Helmerich & Payne, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 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. The inclusion of such statements should not be regarded as a representation that such plans, estimates, or expectations will be achieved. 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; • contracting of our rigs and actions by current or potential customers; • the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations (together, “OPEC+”) with respect to production levels or other matters related to the prices of oil and natural gas; • changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of global capital markets and liquidity, changes in prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs, or increase our capital expenditures and the construction, upgrade or acquisition of rigs; • the impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic; • changes in worldwide rig supply and demand, competition, or technology; • possible cancellation, suspension, renegotiation or termination (with or without cause) of our contracts as a result of general or industry-specific economic conditions, mechanical difficulties, performance or other reasons; • expansion and growth of our business and operations; • our belief that the final outcome of our legal proceedings will not materially affect our financial results; • 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; Q3 FY24 FORM 10-Q | 29 Table of Contents • 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; • our financial condition and liquidity; • tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes; • the occurrence of 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; • potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change related changes in the frequency and severity of weather patterns; • potential long-lived asset impairments; and • our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any related reputational risks as a result of execution of this strategy. 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. We assume no duty to update or revise these forward‑looking statements based on changes in internal estimates, expectations or otherwise, except as required by law. Executive Summary Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies. As 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. As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times, volatile market conditions and to take advantage of future opportunities. Market Outlook 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 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 5.0 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 June 30, 2024 with 146 active rigs in our North America Solutions segment. Q3 FY24 FORM 10-Q | 30 Table of Contents 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. We have seen this phenomenon having a near-term modestly negative affect on overall rig demand as the consolidated entity moves forward with fewer rigs than the two previous entities would have on a stand alone basis. We believe we are less impacted by these consolidations as it appears the demand for super-spec rigs is to a lesser extent affected by these consolidations than the demand for non-super-spec rigs. 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. The overall demand for super-spec rigs in the U.S. remains relatively strong and while some readily available idle super-spec capacity exists in the market, we do not believe it is to a level that would have a significant impact on our rig pricing. We expect this supply-demand dynamic combined with the value proposition we provide our customers through our drilling expertise, high-quality FlexRig® fleet, and automation technology to result in our ability to maintain and possibly improve upon current contract economics. Collectively, our other business segments, International Solutions and Offshore Gulf of Mexico, are exposed to the same macro commodity price environment affecting our North America Solutions segment; however, activity levels in the International Solutions segment are also subject to other various geopolitical and financial factors specific to the countries of our operations. 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 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. 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. The inflationary forces have abated, and the financial impacts were partially mitigated by pass-through mechanisms in our contracts. However, the performance and efficiency gains we achieve require us to continue to push the service intensity of our rigs and equipment. Accordingly, we expect operational expenses to remain at elevated levels compared to recent years. Additionally, we are also experiencing inflationary pressures in our non-operational expenses particularly around labor and third-party services. As a consequence of these pressures, we continue to project an increase in our selling, general and administrative expenses during fiscal year 2024. Recent Developments International Revenue Contracts 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"). Q3 FY24 FORM 10-Q | 31 Table of Contents 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 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 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 and Thereafter North America Solutions $ 0.8 $ 1.1 64.6 % International Solutions 0.7 0.3 95.2 Offshore Gulf of Mexico — — — $ 1.5 $ 1.4 The early termination of a contract may result in a rig being idle for an extended period of time, which could adversely affect our financial condition, results of operations and cash