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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-24 · 185 added, 159 removed, 384 unchanged (47% of the section changed)

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10‑Q (“Form 10‑Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

This Quarterly Report on Form 10‑Q (“Form 10‑Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical facts included in this Form 10-Q are forward-looking statements.

Forward-looking statements are based upon current plans, estimates, and expectations that are subject to risks, uncertainties, and assumptions.

Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “predict,” “project,” “target,” “continue,” or the negative thereof or similar terminology, and such include, but are not limited to, statements regarding the Acquisition (as defined herein) and the anticipated benefits, impact and timing of such transaction, our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management.

Forward-looking statements are based upon current plans, estimates, and expectations that are subject to risks, uncertainties, and assumptions, many of which are beyond our control and any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.

Actual results may vary materially from those indicated or anticipated by such forward-looking statements.

The inclusion of such statements should not be regarded as a representation that such plans, estimates, or expectations will be achieved.

These forward-looking statements include, among others, information concerning our possible or assumed future results of operations and statements about the following such as:

• our business strategy and underlying assumptions;

• estimates of our revenues, income, earnings per share, and market share;

• our capital structure and our ability to return cash to stockholders through dividends or share repurchases;

• the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;

Factors that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements include, but are not limited to:

• our ability and the time required to consummate the Acquisition;

• our ability to achieve the strategic and other objectives relating to the proposed Acquisition;

• the risk that regulatory approvals for the Acquisition are not obtained or are obtained subject to conditions that are not anticipated;

• the risk that we are unable to integrate KCA Deutag's operations in a successful manner and in the expected time period;

• the volatility of future oil and natural gas prices;

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• our belief that the final outcome of our legal proceedings will not materially affect our financial results;

• impact of federal and state legislative and regulatory actions and policies, affecting our costs and increasing operation restrictions or delay and other adverse impacts on our business;

• the impact of federal and state legislative and regulatory actions and policies, affecting our costs and increasing operating restrictions or delay and other adverse impacts on our business;

• environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including wreckage or debris removal), collisions, grounding, blowouts, fires, explosions, other accidents, terrorism or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

• impact of geopolitical developments and tensions, war and uncertainty involving or in the geographic region of oil-producing countries (including the ongoing armed conflicts between Russia and Ukraine and Israel and Hamas, and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy);

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• the impact of geopolitical developments and tensions, war and uncertainty involving or in the geographic region of oil-producing countries (including the ongoing armed conflicts between Russia and Ukraine and Israel and Hamas, and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy);

• global economic conditions, such as a general slowdown in the global economy, supply chain disruptions, inflationary pressures, currency fluctuations, and instability of financial institutions, and their impact on the Company;

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• tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

• the occurrence of security incidents, including breaches of security, or other attack, destruction, alteration, corruption, or unauthorized access to our information technology systems or destruction, loss, alteration, corruption or misuse or unauthorized disclosure of or access to data ("Security Incident");

• potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change related changes in the frequency and severity of weather patterns;

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• our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any related reputational risks as a result of execution of this strategy.

Important factors that could cause actual results to differ materially from our expectations or results discussed in the forward‑looking statements are disclosed in our 2023 Annual Report on Form 10‑K under Part I, Item 1A— “Risk Factors” and Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All subsequent written and oral forward‑looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary statements.

Additional factors that could cause actual results to differ materially from our expectations or results discussed in the forward‑looking statements are disclosed in our 2023 Annual Report on Form 10‑K, including under Part I, Item 1A— “Risk Factors” and Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” thereof, as updated by subsequent reports (including this Quarterly Report) we file with the Securities and Exchange Commission (the "SEC").

All forward-looking statements included in this Quarterly Report and all subsequent written and oral forward‑looking statements, express or implied, are expressly qualified in their entirety by these cautionary statements.

All forward-looking statements speak only as of the date they are made and are based on information available at that time.

Because of the underlying risks and uncertainties, we caution you against placing undue reliance on these forward-looking statements.

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(“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, 2024, 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 International Solutions segment with 22 rigs, and the Offshore Gulf of Mexico segment with seven offshore platform rigs as of March 31, 2024.

At the close of the second quarter of fiscal year 2024, we had 166 active contracted rigs, of which 102 were under a fixed-term contract and 64 were working well-to-well, compared to 164 contracted rigs at September 30, 2023.

As of June 30, 2024, our drilling rig fleet included a total of 262 drilling rigs.

Our reportable operating business segments consist of the North America Solutions segment with 232 rigs, the International Solutions segment with 23 rigs, and the Offshore Gulf of Mexico segment with seven offshore platform rigs as of June 30, 2024.

At the close of the third quarter of fiscal year 2024, we had 161 active contracted rigs, of which 90 were under a fixed-term contract and 71 were working well-to-well, compared to 164 contracted rigs at September 30, 2023.

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

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With regards to our North America Solutions segment, we believe the current crude oil pricing environment and the desire of many of our customers to at least maintain their present production levels are supportive of current rig activity.

In contrast, the weakened natural gas pricing environment that began in calendar 2023 has caused some customers to keep their natural gas activity relatively low, and in some cases to further pull back on their planned activity levels in calendar 2024.

In contrast, the weakened natural gas pricing environment that began in calendar 2023 has persisted and caused some customers to keep their natural gas activity relatively low, and in some cases to further pull back on their planned activity levels in calendar 2024.

While the Company does have some exposure to customers drilling for natural gas, we believe our exposure to be limited.

In total, we expect the average level of capital spending by our customers in calendar year 2024 to remain flat to down by approximately 5% relative to calendar year 2023.

