognized an aggregate loss of $18.5 million on investment securities compared to an aggregate loss of $14.3 million during the three months ended June 30, 2022.

The aggregate loss in both periods primarily consisted 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.

During the three months ended June 30, 2022, this loss was offset by a gain of $2.7 million on the sale of our equity investment in Schlumberger, Ltd.

Income Taxes We had income tax expense of $40.7 million for the three months ended June 30, 2023 (which includes discrete tax expense of approximately $2.4 million primarily related to an increase in our deferred state income tax rate and return to provision adjustments) compared to income tax expense of $1.7 million (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) for the three months ended June 30, 2022.

Our statutory federal income tax rate for fiscal year 2023 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

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Selling, general and administrative expense 12,962 10,069 28.7

Restructuring charges — 25 (100.0)

Segment operating income $ 169,499 $ 57,353 195.5

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Average active rigs 4

166 174 (4.6)

Number of active rigs at the end of period 5

153 175 (12.6)

Number of available rigs at the end of period 233 236 (35.2)

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $675.8 million and $408.8 million in the three months ended March 31, 2023 and 2022, respectively.

The $267.0 million increase in operating revenue is primarily due to higher pricing levels and an 11.8 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $379.6 million during the three months ended March 31, 2023 as compared to $294.4 million during the three months ended March 31, 2022.

This increase was primarily due to an increase of $46.7 million in labor expense driven by higher activity levels and increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased $4.4 million, which was also driven by higher activity levels.

Depreciation and Amortization Depreciation expense decreased to $89.1 million during the three months ended March 31, 2023 as compared to $95.8 million during the three months ended March 31, 2022.

The decrease is primarily attributable to the relatively low levels of capital expenditures during the last twelve months.

Selling, General and Administrative Expense Selling, general and administrative expense increased to $16.2 million during the three months ended March 31, 2023 as compared to $10.9 million during the three months ended March 31, 2022.

Operating Revenues Operating revenues were $641.6 million and $486.0 million in the three months ended June 30, 2023 and 2022, respectively.

The $155.6 million increase in operating revenue is primarily due to higher pricing levels partially offset by a 4.6 percent decrease in activity levels.

Direct Operating Expenses Direct operating expenses increased to $364.7 million during the three months ended June 30, 2023 as compared to $318.4 million during the three months ended June 30, 2022.

This increase was primarily due to an increase of $23.5 million in labor and labor related expenses driven by increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased $3.8 million, which were driven by higher pricing levels for consumable inventory issuance.

Depreciation and Amortization Depreciation and amortization expense decreased to $87.2 million during the three months ended June 30, 2023 as compared to $93.6 million during the three months ended June 30, 2022.

This decrease is reflective of the downstream effect of lower capital expenditures over the past several years.

Selling, General and Administrative Expense Selling, general and administrative expense increased to $13.0 million during the three months ended June 30, 2023 as compared to $10.1 million during the three months ended June 30, 2022.

The increase was largely driven by a $1.8 million increase in professional fees.

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Offshore Gulf of Mexico

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $35.0 million and $29.1 million in the three months ended March 31, 2023 and 2022, respectively.

The 20.0 percent increase in operating revenue is primarily driven by pricing increases and wage increase pass-throughs which occurred in the latter portion of fiscal year 2022.

Direct Operating Expenses Direct operating expenses increased to $25.7 million during the three months ended March 31, 2023 as compared to $20.9 million during the three months ended March 31, 2022.

The increase was primarily driven by the mix of rigs working at full utilization as opposed to mobilizing or being on standby, in addition to the factors described above.

Q2FY23 FORM 10-Q | 35

Operating Revenues Operating revenues were $31.2 million and $32.7 million in the three months ended June 30, 2023 and 2022, respectively.

The 4.5 percent decrease in operating revenue is primarily driven by a rig moving from an operating dayrate to a lower demobilization rate.

International Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

3 unchanged sentences

Selling, general and administrative expense 2,528 2,129 18.7

Segment operating income (loss) $ 3,955 $ (848) 566.4

Segment operating loss $ (1,397) $ (6,550) 78.7

Financial Data and Other Operating Statistics 1 :

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues increased to $55.9 million during the three months ended March 31, 2023 compared to $27.4 million during the three months ended March 31, 2022.