flows. In some limited circumstances, such as sustained unacceptable performance by us, no early termination payment would be paid to us. Early terminations could cause the actual amount of revenue earned to vary from the backlog reported. See Item 1A—"Risk Factors— Our current backlog of drilling services and solutions revenue may 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 SEC, regarding fixed term contract risk. Results of Operations for the Three Months Ended June 30, 2024 and 2023 Consolidated Results of Operations 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. Q3 FY24 FORM 10-Q | 32 Table of Contents 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 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). North America Solutions Three Months Ended June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 620,040 $ 641,612 (3.4) % Direct operating expenses 342,617 364,688 (6.1) Depreciation and amortization 89,207 87,209 2.3 Research and development 10,623 7,254 46.4 Selling, general and administrative expense 14,234 12,962 9.8 Segment operating income $ 163,359 $ 169,499 (3.6) Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 277,423 $ 276,924 0.2 Revenue days 3 13,683 15,075 (9.2) Average active rigs 4 150 166 (9.2) Number of active rigs at the end of period 5 146 153 (4.6) Number of available rigs at the end of period 232 233 (0.4) Reimbursements of "out-of-pocket" expenses $ 74,915 $ 82,688 (9.4) (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 91 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. 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 $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 $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. Q3 FY24 FORM 10-Q | 33 Table of Contents 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 June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 47,882 $ 48,692 (1.7) % Direct operating expenses 47,446 45,390 4.5 Depreciation 2,797 2,171 28.8 Selling, general and administrative expense 2,483 2,528 (1.8) Segment operating loss $ (4,844) $ (1,397) 246.7 Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 436 $ 3,302 (86.8) Revenue days 3 1,067 1,215 (12.2) Average active rigs 4 12 13 (12.2) Number of active rigs at the end of period 5 12 13 (7.7) Number of available rigs at the end of period 23 22 4.5 Reimbursements of "out-of-pocket" expenses $ 2,069 $ 2,098 (1.4) (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 91 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. 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. Q3 FY24 FORM 10-Q | 34 Table of Contents Offshore Gulf of Mexico Three Months Ended June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 27,218 $ 31,221 (12.8) % Direct operating expenses 19,611 23,913 (18.0) Depreciation 1,798 1,873 (4.0) Selling, general and administrative expense 799 730 9.5 Segment operating income $ 5,010 $ 4,705 6.5 Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 7,607 $ 7,308 4.1 Revenue days 3 273 364 (25.0) Average active rigs 4 3 4 (25.0) Number of active rigs at the end of period 5 3 4 (25.0) Number of available rigs at the end of period 7 7 — Reimbursements of "out-of-pocket" expenses $ 7,746 $ 7,823 (1.0) (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 91 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. 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 June 30, (in thousands) 2024 2023 % Change Operating revenues $ 17,261 $ 19,790 (12.8) % Direct operating expenses 21,413 16,790 27.5 Depreciation 277 515 (46.2) Selling, general and administrative expense 362 381 (5.0) 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 $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. Q3 FY24 FORM 10-Q | 35 Table of Contents 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 Nine Months Ended June 30, 2024 and 2023 Consolidated Results of Operations 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. 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; 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 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. 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). Q3 FY24 FORM 10-Q | 36 Table of Contents North America Solutions Nine Months Ended June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 1,827,661 $ 1,944,555 (6.0) % Direct operating expenses 1,022,763 1,111,154 (8.0) Depreciation and amortization 273,799 266,093 2.9 Research and development 32,318 23,051 40.2 Selling, general and administrative expense 43,802 43,364 1.0 Asset impairment charges — 3,948 (100.0) Segment operating income $ 454,979 $ 496,945 (8.4) Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 804,898 $ 833,401 (3.4) Revenue days 3 41,516 48,142 (13.8) Average active rigs 4 152 176 (13.8) Number of active rigs at the end of period 5 146 153 (4.6) Number of available rigs at the end of period 232 233 (0.4) Reimbursements of "out-of-pocket" expenses $ 218,227 $ 239,288 (8.8) (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 274 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. 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 $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. 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 nine months ended June 30, 2023. 