In total, we expect the average level of capital spending by our customers in calendar year 2024 to remain flat to down by approximately 5.0 percent relative to calendar year 2023.

As such, we do not expect much change in activity levels in calendar 2024 from where they are currently;

we exited March 31, 2024 with 152 active rigs in our North America Solutions segment.

we exited June 30, 2024 with 146 active rigs in our North America Solutions segment.

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During the past few quarters, there has been an increasing number of customer consolidations within the industry with larger E&P operators acquiring or merging with smaller E&P operators.

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Furthermore, due to the make-up of our customer base, we typically have an incumbent position with customers that tend to be the acquirers in these transactions.

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The overall demand for super-spec rigs in the U.S.

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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.

At present, activity levels in the International Solutions and Offshore Gulf of Mexico business segments are expected to remain relatively steady at current levels for the remainder of fiscal year 2024.

We are currently pursuing an international expansion strategy with the aim to provide growth and diversification for the Company with the understanding that such a strategy will take time and capital to execute.

During fiscal year 2024, we plan to continue to devote capital to our international expansion strategy and, in particular, to a recent contract award for seven super-spec rigs in the Kingdom of Saudi Arabia.

During the remainder of fiscal year 2024, we plan to continue to devote capital to our international expansion strategy and, in particular, to a recent contract award for seven super-spec rigs in the Kingdom of Saudi Arabia.

We had contemplated the capital spending necessary to prepare these rigs for export as part of our fiscal year 2024 capital expenditure budget.

A majority of these rigs are currently scheduled for delivery and customer acceptance during our first half of fiscal year 2025 and thus will have no revenue impact on fiscal year 2024 results.

Currently, activity levels in the International Solutions and Offshore Gulf of Mexico business segments are expected to remain relatively steady at current levels for the remainder of fiscal year 2024.

We currently have one rig in the Kingdom of Saudi Arabia related to a previous contract award;

that rig is preparing to commence operations and is expected to do so prior to the end of fiscal 2024

Over the past two years, the Company has experienced inflationary pressures related to labor and consumable inventory and more recently as a result of cost-acceleration related to running our rig fleet harder to achieve the well designs, lateral lengths and drilling efficiencies our customers demand.

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International Revenue Contracts

During the three months ended March 31, 2024, the Company finalized the contractual terms with Saudi Aramco for a seven super-spec FlexRig® tender award for work in the Kingdom of Saudi Arabia.

These rigs are expected to commence operations shortly after delivery, which is currently scheduled for the first half of fiscal year 2025.

These rigs will be sourced from our idle super-spec rigs in the U.S., converted to walking configurations, and further equipped to suit contractual specifications.

Additionally, in the Middle East we were successful in contracting one additional super-spec rig in Bahrain.

The rig to be utilized for this work is already located in the region as part of our Middle East hub and is expected to commence operations during the first half of fiscal year 2025.

In February 2024, the Company finalized the contractual terms with Saudi Aramco for a seven super-spec FlexRig® tender award for work in the Kingdom of Saudi Arabia.

These rigs are expected to commence operations shortly after delivery.

The rigs are being sourced from our idle super-spec rigs in the U.S., converted to walking configurations, and further equipped to suit contractual specifications.

Currently, we have a rig in country related to a previous contractual award that is preparing to commence operations.

KCA Deutag Acquisition

On July 25, 2024, H&P entered into a Sale and Purchase Agreement (the “Purchase Agreement”), among the Majority Sellers named therein (the "Majority Sellers"), the Management Seller named therein (the "Management Seller"), Ocorian Limited, a private company limited by shares incorporated in Jersey (together with the Majority Sellers and the Management Seller, the "Lead Sellers"), HP Global Holdings Limited, a private company limited by shares incorporated in Jersey and a wholly owned subsidiary of H&P (the "Purchaser"), and, for certain purposes set forth therein, KCA Deutag International Limited, a private company limited by shares incorporated in Jersey (the "Target" or "KCA Deutag").

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Pursuant to the terms of the Purchase Agreement, we have agreed to acquire the entire issued share capital of KCA Deutag (such purchase and sale, together with the other transactions contemplated by the Purchase Agreement, the “Acquisition”) for an aggregate cash purchase price of approximately $946.4 million (the “Unadjusted Purchase Price”), which is subject to customary downward adjustments at the closing for certain items of leakage occurring from December 31, 2023 to the closing, transaction costs and transaction-related bonuses.

In addition, to the extent certain German tax obligations of KCA Deutag remain outstanding prior to closing, a portion of the Unadjusted Purchase Price equal to EUR €75.4 million plus interest on such amount at an annual rate of 1.8 percent from October 1, 2024 until closing will be deposited into escrow at closing until such tax obligations are finally settled.

The Majority Sellers collectively own approximately 60.581 percent of KCA Deutag's outstanding shares, and the Purchaser will acquire the remaining minority shares of KCA Deutag through the exercise of a drag-along right.

The consummation of the Acquisition is subject to the satisfaction or waiver of a number of conditions set forth in the Purchase Agreement, including, (i) the receipt of certain antitrust approvals necessary to consummate the Acquisition, (ii) the accuracy of the warranties set forth in the Purchase Agreement and that certain Deed of Warranty, dated as of July 25, 2024, among the warrantors named therein and the Purchaser, (iii) the absence of a material adverse change with respect to KCA Deutag and its wholly owned subsidiaries and (iv) the compliance by the Lead Sellers and KCA Deutag in all material respects of their obligations under the Purchase Agreement.

Subject to the satisfaction of the conditions in the Purchase Agreement, the consummation of the Acquisition is expected to occur prior to the end of the 2024 calendar year.

Contract Backlog

As of March 31, 2024 and September 30, 2023, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.7 billion and $1.4 billion, respectively.