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Operating Revenues Operating revenues increased to $48.7 million during the three months ended June 30, 2023 compared to $29.1 million during the three months ended June 30, 2022.

This increase is primarily driven by a 69.2 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $47.3 million during the three months ended March 31, 2023 as compared to $25.2 million during the three months ended March 31, 2022.

This increase was primarily driven by an increase of $10.5 million in labor expenses and an increase of $9.9 million in materials and supplies given higher activity levels.

Direct Operating Expenses Direct operating expenses increased to $45.4 million during the three months ended June 30, 2023 as compared to $32.4 million during the three months ended June 30, 2022.

This increase was primarily driven by an increase of $7.4 million in labor and labor-related expenses and an increase of $1.7 million in materials and supplies given higher activity levels.

Other Operations

Results of our other operations, excluding corporate selling, general and administrative costs, corporate restructuring, and corporate depreciation, are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2023 2022 % Change

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Operating Revenues We continue to use our Captive insurance companies to insure the deductibles for our domestic workers’ compensation, general liability, automobile liability claims programs, and medical stop-loss program and to insure the deductibles from the Company's international casualty and rig property programs.

Intercompany premium revenues recorded by the Captives during the three months ended March 31, 2023 and 2022 amounted to $17.7 million and $13.2 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $1.7 million and $1.8 million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $10.9 million and $7.9 million during the three months ended March 31, 2023 and 2022, respectively.

Intercompany premium revenues recorded by the Captives during the three months ended June 30, 2023 and 2022 amounted to $17.4 million and $14.7 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $5.5 million and $3.1 million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $9.7 million and $9.4 million during the three months ended June 30, 2023 and 2022, respectively.

The change to accruals for estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.

Q2FY23 FORM 10-Q | 36

Results of Operations for the Six Months Ended March 31, 2023 and 2022

Results of Operations for the Nine Months Ended June 30, 2023 and 2022

Consolidated Results of Operations

Net Income (Loss) We reported income from continuing operations of $260.3 million ($2.45 per diluted share) from operating revenues of $1.5 billion for the six months ended March 31, 2023 compared to a loss from continuing operations of $56.0 million ($0.53 loss per diluted share) from operating revenues of $877.4 million for the six months ended March 31, 2022.

Included in net income for the six months ended March 31, 2023 is income of $0.9 million ($0.01 per diluted share) from discontinued operations.

Including discontinued operations, we recorded net income of $261.2 million ($2.46 per diluted share) for the six months ended March 31, 2023 compared to a net loss of $56.3 million ($0.53 loss per diluted share) for the six months ended March 31, 2022.

Operating Revenue Consolidated operating revenues were $1.5 billion for the six months ended March 31, 2023 and $877.4 million for the six months ended March 31, 2022.

Net Income (Loss) We reported income from continuing operations of $355.6 million ($3.38 per diluted share) from operating revenues of $2.2 billion for the nine months ended June 30, 2023 compared to a loss from continuing operations of $38.5 million ($0.37 loss per diluted share) from operating revenues of $1.4 billion for the nine months ended June 30, 2022.

Included in net income for the nine months ended June 30, 2023 is income of $0.9 million ($0.01 per diluted share) from discontinued operations.

Including discontinued operations, we recorded net income of $356.5 million ($3.39 per diluted share) for the nine months ended June 30, 2023 compared to a net loss of $38.6 million ($0.37 loss per diluted share) for the nine months ended June 30, 2022.

Operating Revenue Consolidated operating revenues were $2.2 billion for the nine months ended June 30, 2023 and $1.4 billion for the nine months ended June 30, 2022.

The increase is primarily driven by an increase in average rig pricing and activity levels in our North America Solutions segment and increased activity levels in our International Solutions segment.

Refer to segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses for the six months ended March 31, 2023 were $879.7 million, compared to $641.8 million for the six months ended March 31, 2022.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses for the nine months ended June 30, 2023 were $1.3 billion, compared to $1.0 billion for the nine months ended June 30, 2022.

The increase was primarily attributable to the aforementioned higher activity levels as well as a North America Solutions wage increase that became effective at the end of fiscal year 2022.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $101.3 million during the six months ended March 31, 2023 compared to $90.8 million during the six months ended March 31, 2022.

The increase is primarily due to a $5.2 million increase in professional fees and a $2.9 million increase in labor expenses.