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 nine months ended June 30, 2023. Q3 FY24 FORM 10-Q | 37 Table of Contents International Solutions Nine Months Ended June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 148,512 $ 159,383 (6.8) Direct operating expenses 129,479 133,642 (3.1) Depreciation 7,549 5,215 44.8 Selling, general and administrative expense 7,336 8,245 (11.0) Asset impairment charges — 8,149 (100.0) Segment operating income $ 4,148 $ 4,132 0.4 Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 19,033 $ 25,741 (26.1) Revenue days 3 3,278 3,618 (9.4) Average active rigs 4 12 13 (9.4) Number of active rigs at the end of period 5 12 13 (7.7) Number of available rigs at the end of period 23 22 4.5 Reimbursements of "out-of-pocket" expenses $ 7,417 $ 7,743 (4.2) (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 274 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period 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 nine months ended June 30, 2023. Q3 FY24 FORM 10-Q | 38 Table of Contents Offshore Gulf of Mexico Nine Months Ended June 30, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 78,662 $ 101,364 (22.4) % Direct operating expenses 62,200 75,292 (17.4) Depreciation 5,807 5,671 2.4 Selling, general and administrative expense 2,515 2,263 11.1 Segment operating income $ 8,140 $ 18,138 (55.1) Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 16,462 $ 26,072 (36.9) Revenue days 3 835 1,092 (23.5) Average active rigs 4 3 4 (23.5) Number of active rigs at the end of period 5 3 4 (25.0) Number of available rigs at the end of period 7 7 — Reimbursements of "out-of-pocket" expenses $ 24,430 $ 23,006 6.2 (1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. (2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin. (3) Defined as the number of contractual days we recognized revenue for during the period. (4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 274 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period 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 $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. Other Operations Results of our other operations, excluding corporate selling, general and administrative costs, and corporate depreciation, are as follows: Nine Months Ended June 30, (in thousands) 2024 2023 % Change Operating revenues $ 53,628 $ 58,936 (9.0) % Direct operating expenses 53,412 43,035 24.1 Depreciation 1,224 1,428 (14.3) Selling, general and administrative expense 1,065 869 22.6 Operating income (loss) $ (2,073) $ 13,604 (115.2) 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 $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 $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. Q3 FY24 FORM 10-Q | 39 Table of Contents Liquidity and Capital Resources Sources of Liquidity Our sources of available liquidity include existing cash balances on hand, cash flows from operations, and availability under the 2018 Credit Facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital expenditure projects, paying dividends declared, and repaying our outstanding indebtedness. Historically, we have financed operations primarily through internally generated cash flows. During periods when internally generated cash flows are not sufficient to meet liquidity needs, we may utilize cash on hand, borrow from available credit sources, access capital markets or sell our investments. Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we may return cash to shareholders through dividends or share repurchases, or we may invest in highly rated short‑term money market and debt securities. These investments can include U.S. Treasury securities, U.S. Agency issued debt securities, highly rated corporate bonds and commercial paper, certificates of deposit and money market funds. However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable. See—Note 2—Summary of Significant Accounting Policies, Related Risks and Uncertainties—International Solutions Drilling Risks. We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under the 2018 Credit Facility. Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating, market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our capital expenditure commitments. Cash Flows Our cash flows fluctuate depending on a number of factors, including, among others, the number of our drilling rigs under contract, the revenue we receive under those contracts, the efficiency with which we operate our drilling rigs, the timing of collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital expenditures. As our revenues increase, operating net working capital is typically a use of capital, while conversely, as our revenues decrease, operating net working capital is typically a source of capital. 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 Net cash provided by (used in): Operating activities $ 515,907 $ 619,000 Investing activities (353,998) (191,044) Financing activities (196,145) (414,992) Net increase (decrease) in cash and cash equivalents and restricted cash $ (34,236) $ 12,964 Q3 FY24 FORM 10-Q | 40 Table of Contents Operating Activities 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 Total current assets $ 970,319 $ 1,006,625 Less: Cash and cash equivalents 203,633 257,174 Short-term investments 86,088 93,600 Assets held-for-sale — 645 Prepaid property, plant and equipment 15,316 21,821 665,282 633,385 Total current liabilities 456,792 418,931 Less: Dividends payable 42,045 25,194 $ 414,747 $ 393,737 Operating net working capital (non-GAAP) $ 250,535 $ 239,648 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 $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. The Company considers operating net working capital to be a supplemental measure for presenting and analyzing trends in our cash flows from operations over time. Likewise, the Company believes that operating net working capital is useful to investors because it provides a means to evaluate the operating performance of the business using criteria that are used by our internal decision makers. Investing Activities 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 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. 