The increase in backlog from September 30, 2023 to March 31, 2024 is due to the Company finalizing contractual terms with Saudi Aramco for a seven super-spec FlexRig® tender award for work in the Kingdom of Saudi Arabia.

As of June 30, 2024 and September 30, 2023, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.5 billion and $1.4 billion, respectively.

The increase in backlog from September 30, 2023 to June 30, 2024 is primarily due to the Company finalizing contractual terms with Saudi Aramco for a seven super-spec FlexRig® tender award for work in the Kingdom of Saudi Arabia.

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

Approximately 66.6 percent of the March 31, 2024 total backlog is reasonably expected to be fulfilled in fiscal year 2025 and thereafter.

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The following table sets forth the total backlog by reportable segment as of March 31, 2024 and September 30, 2023, and the percentage of the March 31, 2024 backlog reasonably expected to be fulfilled in fiscal year 2025 and thereafter:

(in billions) March 31, 2024 September 30, 2023 Percentage Reasonably

Approximately 78.8 percent of the June 30, 2024 total backlog is reasonably expected to be fulfilled in fiscal year 2025 and thereafter.

The following table sets forth the total backlog by reportable segment as of June 30, 2024 and September 30, 2023, and the percentage of the June 30, 2024 backlog reasonably expected to be fulfilled in fiscal year 2025 and thereafter:

(in billions) June 30, 2024 September 30, 2023 Percentage Reasonably

Expected to be Fulfilled in Fiscal Year 2025

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Early terminations could cause the actual amount of revenue earned to vary from the backlog reported.

See Item 1A—"Risk Factors— Our current backlog of drilling services and solutions revenue may decline and may not be ultimately realized as fixed‑term contracts and may, in certain instances, be terminated without an early termination payment ” within our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), regarding fixed term contract risk.

Results of Operations for the Three Months Ended March 31, 2024 and 2023

Results of Operations for the Three Months Ended June 30, 2024 and 2023

Consolidated Results of Operations

Net Income We reported income of $84.8 million ($0.84 per diluted share) for the three months ended March 31, 2024 compared to income of $164.0 million ($1.55 per diluted share) for the three months ended March 31, 2023.

Operating Revenue Consolidated operating revenues were $687.9 million and $769.2 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease was primarily driven by lower activity levels in our North America Solutions and Offshore Gulf of Mexico segments.

Refer to segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $402.9 million and $450.3 million for the three months ended March 31, 2024 and 2023, respectively.

Net Income We reported income of $88.7 million ($0.88 per diluted share) for the three months ended June 30, 2024 compared to income of $95.3 million ($0.93 per diluted share) for the three months ended June 30, 2023.

Operating Revenue Consolidated operating revenues were $697.7 million and $724.0 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease was primarily driven by lower activity levels.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $418.2 million and $430.2 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease was primarily attributable to the aforementioned lower activity levels.

During the three months ended March 31, 2024, we recognized approximately $5.7 million in direct operating expenses associated with the fair value adjustment of contingent consideration related to potential earnout payments associated with our business acquisitions in fiscal year 2019, partially offset by a gain on involuntary conversion of a rig of approximately $5.5 million.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $62.0 million during the three months ended March 31, 2024 compared to $52.9 million during the three months ended March 31, 2023.

The increase was primarily due to a $4.8 million increase in labor and labor-related expenses.

Gain on Investment Securities During the three months ended March 31, 2024, we recognized an aggregate gain of $3.7 million on investment securities.

The gain was primarily due to a $8.3 million gain on our equity investment in ADNOC Drilling, partially offset by a $4.5 million loss on our investment in Tamboran Corp.;

both of which were a result of fluctuations in the fair market value of the stocks.

During the three months ended March 31, 2023, we recognized an aggregate gain of $39.8 million on investment securities.

The gain was primarily due to a $42.6 million gain on our equity investment in ADNOC Drilling, partially offset by a $3.0 million loss on our investment in Tamboran Corp.;

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Selling, General and Administrative Expense Selling, general and administrative expenses increased to $66.9 million during the three months ended June 30, 2024 compared to $49.3 million during the three months ended June 30, 2023.

The increase was primarily due to a $12.1 million increase in professional services, consulting, and IT related expenses and $4.7 million increase in labor and labor-related expenses.

Gain (Loss) on Investment Securities During the three months ended June 30, 2024, we recognized an aggregate gain of $0.4 million on investment securities.

The gain consisted of $5.6 million and $1.9 million gains on our equity investments in ADNOC Drilling and Tamboran Corp., respectively;

both of which were a result of increases in the fair market value of the stocks.

These gains were offset by a $7.1 million loss on investment recognized during the three months ended June 30, 2024 as a result of a Blue Chip Swap transaction that occurred during the period.

See—Note 2—Summary of Significant Accounting Policies, Related Risks and Uncertainties—International Solutions Drilling Risks for additional information related to the Blue Chip Swap.

During the three months ended June 30, 2023, we recognized an aggregate loss of $18.5 million on investment securities.

The loss was primarily due to $17.0 million and $1.5 million losses on our equity investments in ADNOC Drilling and Tamboran Corp., respectively;

both of which were a result of fluctuations in the fair market value of the stocks.

Income Taxes For the three months ended March 31, 2024, we had income tax expense of $32.2 million compared to income tax expense of $51.1 million for the three months ended March 31, 2023.

Income Taxes For the three months ended June 30, 2024, we recorded income tax expense of $33.7 million (which includes a discrete tax benefit of $0.8 million primarily related to provision to return adjustments) compared to income tax expense of $40.7 million (which includes discrete tax expense of $2.4 million primarily related to an increase in our deferred state income tax rate) for the three months ended June 30, 2023.