Asset Impairment Charges During the six months ended March 31, 2023, we recorded $12.1 million in asset impairment charges as the Company initiated a plan to decommission, scrap and/or sell certain assets including four international FlexRig ® drilling rigs, four international conventional drilling rigs, and additional equipment.

The aggregate net book value of these assets of $13.2 million was written down to their estimated scrap value of $1.1 million.

Comparatively, during the six months ended March 31, 2022, we identified two partial rig substructures and two international FlexRig ® drilling rigs that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $4.4 million as the book values of these rig substructures were written down to their estimated scrap value of $0.1 million and the international drilling rigs were written down to their fair value less estimated cost to sell of $0.9 million.

Gain on Investment Securities During the six months ended March 31, 2023, we recognized an aggregate gain of $24.7 million on investment securities compared to a gain of $70.0 million during the six months ended March 31, 2022.

This gain mainly comprised of a $24.4 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock.

Comparatively, we recorded a gain of $64.5 million on this investment during the six months ended March 31, 2022.

Income Taxes We used an estimated annual effective tax rate for purposes of determining the income tax provision for the six months ended March 31, 2023.

We used a discrete effective tax rate method to calculate income taxes for the six months ended March 31, 2022 as we determined the estimated annual effective tax rate method would not provide a reliable estimate for the six months ended March 31, 2022.

For the six months ended March 31, 2023 we had income tax expense of $83.5 million (which includes discrete tax expense of $0.2 million related to equity compensation) compared to an income tax benefit of $4.9 million for the six months ended March 31, 2022 (which included discrete tax expense of $4.1 million related to equity compensation).

Our statutory federal income tax rate for fiscal year 2023 and 2022 is 21.0 percent (before incremental state and foreign taxes).

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $150.6 million during the nine months ended June 30, 2023 compared to $135.7 million during the nine months ended June 30, 2022.

The increase is primarily due to a $5.1 million increase in professional fees and a $7.4 million increase in labor and labor-related expenses.

Q3FY23 FORM 10-Q | 37

Asset Impairment Charges During the nine months ended June 30, 2023, we recorded $12.1 million in asset impairment charges as the Company initiated a plan to decommission, scrap and/or sell certain assets including four international FlexRig ® drilling rigs, four international conventional drilling rigs, and additional equipment.

The aggregate net book value of these assets of $13.2 million was written down to their estimated scrap value of $1.1 million.

During the nine months ended June 30, 2022, we identified various assets that met the asset held-for-sale criteria and were reclassified as assets held-for-sale within our North America Solutions and International Solutions segment, which resulted in a non-cash impairment charge of $4.4 million for the nine months ended June 30, 2022.

Gain on Investment Securities During the nine months ended June 30, 2023, we recognized an aggregate gain of $6.1 million on investment securities.

This gain is mainly comprised of a $7.4 million gain on our equity investment in ADNOC Drilling, partially offset against a $1.5 million loss on our investment in Tamboran, both of which were a result of fluctuations in the fair market value of the stocks.

During the nine months ended June 30, 2022, we recognized an aggregate gain of $55.7 million.

This gain was primarily driven by a $47.8 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock and a gain of $8.2 million on the sale of our equity investment in Schlumberger, Ltd.

Income Taxes We had income tax expense of $124.2 million for the nine months ended June 30, 2023 (which includes discrete tax expense of $2.3 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 $3.2 million (which included discrete tax expense of $10.0 million primarily related to an increase in our deferred state income tax rate and equity compensation) for the nine months ended June 30, 2022.

Our statutory federal income tax rate for fiscal year 2023 is 21.0 percent (before incremental state and foreign taxes).

North America Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

6 unchanged sentences

Restructuring charges — 498 (100.0)

Segment operating income (loss) $ 327,446 $ (27,596) 1,286.6

Segment operating income $ 496,945 $ 29,757 1,570.0

Financial Data and Other Operating Statistics 1 :

5 unchanged sentences

Number of active rigs at the end of period 5

153 175 (12.6)

Number of available rigs at the end of period 233 236 (1.3)

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $1.3 billion and $0.7 billion in the six months ended March 31, 2023 and 2022, respectively.

Operating Revenues Operating revenues were $1.9 billion and $1.2 billion in the nine months ended June 30, 2023 and 2022, respectively.