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. The major components were destroyed beyond repair and considered a total loss, and, as a result, these assets were written off and the rig was removed from our available rig count. At the time of the loss, the rig was fully insured under replacement cost insurance. 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 Table of Contents 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 $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 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. Senior Notes 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. persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”). Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022. In June 2022, we settled a registered exchange offer (the “Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes. All of the 2031 Notes were exchanged in the Registered Exchange Offer. The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes. Credit Facility On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024. On April 16, 2021, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit Facility were amended in connection with this extension. On March 8, 2022, we entered into the second amendment to the 2018 Credit Facility, which, among other things, raised the number of potential future extensions of the maturity date applicable to extending lenders from one to two such potential extensions and replaced provisions in respect of interest rate determinations that were based on the London Interbank Offered Rate with provisions based on the Secured Overnight Financing Rate. Additionally, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 12, 2025 to November 11, 2026. On February 10, 2023, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 11, 2026 to November 12, 2027. The remaining $70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date. The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. As 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 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 $46.7 million outstanding as of June 30, 2024. Q3 FY24 FORM 10-Q | 42 Table of Contents 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 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 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. If needed, we may decide to obtain additional funding from our $750.0 million 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility. Our indebtedness under our unsecured senior notes totaled $550.0 million 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, 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 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. There were no other significant changes in our financial position since September 30, 2023. Material Commitments 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 Our accounting policies and estimates that are critical or the most important to understand our financial condition and results of operations, and that require management to make the most difficult judgments, are described in our 2023 Annual Report on Form 10-K. There have been no material changes in these critical accounting policies and estimates. Recently Issued Accounting Standards 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 Table of Contents Non-GAAP Measurements Direct Margin Direct margin is considered a non-GAAP metric. We define "Direct margin" as operating revenues less direct operating expenses. Direct margin is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. Direct margin is not a substitute for financial measures prepared in accordance with U.S. GAAP and should therefore be considered only as supplemental to such U.S. GAAP financial measures. The following table reconciles direct margin to segment operating income (loss), which we believe is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to direct margin. Three Months Ended June 30, 2024 (in thousands) North America Solutions International Solutions Offshore Gulf of Mexico Segment operating income (loss) $ 163,359 $ (4,844) $ 5,010 Add back: Depreciation and amortization 89,207 2,797 1,798 Research and development 10,623 — — Selling, general and administrative expense 14,234 2,483 799 Direct margin (Non-GAAP) $ 277,423 $ 436 $ 7,607 Three Months Ended June 30, 2023 (in thousands) North America Solutions International Solutions Offshore Gulf of Mexico Segment operating income (loss) $ 169,499 $ (1,397) $ 4,705 Add back: Depreciation and amortization 87,209 2,171 1,873 Research and development 7,254 — — Selling, general and administrative expense 12,962 2,528 730 Direct margin (Non-GAAP) $ 276,924 $ 3,302 $ 7,308 Nine Months Ended June 30, 2024 (in thousands) North America Solutions International Solutions Offshore Gulf of Mexico Segment operating income $ 454,979 $ 4,148 $ 8,140 Add back: Depreciation and amortization 273,799 7,549 5,807 Research and development 32,318 — — Selling, general and administrative expense 43,802 7,336 2,515 Direct margin (Non-GAAP) $ 804,898 $ 19,033 $ 16,462 Nine Months Ended June 30, 2023 (in thousands) North America Solutions International Solutions Offshore Gulf of Mexico Segment operating income $ 496,945 $ 4,132 $ 18,138 Add back: Depreciation and amortization 266,093 5,215 5,671 Research and development 23,051 — — Selling, general and administrative expense 43,364 8,245 2,263 Asset impairment charges 3,948 8,149 — Direct margin (Non-GAAP) $ 833,401 $ 25,741 $ 26,072 Q3 FY24 FORM 10-Q | 44 Table of Contents