Our statutory federal income tax rate for fiscal year 2024 and 2023 is 21.0 percent (before incremental state and foreign taxes).

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North America Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % 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 $613.3 million and $675.8 million in the three months ended March 31, 2024 and 2023, respectively.

Operating Revenues Operating revenues were $620.0 million and $641.6 million in the three months ended June 30, 2024 and 2023, respectively.

The $21.6 million decrease in operating revenue was primarily due to a 9.2 percent decrease in activity levels partially offset by higher average pricing levels.

Direct Operating Expenses Direct operating expenses decreased to $341.9 million during the three months ended March 31, 2024 as compared to $379.6 million during the three months ended March 31, 2023.

Direct Operating Expenses Direct operating expenses decreased to $342.6 million during the three months ended June 30, 2024 as compared to $364.7 million during the three months ended June 30, 2023.

This decrease was primarily driven by lower activity levels, partially offset by an increase in per revenue day labor and materials and supplies expense.

Depreciation and Amortization Expense Depreciation and amortization expense increased to $97.6 million during the three months ended March 31, 2024 as compared to $89.1 million during the three months ended March 31, 2023.

The increase was primarily driven by $7.3 million of accelerated depreciation recognized during the three months ended March 31, 2024 for components on rigs that are scheduled for conversion in fiscal year 2024.

Research and Development Expense Research and development expense increased to $13.0 million during the three months ended March 31, 2024 as compared to $8.7 million during the three months ended March 31, 2023.

The increase was driven by an associated asset acquisition that occurred during the three months ended March 31, 2024.

Selling, General and Administrative Expense Selling, general and administrative expense decreased to $13.7 million during the three months ended March 31, 2024 as compared to $16.2 million during the three months ended March 31, 2023.

The decrease was driven by a $3.5 million decrease in professional service fees.

Depreciation and Amortization Expense Depreciation and amortization expense increased to $89.2 million during the three months ended June 30, 2024 as compared to $87.2 million during the three months ended June 30, 2023.

The increase was primarily driven by $2.7 million of accelerated depreciation recognized during the three months ended June 30, 2024 for components on rigs that are scheduled for conversion in fiscal year 2024.

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Selling, General and Administrative Expense Selling, general and administrative expense increased to $14.2 million during the three months ended June 30, 2024 as compared to $13.0 million during the three months ended June 30, 2023.

The increase was primarily driven by a $0.9 million increase in labor and labor-related expenses.

International Solutions

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % Change

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Selling, general and administrative expense 2,483 2,528 (1.8)

Segment operating income $ 3,569 $ 3,955 (9.8)

Segment operating loss

$ (4,844) $ (1,397) 246.7

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 were $45.9 million and $55.9 million in the three months ended March 31, 2024 and 2023, respectively.

The $10.0 million decrease in operating revenue was primarily due to a 17.8 percent decrease in activity levels.

Direct Operating Expenses Direct operating expenses decreased to $37.5 million during the three months ended March 31, 2024 as compared to $47.3 million during the three months ended March 31, 2023.

This decrease was also primarily driven by a 17.8 percent decrease in activity levels.

Operating Revenues Operating revenues were $47.9 million and $48.7 million in the three months ended June 30, 2024 and 2023, respectively.

The $0.8 million decrease in operating revenue was primarily due to a 12.2 percent decrease in activity levels partially offset by higher ancillary services revenue.

Direct Operating Expenses Direct operating expenses increased to $47.4 million during the three months ended June 30, 2024 as compared to $45.4 million during the three months ended June 30, 2023.

This increase was primarily driven by a $1.5 million increase in materials and supplies expense associated with the development of our Saudi Arabia operations.

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Offshore Gulf of Mexico

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % 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 $25.9 million and $35.0 million in the three months ended March 31, 2024 and 2023, respectively.

The $9.1 million decrease in operating revenue was primarily due to a 24.2 percent decrease in activity.

Direct Operating Expenses Direct operating expenses decreased to $23.0 million during the three months ended March 31, 2024 as compared to $25.7 million during the three months ended March 31, 2023.

This decrease was primarily driven by a decrease in activity levels as described above partially offset by a decrease in per revenue day labor and materials and supplies expense.

Operating Revenues Operating revenues were $27.2 million and $31.2 million in the three months ended June 30, 2024 and 2023, respectively.

The $4.0 million decrease in operating revenue was primarily due to a 25.0 percent decrease in activity partially offset by higher pricing.

Direct Operating Expenses Direct operating expenses decreased to $19.6 million during the three months ended June 30, 2024 as compared to $23.9 million during the three months ended June 30, 2023.

This decrease was primarily driven by a decrease in activity levels as described above partially offset by a decrease in per revenue day materials and supplies expense.

Other Operations

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

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2024 2023 % Change

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Selling, general and administrative expense 362 381 (5.0)

Operating income $ 2,785 $ 6,823 (59.2)

Operating income (loss)

$ (4,791) $ 2,104 (327.7)

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.

Operating revenues of $18.6 million and $20.2 million during the three months ended March 31, 2024 and 2023, respectively, primarily consisted of $15.8 million and $17.7 million, respectively, in intercompany premium revenues recorded by the Captives.

Operating revenues of $17.3 million and $19.8 million during the three months ended June 30, 2024 and 2023, respectively, primarily consisted of $14.7 million and $17.4 million, respectively, in intercompany premium revenues recorded by the Captives.

These revenues were eliminated upon consolidation.