The $0.7 billion increase in operating revenue is primarily due to higher pricing levels and a 10.7 percent increase in activity levels.

Direct Operating Expenses Direct operating expenses increased to $746.5 million during the six months ended March 31, 2023 as compared to $551.0 million during the six months ended March 31, 2022.

This increase was primarily driven by a $104.2 million increase in labor expense driven by higher activity levels and increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased $20.5 million, which was also driven by higher activity levels.

Depreciation and Amortization Depreciation expense decreased to $178.9 million during the six months ended March 31, 2023 as compared to $189.4 million during the six months ended March 31, 2022.

The decrease is primarily attributable to the relatively low levels of capital expenditures during the last twelve months.

Selling, General and Administrative Expense Selling, general and administrative expense increased to $30.4 million during the six months ended March 31, 2023 as compared to $21.7 million during the six months ended March 31, 2022.

Direct Operating Expenses Direct operating expenses increased to $1.1 billion during the nine months ended June 30, 2023 as compared to $0.9 billion during the nine months ended June 30, 2022.

This increase was primarily driven by a $127.7 million increase in labor and labor-related expenses driven by higher activity levels and increased field wages beginning in late September 2022.

Additionally, materials and supplies expense increased by $24.4 million, which was also primarily driven by higher activity levels.

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Depreciation and Amortization Depreciation and amortization expense decreased to $266.1 million during the nine months ended June 30, 2023 as compared to $283.1 million during the nine months ended June 30, 2022.

This decrease is reflective of the downstream effect of lower capital expenditures over the last several years.

Selling, General and Administrative Expense Selling, general and administrative expense increased to $43.4 million during the nine months ended June 30, 2023 as compared to $31.8 million during the nine months ended June 30, 2022.

The increase was largely driven by a $8.1 million increase in professional fees.

Asset Impairment Charges During the six months ended March 31, 2023, our North America Solutions assets that were previously classified as Assets held-for-sale at September 30, 2022 were either sold or written down to scrap value.

Asset Impairment Charges During the nine months ended June 30, 2023, our North America Solutions assets that were previously classified as Assets held-for-sale at September 30, 2022 were either sold or written down to scrap value.

The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million.

During the same period, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the six months ended March 31, 2023.

These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidated Statement of Operations.

During the six months ended March 31, 2022, we identified two partial rig substructures that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $1.9 million as the book values of these rig substructures were written down to their estimated scrap value of $0.1 million.

Q2FY23 FORM 10-Q | 38

During the nine months ended June 30, 2022, we identified two partial rig substructures that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in a non-cash impairment charge of $1.9 million as the book values of these rig substructures were written down to their estimated scrap value of $0.1 million.

Offshore Gulf of Mexico

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

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Revenue days 3

1,092 1,092 —

Average active rigs 4

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues were $70.1 million and $58.5 million during the six months ended March 31, 2023 and 2022, respectively.

Operating Revenues Operating revenues were $101.4 million and $91.2 million during the nine months ended June 30, 2023 and 2022, respectively.

The 11.2 percent increase in operating revenue is primarily driven by pricing increases and wage increase pass-throughs which occurred in the latter portion of fiscal year 2022.

Direct Operating Expenses Direct operating expenses increased to $51.4 million during the six months ended March 31, 2023 as compared to $41.6 million during the six months ended March 31, 2022.

Direct Operating Expenses Direct operating expenses increased to $75.3 million during the nine months ended June 30, 2023 as compared to $65.5 million during the nine months ended June 30, 2022.

The increase was primarily driven by the mix of rigs working at full utilization as opposed to mobilizing or being on standby, in addition to the factors described above.

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International Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2023 2022 % Change

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(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.

Operating Revenues Operating revenues increased to $110.7 million during the six months ended March 31, 2023 compared to $64.6 million during the six months ended March 31, 2022.

Operating Revenues Operating revenues increased to $159.4 million during the nine months ended June 30, 2023 compared to $93.7 million during the nine months ended June 30, 2022.

This increase is primarily driven by a 80.0 percent increase in activity levels.

Additionally, during the six months ended March 31, 2022, we recognized $16.4 million in revenue related to the settlement of a contract drilling dispute related to drilling services provided from fiscal years 2016 through 2019 with YPF S.A.