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Direct Operating Expenses Direct operating expenses of $14.9 million and $12.7 million during the three months ended March 31, 2024 and 2023, respectively, primarily consisted of $1.6 million and $1.7 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $9.9 million and $10.9 million, respectively, and medical stop loss expenses of $3.2 million and $2.5 million, respectively.

Direct Operating Expenses Direct operating expenses of $21.4 million and $16.8 million during the three months ended June 30, 2024 and 2023, respectively, primarily consisted of $5.3 million and $5.5 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $9.5 million and $9.7 million, respectively, and medical stop loss expenses of $4.1 million and $2.1 million, respectively.

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

Results of Operations for the Six Months Ended March 31, 2024 and 2023

Results of Operations for the Nine Months Ended June 30, 2024 and 2023

Consolidated Results of Operations

Net Income We reported income of $180.0 million ($1.79 per diluted share) for the six months ended March 31, 2024 compared to income of $261.2 million ($2.46 per diluted share) for the six months ended March 31, 2023.

Operating Revenue Consolidated operating revenues were $1.4 billion and $1.5 billion for the six months ended March 31, 2024 and 2023, respectively.

The decrease was primarily driven by lower activity levels in our North America Solutions and Offshore Gulf of Mexico segments.

Refer to segment results below for further details.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $807.3 million and $879.7 million for the six months ended March 31, 2024 and 2023, respectively.

Net Income We reported income of $268.7 million ($2.67 per diluted share) for the nine months ended June 30, 2024 compared to income of $356.5 million ($3.39 per diluted share) for the nine months ended June 30, 2023.

Operating Revenue Consolidated operating revenues were $2.1 billion and $2.2 billion for the nine months ended June 30, 2024 and 2023, respectively.

The decrease was primarily driven by lower activity levels.

Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $1.2 billion and $1.3 billion for the nine months ended June 30, 2024 and 2023, respectively.

The decrease was primarily attributable to the aforementioned lower activity levels.

During the six months ended March 31, 2024, we recognized $5.7 million in direct operating expenses associated with the fair value adjustment of contingent consideration related to potential earnout payments associated with our business acquisitions in fiscal year 2019, partially offset by a gain on involuntary conversion of a rig of approximately $5.5 million.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $118.6 million during the six months ended March 31, 2024 compared to $101.3 million during the six months ended March 31, 2023.

Additionally, during the nine months ended June 30, 2024, we recognized $6.7 million in direct operating expenses associated with the fair value adjustment of contingent consideration related to potential earnout payments associated with our business acquisitions in fiscal year 2019, partially offset by a gain on involuntary conversion of a rig of approximately $5.5 million.

Selling, General and Administrative Expense Selling, general and administrative expenses increased to $185.5 million during the nine months ended June 30, 2024 compared to $150.6 million during the nine months ended June 30, 2023.

The increase was primarily due to a $16.6 million increase in labor and labor-related 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 and four international conventional drilling rigs, and assets previously classified as Assets held-for-sale and additional equipment were written down to scrap value.

and a $14.7 million increase in professional services, consulting, and IT related expense.

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 and four international conventional drilling rigs, and assets previously classified as Assets held-for-sale and additional equipment were written down to scrap value.

Refer to segment results below for further details.

Gain (Loss) on Investment Securities During the six months ended March 31, 2024, we recognized an aggregate loss of $0.3 million on investment securities.

The loss was primarily due to a $2.1 million loss on our equity investment in ADNOC Drilling, partially offset by a $1.8 million gain on our investment in Tamboran Corp.;

Gain on Investment Securities During the nine months ended June 30, 2024, we recognized an aggregate gain of $0.1 million on investment securities.

The gain consisted of $3.7 million and $3.5 million gains on our equity investments in Tamboran Corp.

and ADNOC Drilling;

both of which were a result of increases in the fair market values of the stocks.

The gains on our equity investments in Tamboran Corp.

and ADNOC Drilling were offset by a $7.1 million loss on investment recognized during the nine months ended June 30, 2024 as a result of a Blue Chip Swap transaction that occurred during the period.

See Note 2—Summary of Significant Accounting Policies, Related Risks and Uncertainties—International Solutions Drilling Risks for additional details related to the Blue Chip Swap.

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

The gain was primarily due to a $7.4 million gain on our equity investment in ADNOC Drilling, partially offset by a $1.5 million loss on our investment in Tamboran Corp.;

both of which were a result of fluctuations in the fair market value of the stocks.

During the six months ended March 31, 2023, we recognized an aggregate gain of $24.7 million on investment securities.

The gain was primarily due to a $24.4 million gain on our equity investment in ADNOC Drilling caused by an increase in the fair market value of the stock.

Income Taxes For the six months ended March 31, 2024 we had income tax expense of $62.3 million (which includes a discrete tax benefit of $0.9 million related to equity compensation) compared to income tax expense of $83.5 million (which includes a discrete tax expense of $0.2 million related to equity compensation) for the six months ended March 31, 2023.

Income Taxes For the nine months ended June 30, 2024 we recorded income tax expense of $96.0 million (which includes a discrete tax benefit of $1.6 million primarily related to equity compensation and return to provision adjustments) compared to income tax expense of $124.2 million for the nine months ended June 30, 2023 (which includes a discrete tax expense of $2.3 million primarily related to an increase in our deferred state income tax rate and equity compensation).

Our statutory federal income tax rate for fiscal year 2024 and 2023 is 21.0 percent (before incremental state and foreign taxes).

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North America Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % 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 $1.2 billion and $1.3 billion in the six months ended March 31, 2024 and 2023, respectively.

Operating Revenues Operating revenues were $1.8 billion and $1.9 billion in the nine months ended June 30, 2024 and 2023, respectively.