Additionally, during the nine months ended June 30, 2022, we recognized $16.4 million in revenue related to the settlement of a contract drilling dispute related to drilling services provided from fiscal year 2016 through 2019 with YPF S.A.

Refer to Note 8 - Revenue from Contracts with Customers for additional details.

Direct Operating Expenses Direct operating expenses increased to $88.3 million during the six months ended March 31, 2023 as compared to $49.3 million during the six months ended March 31, 2022.

This increase was primarily driven by an increase of $17.8 million in labor expense and an increase of $15.1 million in materials and supplies given higher activity levels.

Asset Impairment Charges During the six months ended March 31, 2023, the Company initiated a plan to decommission and scrap four international FlexRig ® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling.

As a result, these rigs were reclassified to Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023.

The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the six months ended March 31, 2023.

During the six months ended March 31, 2022, we identified two international FlexRig ® drilling rigs that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

Direct Operating Expenses Direct operating expenses increased to $133.6 million during the nine months ended June 30, 2023 as compared to $81.7 million during the nine months ended June 30, 2022.

This increase was primarily driven by an increase of $25.2 million in labor and labor-related expense and an increase of $16.8 million in materials and supplies given higher activity levels.

Asset Impairment Charges During the nine months ended June 30, 2023, the Company initiated a plan to decommission and scrap four international FlexRig ® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling.

As a result, these rigs were reclassified to Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

During the nine months ended June 30, 2022, we identified two international FlexRig ® drilling rigs that met the assets held-for-sale criteria and were reclassified as assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets.

This resulted in an impairment charge of $2.5 million as the book values of these international drilling rigs were written down to their fair value less estimated cost to sell of $0.9 million.

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Results of our other operations, excluding corporate selling, general and administrative costs, corporate restructuring, and corporate depreciation, are as follows:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2023 2022 % Change

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Intercompany premium revenues recorded by the Captives during the six months ended March 31, 2023 and 2022 amounted to $34.1 million and $26.9 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $4.7 million and $(0.4) million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $20.9 million and $16.7 million during the six months ended March 31, 2023 and 2022, respectively.

Intercompany premium revenues recorded by the Captives during the nine months ended June 30, 2023 and 2022 amounted to $51.4 million and $41.6 million, respectively, which were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses consisted primarily of $10.2 million and $2.7 million in adjustments to accruals for estimated losses allocated to the Captives and rig and casualty insurance premiums of $30.6 million and $26.2 million during the nine months ended June 30, 2023 and 2022, respectively.

The change to accruals for estimated losses is primarily due to actuarial valuation adjustments by our third-party actuary.

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Q3FY23 FORM 10-Q | 41

As of March 31, 2023, we had cash and cash equivalents of $159.7 million and short-term investments of $85.1 million.

Our cash flows for the six months ended March 31, 2023, and 2022 are presented below:

Six Months Ended March 31,

As of June 30, 2023, we had cash and cash equivalents of $220.6 million and short-term investments of $72.6 million.

Our cash flows for the nine months ended June 30, 2023, and 2022 are presented below:

Nine Months Ended June 30,

(in thousands) 2023 2022

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Financing activities (414,992) (707,622)

Net decrease in cash and cash equivalents and restricted cash $ (56,106) $ (707,340)

Net increase (decrease) in cash and cash equivalents and restricted cash $ 12,964 $ (714,127)

Operating Activities

Our operating net working capital (non-GAAP) as of March 31, 2023 and September 30, 2022 is presented below:

March 31, September 30,

Our operating net working capital (non-GAAP) as of June 30, 2023 and September 30, 2022 is presented below:

June 30, September 30,

(in thousands) 2023 2022

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Operating net working capital (non-GAAP) $ 314,004 $ 281,862

Cash flows provided by operating activities were approximately $326.3 million and $18.9 million for the six months ended March 31, 2023 and 2022, respectively.

Cash flows provided by operating activities were approximately $619.0 million and $116.6 million for the nine months ended June 30, 2023 and 2022, respectively.

The change in cash provided by operating activities is primarily driven by higher activity and rates, partially offset by changes in operating net working capital.

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 and advance payments for sale of property, plant and equipment.

Operating net working capital was $395.0 million and $281.9 million as of March 31, 2023 and September 30, 2022, respectively.

Operating net working capital was $314.0 million and $281.9 million as of June 30, 2023 and September 30, 2022, respectively.