The $0.1 billion decrease in operating revenue was primarily due to a 13.8 percent decrease in activity levels partially offset by higher average pricing levels.

Direct Operating Expenses Direct operating expenses decreased to $680.1 million during the six months ended March 31, 2024 as compared to $746.5 million during the six months ended March 31, 2023.

This decrease was primarily driven by lower activity levels, partially offset by a decrease in per revenue day labor and materials and supplies expense.

Depreciation and Amortization Expense Depreciation and amortization expense increased to $184.6 million during the six months ended March 31, 2024 as compared to $178.9 million during the six months ended March 31, 2023.

The increase was primarily driven by $8.2 million of accelerated depreciation recognized during the six months ended March 31, 2024 for components on rigs that are scheduled for conversion in fiscal year 2024.

Research and Development Expense Research and development expense increased to $21.7 million during the six months ended March 31, 2024 as compared to $15.8 million during the six months ended March 31, 2023.

The increase was driven by an associated asset acquisition that occurred during the six months ended March 31, 2024.

Asset Impairment Charges During the six months ended March 31, 2023, assets that were previously classified as Assets held-for-sale 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 six months ended March 31, 2023.

Direct Operating Expenses Direct operating expenses decreased to $1.0 billion during the nine months ended June 30, 2024 as compared to $1.1 billion during the nine months ended June 30, 2023.

This decrease was primarily driven by lower activity levels, partially offset by an increase in per revenue day labor and materials and supplies expense.

Depreciation and Amortization Expense Depreciation and amortization expense increased to $273.8 million during the nine months ended June 30, 2024 as compared to $266.1 million during the nine months ended June 30, 2023.

The increase was primarily driven by $10.9 million of accelerated depreciation recognized during the nine months ended June 30, 2024 for components on rigs that are scheduled for conversion in fiscal year 2024.

Research and Development Expense Research and development expense increased to $32.3 million during the nine months ended June 30, 2024 as compared to $23.1 million during the nine months ended June 30, 2023.

The increase was driven by an associated asset acquisition that occurred during the nine months ended June 30, 2024, as well as costs related to expanded project scopes.

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

During the same period, we also identified additional equipment that met the asset held-for-sale criteria and were 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.

Q3 FY24 FORM 10-Q | 37

International Solutions

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % 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 $100.6 million and $110.7 million in the six months ended March 31, 2024 and 2023, respectively.

The $10.1 million decrease in operating revenue was primarily due to an 8.0 percent decrease in activity levels partially offset by higher average pricing levels.

Direct Operating Expenses Direct operating expenses decreased to $82.0 million during the six months ended March 31, 2024 as compared to $88.3 million during the six months ended March 31, 2023.

This decrease was also primarily driven by a 8.0 percent decrease in 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.

Operating Revenues Operating revenues were $148.5 million and $159.4 million in the nine months ended June 30, 2024 and 2023, respectively.

The $10.9 million decrease in operating revenue was primarily due to an 9.4 percent decrease in activity levels partially offset by higher average pricing levels and higher ancillary services revenue.

Direct Operating Expenses Direct operating expenses decreased to $129.5 million during the nine months ended June 30, 2024 as compared to $133.6 million during the nine months ended June 30, 2023.

This decrease was primarily driven by a 9.4 percent decrease in activity levels partially offset by higher per revenue day labor expenses.

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 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 during the six months ended March 31, 2023.

Q3 FY24 FORM 10-Q | 38

Offshore Gulf of Mexico

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands, except operating statistics) 2024 2023 % Change

22 unchanged sentences

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

Operating Revenues Operating revenues were $51.4 million and $70.1 million in the six months ended March 31, 2024 and 2023, respectively.

Operating Revenues Operating revenues were $78.7 million and $101.4 million in the nine months ended June 30, 2024 and 2023, respectively.

The $22.7 million decrease in operating revenue was primarily due to a 23.5 percent decrease in activity levels.

Direct Operating Expenses Direct operating expenses decreased to $42.6 million during the six months ended March 31, 2024 as compared to $51.4 million during the six months ended March 31, 2023.

Direct Operating Expenses Direct operating expenses decreased to $62.2 million during the nine months ended June 30, 2024 as compared to $75.3 million during the nine months ended June 30, 2023.

This decrease was primarily driven by a decrease in activity levels as described above.

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

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2024 2023 % Change

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Selling, general and administrative expense 1,065 869 22.6

Operating income

Operating income (loss)

$ (2,073) $ 13,604 (115.2)

Operating revenues of $36.4 million and $39.1 million during the six months ended March 31, 2024 and 2023, respectively, primarily consisted of $31.0 million and $34.1 million, respectively, in intercompany premium revenues recorded by the Captives.

Operating revenues of $53.6 million and $58.9 million during the nine months ended June 30, 2024 and 2023, respectively, primarily consisted of $45.7 million and $51.4 million, respectively, in intercompany premium revenues recorded by the Captives.

These revenues were eliminated upon consolidation.

Direct Operating Expenses Direct operating expenses of $32.0 million and $26.2 million during the six months ended March 31, 2024 and 2023, respectively, primarily consisted of $5.1 million and $4.7 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $19.0 million and $20.9 million, respectively, and medical stop loss expenses of $7.3 million and $5.3 million, respectively.

Direct Operating Expenses Direct operating expenses of $53.4 million and $43.0 million during the nine months ended June 30, 2024 and 2023, respectively, primarily consisted of $10.4 million and $10.2 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $28.5 million and $30.6 million, respectively, and medical stop loss expenses of $11.4 million and $7.4 million, respectively.

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

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As our revenues increase, operating net working capital is typically a use of capital, while conversely, as our revenues decrease, operating net working capital is typically a source of capital.

To date, general inflationary trends have not had a material effect on our operating margins or cash flows as we have been able to offset these cumulative cost trends with rate increases.

As of March 31, 2024, we had cash and cash equivalents of $193.6 million , restricted cash of $68.5 million and short-term investments of $83.4 million .

Our cash flows for the six months ended March 31, 2024, and 2023 are presented below:

Six Months Ended March 31,

As of June 30, 2024, we had cash and cash equivalents of $203.6 million, restricted cash of $78.4 million and short-term investments of $86.1 million.

Our cash flows for the nine months ended June 30, 2024, and 2023 are presented below:

Nine Months Ended June 30,

(in thousands) 2024 2023

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Financing activities (196,145) (414,992)

Net decrease in cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents and restricted cash

$ (34,236) $ 12,964

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Operating Activities

Our operating net working capital (non-GAAP) as of March 31, 2024 and September 30, 2023 is presented below:

March 31, September 30,

Our operating net working capital (non-GAAP) as of June 30, 2024 and September 30, 2023 is presented below:

June 30, September 30,

(in thousands) 2024 2023

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Operating net working capital (non-GAAP) $ 250,535 $ 239,648

Cash flows provided by operating activities were approximately $318.5 million and $326.3 million for the six months ended March 31, 2024 and 2023, respectively.

Cash flows provided by operating activities were approximately $515.9 million and $619.0 million for the nine months ended June 30, 2024 and 2023, respectively.

The change in cash provided by operating activities is primarily driven by lower activity levels partially offset by higher average pricing levels and a reduced negative impact from increases 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, assets held-for-sale, and prepaid property, plant and equipment, less current liabilities, excluding dividends payable.

Operating net working capital was $262.1 million and $239.6 million as of March 31, 2024 and September 30, 2023, respectively.

Operating net working capital was $250.5 million and $239.6 million as of June 30, 2024 and September 30, 2023, respectively.

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

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Investing Activities

Capital Expenditures Our capital expenditures during the six months ended March 31, 2024 were $254.7 million compared to $181.5 million during the six months ended March 31, 2023.

Capital Expenditures Our capital expenditures during the nine months ended June 30, 2024 were $389.1 million compared to $281.8 million during the nine months ended June 30, 2023.

The increase in capital expenditures is driven by the timing of procurement associated with equipment overhauls and certain long-term projects including the procurement of long lead items for international expansion projects.

Net Sales of Short-Term Investments Our net sales of short-term investments during the six months ended March 31, 2024 were $12.4 million compared to net sales of $33.3 million during the six months ended March 31, 2023.

Net Sales of Short-Term Investments Our net sales of short-term investments during the nine months ended June 30, 2024 were $3.6 million compared to net sales of $46.5 million during the nine months ended June 30, 2023.

The change in activity is driven by our ongoing liquidity management.

Purchases of Long-Term Investments Our purchases of long-term investments during the six months ended March 31, 2024 were $8.0 million compared to $18.8 million during the six months ended March 31, 2023.

During the six months ended March 31, 2024, our activity was driven by $8.0 million in purchases of various equity and debt securities.

The activity during the six months ended March 31, 2023 was driven by our $14.1 million equity investment in Tamboran Corp.

Additionally, the Central Bank of Argentina's currency controls continue to limit our ability to access U.S.

dollars in Argentina and remit cash from our Argentine operations.

The execution of certain trades known as Blue Chip Swaps effectively results in a parallel U.S.

dollar exchange rate.

During the nine months ended June 30, 2024 , we entered into a Blue Chip Swap transaction, which resulted in a $7.1 million loss on investment recorded in Gain (loss) on investment securities within our Unaudited Condensed Consolidated Statements of Operations.

As a result of the Blue Chip Swap transaction, $13.8 million of net cash was repatriated to the U.S.

during the period.

Purchases of Long-Term Investments Our purchases of long-term investments during the nine months ended June 30, 2024 were $9.2 million compared to $18.8 million during the nine months ended June 30, 2023.

Our activity during the nine months ended June 30, 2024 was driven by $9.2 million in purchases of various equity and debt securities.

The activity during the nine months ended June 30, 2023 was driven by our $14.1 million equity investment in Tamboran Corp and $4.1 million in various geothermal energy companies debt and equity securities.

Insurance Proceeds from Involuntary Conversion I n November 2022, a fire at a wellsite caused substantial damage to one of our super spec-rigs within our North America Solutions segment.

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At the time of the loss, the rig was fully insured under replacement cost insurance.

During the six months ended March 31, 2024, we collected $5.0 million of the total expected insurance proceeds.

The total insurance proceeds received during the period exceeds the recognized loss and therefore was recognized as a gain within operating income during the three months ended March 31, 2024.

Sale of Assets Our proceeds from asset sales during the six months ended March 31, 2024 were $20.9 million compared to proceeds of $47.7 million during the six months ended March 31, 2023.

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

During the nine months ended June 30, 2024, we collected $5.5 million of the total expected insurance proceeds.

The total insurance proceeds received during the period exceeds the recognized loss and therefore was recognized as a gain within operating income during the nine months ended June 30, 2024.

Q3 FY24 FORM 10-Q | 41

Sale of Assets Our proceeds from asset sales during the nine months ended June 30, 2024 were $35.1 million compared to proceeds of $63.0 million during the nine months ended June 30, 2023.

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

Financing Activities

Dividends We paid dividends of $0.84 per share, comprised of a base cash dividend of $0.50 and a supplemental cash dividend of $0.34, during the six months ended March 31, 2024.