This metric is considered a non-GAAP measure of the Company's liquidity.

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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 increase in operating net working capital was primarily driven by higher rig activity and rates.

Investing Activities

Capital Expenditures Our capital expenditures during the six months ended March 31, 2023 were $181.5 million compared to $104.5 million during the six months ended March 31, 2022.

The increase in capital expenditures is driven by higher activity and increased costs associated with rig upgrades and reactivations.

Sales of Short-Term Investments Our net sales of short-term investments during the six months ended March 31, 2023 were $33.3 million compared to $48.9 million during the six months ended March 31, 2022.

The change is driven by our ongoing liquidity management.

Purchases of Long-Term Investments Our net purchases of long-term investments during the six months ended March 31, 2023 were $18.8 million compared to $14.1 million during the six months ended March 31, 2022.

The increase is primarily driven by our purchase of $14.1 million equity investment in Tamboran Resources Limited and $4.1 million in debt and equity security investments in various geothermal energy companies.

Capital Expenditures Our capital expenditures during the nine months ended June 30, 2023 were $281.8 million compared to $175.0 million during the nine months ended June 30, 2022.

The increase in capital expenditures is driven by higher activity and increased costs associated with rig upgrades.

Net Sales of Short-Term Investments Our net sales of short-term investments during the nine months ended June 30, 2023 were $46.5 million compared to $52.4 million during the nine months ended June 30, 2022.

The activity in both periods is driven by our ongoing liquidity management.

Net Purchases of Long-Term Investments Our net purchases of long-term investments during the nine months ended June 30, 2023 were $18.8 million compared to $25.2 million during the nine months ended June 30, 2022.

During the nine months ended June 30, 2023, our activity was primarily driven by our purchase of $14.1 million equity investment in Tamboran Resources Limited and $4.1 million in debt and equity security investments in various geothermal energy companies.

The activity during the nine months ended June 30, 2022 was driven by our purchase of a $33.0 million cornerstone investment, through a convertible note, in Galileo Holdco 2, in addition to purchases of geothermal investments of $14.2 million, offset by the $22.0 million of proceeds received from the liquidation of our remaining equity securities in Schlumberger, Ltd.

Q3FY23 FORM 10-Q | 42

Sale of Assets Our proceeds from asset sales during the six months ended March 31, 2023 were $47.7 million compared to proceeds of $34.9 million during the six months ended March 31, 2022.

Sale of Assets Our proceeds from asset sales during the nine months ended June 30, 2023 were $63.0 million compared to proceeds of $50.3 million during the nine months ended June 30, 2022.

The increase in proceeds is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe and other used drilling equipment.

Financing Activities

Dividends We paid dividends of $0.97 per share, comprised of a base cash dividend of $0.50 and a supplemental cash dividend of $0.47, during the six months ended March 31, 2023.

Comparatively, during the six months ended March 31, 2022, we paid dividends of $0.50 per share.

Total dividends paid were $102.9 million and $54.0 million during the six months ended March 31, 2023 and 2022, respectively.

A base cash dividend of $0.25 per share and a quarterly supplemental cash dividend of $0.235 per share was declared on March 1, 2023 for shareholders of record on May 18, 2023, payable on June 1, 2023.

Dividends We paid dividends of $1.46 per share, comprised of a base cash dividend of $0.75 and a supplemental cash dividend of $0.71, during the nine months ended June 30, 2023.

Comparatively, during the nine months ended June 30, 2022, we paid dividends of $0.75 per share.

Total dividends paid were $152.6 million and $80.7 million during the nine months ended June 30, 2023 and 2022, respectively.

On June 7, 2023, the Board of Directors declared a base cash dividend of $0.25 per share and a supplemental cash dividend of $0.235 per share for shareholders of record on August 17, 2023, payable on August 31, 2023.

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.

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Repurchase of Shares The Company has an evergreen authorization from the Board of Directors for the repurchase of up to four million common shares in any calendar year.

In December 2022, the Board of Directors increased the maximum number of shares authorized to be repurchased in calendar year 2023 to five million common shares, effective January 1, 2023.

In December 2022, the Board of Directors increased the maximum number of shares authorized to be repurchased in calendar year 2023 to five million common shares.

On June 7, 2023, the Board of Directors further increased the maximum number of shares authorized to be repurchased in calendar year 2023 to seven million shares.