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

Total dividends paid were $84.4 million and $102.9 million during the six months ended March 31, 2024 and 2023, respectively.

Dividends We paid dividends of $1.26 per share, comprised of a base cash dividend of $0.75 and a supplemental cash dividend of $0.51, during the nine months ended June 30, 2024.

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

Total dividends paid were $126.4 million and $152.6 million during the nine months ended June 30, 2024 and 2023, respectively.

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.

The repurchases are made using our cash and cash equivalents or other available sources.

During the six months ended March 31, 2024, we repurchased 1.4 million common shares at an aggregate cost of $51.6 million, including excise tax of $0.3 million.

During the 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).

During the nine months ended June 30, 2024, we repurchased 1.4 million common shares at an aggregate cost of $51.6 million, including excise tax of $0.3 million.

During the nine months ended June 30, 2023, we repurchased 6.5 million common shares at an aggregate cost of $249.0 million, including excise tax of $1.8 million.

2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S.

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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, 2024, 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, 2024, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility.

For a full description of the 2018 Credit Facility, see Note 6—Debt to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K.

As of March 31, 2024, 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, 2024.

As of June 30, 2024, we had $120.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds.

Of the $120.0 million, $41.7 million was outstanding as of June 30, 2024.

Separately, we had $5.0 million in standby letters of credit and bank guarantees outstanding.

In total, we had $45.0 million outstanding as of March 31, 2024.

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

At March 31, 2024, we were in compliance with all debt covenants.

In total, we had $46.7 million outstanding as of June 30, 2024.

Q3 FY24 FORM 10-Q | 42

At June 30, 2024, we were in compliance with all debt covenants.

Future Cash Requirements

Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2024 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 2024 and 2025 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, 2024 and matures on September 29, 2031.

As of March 31, 2024, we had a $502.1 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, 2024 and matures on September 29, 2031.

As of June 30, 2024, we had a $494.4 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 capital expenditures over the last several years have been subject to accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of cash tax payments to future years.

Future levels of capital expenditures and results of operations will determine the timing and amount of future cash tax payments.

We expect to be able to meet any such obligations utilizing cash and investments on hand, as well as cash generated from ongoing operations.

As of March 31, 2024, we have recorded unrecognized tax benefits and related interest and penalties of approximately $3.4 million.

We believe it is reasonably possible that up to $2.8 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.

We expect to be able to meet any such obligations, other than those related to the Acquisition, utilizing cash and investments on hand, as well as cash generated from ongoing operations.

In connection with the Acquisition, we entered into a debt commitment letter dated July 25, 2024 with Morgan Stanley Senior Funding, Inc.

(“MSSF”), pursuant to which MSSF has committed, subject to satisfaction of standard conditions, to provide us with an unsecured bridge loan facility in an aggregate principal amount of $1.9725 billion (the “Bridge Loan Facility”).

We currently intend to fund the Acquisition and related fees, costs and expenses with a combination of cash on hand, borrowings and through one or more debt capital markets or loan facility transactions, subject to market conditions and other factors, and utilize, only to the extent necessary, borrowings under the Bridge Loan Facility.

As of June 30, 2024, we have recorded unrecognized tax benefits and related interest and penalties of approximately $0.7 million.

During the three months ended June 30, 2024, $2.7 million of the unrecognized tax benefits, interest and penalties was recognized as a result of a lapse of the statute of limitations.

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

A base cash dividend of $0.25 per share and a quarterly supplemental cash dividend of $0.17 per share were declared on February 28, 2024 for shareholders of record on May 17, 2024, payable on May 31, 2024, resulting in a Dividend payable of $42.0 million on our Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024.

The long‑term debt to total capitalization ratio was 16.4 percent and 16.6 percent at March 31, 2024 and September 30, 2023, respectively.

A base cash dividend of $0.25 per share and a quarterly supplemental cash dividend of $0.17 per share were declared on June 5, 2024 for shareholders of record on August 16, 2024, payable on August 30, 2024, resulting in a Dividend payable of $42.0 million on our Unaudited Condensed Consolidated Balance Sheets as of June 30, 2024.

The long‑term debt to total capitalization ratio was 16.1 percent and 16.6 percent at June 30, 2024 and September 30, 2023, respectively.

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 2023 Annual Report on Form 10-K have not changed significantly as of March 31, 2024, other than those disclosed in Note 11—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Material commitments as reported in our 2023 Annual Report on Form 10-K have not changed significantly as of June 30, 2024, other than those disclosed in Note 11—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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See Note 2—Summary of Significant Accounting Policies, Related Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for new accounting standards not yet adopted.

Q3 FY24 FORM 10-Q | 43

Non-GAAP Measurements

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GAAP financial measures.

Q2FY24 FORM 10-Q | 41

The following table reconciles direct margin to segment operating income, which we believe is the financial measure calculated and presented in accordance with U.S.

The following table reconciles direct margin to segment operating income (loss), which we believe is the financial measure calculated and presented in accordance with U.S.

GAAP that is most directly comparable to direct margin.

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

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

Segment operating income $ 147,130 $ 3,569 $ 78

Segment operating income (loss)

$ 163,359 $ (4,844) $ 5,010

Depreciation and amortization 89,207 2,797 1,798

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Direct margin (Non-GAAP) $ 277,423 $ 436 $ 7,607

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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

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

Segment operating income (loss)

$ 169,499 $ (1,397) $ 4,705

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

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

Six Months Ended March 31, 2024

Nine Months Ended June 30, 2024

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

4 unchanged sentences

Direct margin (Non-GAAP) $ 804,898 $ 19,033 $ 16,462

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

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

5 unchanged sentences

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

Q3 FY24 FORM 10-Q | 44

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