The repurchases may be made using our cash and cash equivalents or other available sources and are held as treasury shares on our Unaudited Condensed Consolidated Balance Sheets.

During the six months ended March 31, 2023, we repurchased 3.4 million common shares, at an aggregate cost of $145.8 million, including excise tax of $0.8 million and 3.2 million common shares were repurchased at an aggregate cost of $77.0 million during the six months ended March 31, 2022.

During the nine months ended June 30, 2023, we repurchased 6.5 million common shares, at an aggregate cost of $249.0 million, including accrued excise tax of $1.8 million, resulting in a net cash outflow of $247.2 million.

During the nine months ended June 30, 2022, 3.2 million common shares were repurchased at an aggregate cost of $77.0 million.

Credit Facility

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The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit.

As of March 31, 2023, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

As of June 30, 2023, 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 2022 Annual Report on Form 10-K.

As of March 31, 2023, we had $95.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $95.0 million, $40.0 million was outstanding as of March 31, 2023.

As of June 30, 2023, we had $95.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $95.0 million, $40.0 million was outstanding as of June 30, 2023.

Separately, we had $2.1 million in standby letters of credit and bank guarantees outstanding.

In total, we had $42.1 million outstanding as of March 31, 2023.

In total, we had $42.1 million outstanding as of June 30, 2023.

The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.

At March 31, 2023, we were in compliance with all debt covenants.

At June 30, 2023, we were in compliance with all debt covenants.

Q3FY23 FORM 10-Q | 43

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On October 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 the October 27, 2021 debt extinguishment and recorded in Loss on extinguishment of debt on our Unaudited Condensed Consolidated Statements of Operations during the six months ended March 31, 2022.

Future Cash Requirements

Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2023 are expected to be funded through current cash and cash to be provided from operating activities.

Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2023 and 2024 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.

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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 at March 31, 2023 and matures on September 29, 2031.

As of March 31, 2023, we had a $540.3 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 indebtedness under our unsecured senior notes totaled $550.0 million at June 30, 2023 and matures on September 29, 2031.

As of June 30, 2023, we had a $541.4 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.

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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 March 31, 2023, we had $3.2 million recorded for uncertain tax positions and related interest and penalties.

However, the timing of such payments to the respective taxing authorities cannot be estimated at this time.

The long‑term debt to total capitalization ratio was 16.6 percent at March 31, 2023 and 16.6 percent at September 30, 2022.

As of June 30, 2023, we have recorded approximately $3.2 million of unrecognized tax benefits, interest, and penalties.

We believe it is reasonably possible up to $2.6 million of the unrecognized tax benefits, interest, and penalties will be recognized as of June 30, 2024 as a result of a lapse of the statute of limitations.

Any further reversals or payments of the liability cannot be estimated at this time.

The long‑term debt to total capitalization ratio was 16.9 percent at June 30, 2023 and 16.6 percent at September 30, 2022.

For additional information regarding debt agreements, refer to Note 5—Debt to the Unaudited Condensed Consolidated Financial Statements.

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Material Commitments

Material commitments as reported in our 2022 Annual Report on Form 10-K have not changed significantly at March 31, 2023, other than those disclosed in Note 12—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Material commitments as reported in our 2022 Annual Report on Form 10-K have not changed significantly as of June 30, 2023, other than those disclosed in Note 12—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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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 March 31, 2023

Three Months Ended June 30, 2023

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

Segment operating income $ 182,149 $ 6,687 $ 3,955

Segment operating income (loss) $ 169,499 $ 4,705 $ (1,397)

Depreciation and amortization 87,209 1,873 2,171

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Direct margin (Non-GAAP) $ 276,924 $ 7,308 $ 3,302

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

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Selling, general and administrative expense 10,069 579 2,129

Restructuring charges 25 — —

Direct margin (Non-GAAP) $ 167,604 $ 8,779 $ (3,246)

Q3FY23 FORM 10-Q | 45

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

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Direct margin (Non-GAAP) $ 833,401 $ 26,072 $ 25,741

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

(in thousands) North America Solutions Offshore Gulf of Mexico International Solutions

Segment operating income (loss) $ (27,596) $ 10,744 $ 7,201

Segment operating income $ 29,757 $ 16,616 $ 651

Depreciation and amortization 283,050 7,109 2,979

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis