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 statements include, but are not limited to, statements regarding the Acquisition (as defined herein) and the anticipated benefits; and impact of such transaction, the timing and terms of recommencement of suspended rigs related to the Acquisition, 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 to achieve the strategic and other objectives relating to the Acquisition; • the risk that we are unable to integrate KCA Deutag International Limited's ("KCA Deutag") 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, state and foreign 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; • 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 conflicts in Israel, and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy); Q1 FY25 FORM 10-Q | 27 Table of Contents • 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 2024 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, express or implied, are expressly qualified in their entirety by such 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 H&P 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 December 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 225 rigs, the International Solutions segment with 30 rigs, and the Offshore Gulf of Mexico segment with seven offshore platform rigs as of December 31, 2024. At the close of the first quarter of fiscal year 2025, we had 171 active contracted rigs, of which 103 were under a fixed-term contract and 68 were working well-to-well, compared to 170 contracted rigs at September 30, 2024. Our long-term strategy remains focused on innovation, technology, safety, operational excellence, and reliability. As we move forward, we believe that our 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 Our revenues are primarily derived from the capital expenditures of companies involved in the exploration, development and production of crude oil and natural gas (“E&Ps”). Generally, the level of capital expenditures is dictated by capital budgets set to achieve respective production targets in relation to current and expected future prices of crude oil and natural gas, which are determined by various supply and demand factors and have historically been volatile. Furthermore, E&Ps have become more fiscally disciplined in their level of capital expenditures relative to commodity price fluctuations, which has resulted in less volatility within the oilfield service businesses, including our operations. Based upon the current conducive pricing environment for crude oil and natural gas and the capital budgets established by our customers for calendar year 2025 and their desires to at least maintain current production levels, we expect the level of capital spending and activity in calendar year 2025 to be similar to that experienced in calendar year 2024. 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, it is not to a level that has materially impacted pricing as it could be quickly reabsorbed into the market. This supply-demand dynamic combined with the value proposition we provide our customers through our drilling expertise, high-quality FlexRig® fleet, and automation technology remains constructive for our underlying contract economics. Q1 FY25 FORM 10-Q | 28 Table of Contents With regard to our North America Solutions segment, we believe the supply and demand dynamics surrounding our North America Solutions segment remain constructive for future activity and pricing levels. As such, during fiscal year 2025, we expect our rig activity to remain relatively stable absent any significant changes to commodity prices. The Company also intends to maintain its strategy around employing a fiscally prudent approach to deploying capital and prioritizing economic margins over rig utilization to remain intact. Collectively, our other business segments, Offshore Gulf of Mexico and International Solutions, 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. During fiscal 2025, our operational presence in certain international markets, primarily the Middle East and the offshore management contract business, is expected to increase substantially due to the completion of the Acquisition. With the closing of the Acquisition, the Company's International Solutions segment contracted rig count is expected to increase to approximately 89 rigs from 20 contracted rigs as of December 31, 2024. Included in the contracted rigs acquired as part of the Acquisition are 12 rigs that have either temporarily suspended operations or been notified to suspend operations in Saudi Arabia due to a customer's desire to reduce their level of capital expenditures. The suspension of the operations of these rigs is expected to have an adverse impact on our International Solutions segment's operating results during fiscal 2025. Given the nature of these suspensions, we expect these rigs to re-commence operations during fiscal 2026, however, we have no assurances that such activity will occur on the anniversaries of the notices to suspend. Similarly, our Offshore Gulf of Mexico reportable segment, to be re-named Offshore Solutions subsequent to the Acquisition, is expected to increase its active management contract and rig count to approximately 37 from six as of December 31 ,2024. Current expectations are for activity and pricing in the International Solutions and Offshore Gulf of Mexico (Offshore Solutions) reportable segments to remain relatively stable post the completion of the Acquisition. 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. 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. During the year ended September 30, 2024, we began mobilizing five super-spec rigs to the Kingdom of Saudi Arabia, while the remaining rigs mobilized during the three months ended December 31, 2024. We commenced operations in the first quarter of fiscal 2025. KCA Deutag Acquisition On January 16, 2025 (the “Closing Date”), H&P completed the Acquisition of KCA Deutag pursuant to the Purchase Agreement. H&P paid aggregate cash consideration of approximately $2.0 billion, which consisted of the share purchase price of $0.9 billion and $1.1 billion which was used to contemporaneously repay or redeem certain of KCA Deutag existing debt, including, as applicable, the payment of all accrued and unpaid interest, premiums, and fees. The cash consideration was funded through a combination of net proceeds from the Company’s September 2024 senior notes offering, net proceeds from the funding of the Company’s Term Loan Credit Agreement, cash on hand, and monetization of our investment in ADNOC Drilling. KCA Deutag is a diverse global drilling company. The company has a significant land drilling presence in the Middle East, which represents approximately two-thirds of the company’s calendar year 2023 Operating EBITDA, with additional operations in South America, Europe and Africa. In addition to its land operations, KCA Deutag has asset-light offshore management contract operations in the North Sea, Angola, Azerbaijan and Canada, with super major customers and long-term earnings visibility through a robust backlog. KCA Deutag’s Kenera segment comprises manufacturing and engineering businesses, including Bentec, with three facilities serving the energy industry, representing a longer-term growth opportunity. Contract Backlog As of December 31, 2024 and September 30, 2024, our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $1.5 billion. These amounts do not include anticipated contract renewals or expected performance bonuses. Approximately 50.6 percent of the December 31, 2024 total backlog is reasonably expected to be fulfilled in fiscal year 2025. Q1 FY25 FORM 10-Q | 29 Table of Contents The following table sets forth the total backlog by reportable segment as of December 31, 2024 and September 30, 2024, and the percentage of the December 31, 2024 backlog reasonably expected to be fulfilled in fiscal year 2025: (in billions) December 31, 2024 September 30, 2024 Percentage Reasonably Expected to be Fulfilled in Fiscal Year 2025 North America Solutions $ 0.7 $ 0.7 78.8 % International Solutions 0.8 0.8 26.9 Offshore Gulf of Mexico — — — $ 1.5 $ 1.5 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 ” and Item 1A—Risk Factors—" The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations. within our 2024 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 December 31, 2024 and 2023 Consolidated Results of Operations Net Income We reported income of $54.8 million ($0.54 per diluted share) for the three months ended December 31, 2024 compared to income of $95.2 million ($0.94 per diluted share) for the three months ended December 31, 2023. Operating Revenue Consolidated operating revenues were $677.3 million and $677.1 million for the three months ended December 31, 2024 and 2023, respectively. Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $413.0 million and $404.4 million for the three months ended December 31, 2024 and 2023, respectively. The increase was primarily driven by start-up costs associated with our commencement of operations in Saudi Arabia. Selling, General and Administrative Expense Selling, general and administrative expenses increased to $63.1 million during the three months ended December 31, 2024 compared to $56.6 million during the three months ended December 31, 2023. The increase was primarily due to a $3.3 million increase in labor and labor-related expenses and a $3.1 million increase in IT related expenses. Acquisition Transaction Costs During the three months ended December 31, 2024, we recognized approximately $10.5 million in acquisition transaction costs associated with the acquisition of KCA Deutag. These non-recurring costs are primarily related to third-party legal, consulting and advisory services. See Note 9—Acquisition Transaction Costs for additional details related to the Acquisition. Interest Expense Interest expenses were $22.3 million and $4.4 million for the three months ended December 31, 2024 and 2023, respectively. The increase was primarily driven by accrued interest associated with our September 2024 senior notes offering. See Note 5—Debt for additional details related to our debt agreements. Loss on Investment Securities During the three months ended December 31, 2024, we recognized an aggregate loss of $13.4 million on investment securities. The aggregate loss is mainly comprised of a $12.4 million loss on our sale of equity securities in ADNOC Drilling, of which $8.4 million is associated with the change in the fair value of the investment and $4.0 million relates to transaction fees associated with the sale of the securities. Additionally, during the three months ended December 31, 2024, we recognized a $1.1 million loss on our equity investment in Tamboran Corp. as a result of a decrease in the fair market value of the stock. During the three months ended December 31, 2023, we recognized an aggregate loss of $4.0 million on investment securities. The loss was mainly comprised of a $10.4 million loss on our equity investment in ADNOC Drilling, partially offset against a $6.3 million gain on our investment in Tamboran Corp.; both of which were a result of fluctuations in the fair market value of the stocks. Income Taxes We recorded income tax expense of $21.6 million for the three months ended December 31, 2024 (which includes a discrete tax expense of $0.7 million related to equity compensation) compared to income tax expense of $30.1 million (which includes a discrete tax benefit of $0.9 million related to equity compensation) for the three months ended December 31, 2023. Our statutory federal income tax rate for fiscal year 2025 is 21.0 percent (before incremental state and foreign taxes). Q1 FY25 FORM 10-Q | 30 Table of Contents North America Solutions Three Months Ended December 31, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 598,145 $ 594,282 0.7 % Direct operating expenses 332,602 338,208 (1.7) Depreciation and amortization 88,336 87,019 1.5 Research and development 9,440 8,689 8.6 Selling, general and administrative expense 15,773 15,876 (0.6) Segment operating income $ 151,994 $ 144,490 5.2 Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 265,543 $ 256,074 3.7 Revenue days 3 13,708 13,711 — Average active rigs 4 149 149 — Number of active rigs at the end of period 5 148 151 (2.0) Number of available rigs at the end of period 225 233 (3.4) Reimbursements of "out-of-pocket" expenses $ 68,426 $ 69,728 (1.9) (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., 92 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. Operating Revenues Operating revenues were $598.1 million and $594.3 million in the three months ended December 31, 2024 and 2023, respectively. The increase in operating revenue was primarily due to higher average pricing levels. Direct Operating Expenses Direct operating expenses decreased to $332.6 million during the three months ended December 31, 2024 as compared to $338.2 million during the three months ended December 31, 2023. This decrease was primarily driven by a decrease in per revenue day labor and materials and supplies expense. Depreciation and Amortization Expense Depreciation and amortization expense increased $1.3 million to $88.3 million during the three months ended December 31, 2024 as compared to $87.0 million during the three months ended December 31, 2023. The increase is reflective of higher capital expenditures over the last several years. Q1 FY25 FORM 10-Q | 31 Table of Contents International Solutions Three Months Ended December 31, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 47,480 $ 54,752 (13.3) % Direct operating expenses 55,114 44,519 23.8 Depreciation 4,828 2,334 106.9 Selling, general and administrative expense 2,708 2,476 9.4 Segment operating income (loss) $ (15,170) $ 5,423 (379.7) Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ (7,634) $ 10,233 (174.6) Revenue days 3 1,689 1,173 44.0 Average active rigs 4 18 13 38.5 Number of active rigs at the end of period 5 20 12 66.7 Number of available rigs at the end of period 30 22 36.4 Reimbursements of "out-of-pocket" expenses $ 2,119 $ 3,384 (37.4) (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., 92 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. Operating Revenues Operating revenues were $47.5 million and $54.8 million in the three months ended December 31, 2024 and 2023, respectively. The $7.3 million decrease in operating revenues was primarily due to no revenue producing activities in Colombia and United Arab Emirates partially offset by the commencement of operations in Saudi Arabia during three months ended December 31, 2024. Direct Operating Expenses Direct operating expenses increased to $55.1 million during the three months ended December 31, 2024 as compared to $44.5 million during the three months ended December 31, 2023. This increase was primarily driven by start-up costs associated with our commencement of operations in Saudi Arabia. Q1 FY25 FORM 10-Q | 32 Table of Contents Offshore Gulf of Mexico Three Months Ended December 31, (in thousands, except operating statistics) 2024 2023 % Change Operating revenues $ 29,210 $ 25,531 14.4 % Direct operating expenses 22,661 19,579 15.7 Depreciation 1,980 2,068 (4.3) Selling, general and administrative expense 1,064 832 27.9 Segment operating income $ 3,505 $ 3,052 14.8 Financial Data and Other Operating Statistics 1 : Direct margin (Non-GAAP) 2 $ 6,549 $ 5,952 10.0 Revenue days 3 276 289 (4.5) Average active rigs 4 3 3 — Number of active rigs at the end of period 5 3 3 — Number of available rigs at the end of period 7 7 — Reimbursements of "out-of-pocket" expenses $ 7,225 $ 7,827 (7.7) (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., 92 days). (5) Defined as the number of rigs generating revenue at the applicable end date of the time period. Operating Revenues Operating revenues were $29.2 million and $25.5 million in the three months ended December 31, 2024 and 2023, respectively. The $3.7 million increase in operating revenue was primarily due to higher pricing levels. Direct Operating Expenses Direct operating expenses increased to $22.7 million during the three months ended December 31, 2024 as compared to $19.6 million during the three months ended December 31, 2023. This increase was primarily driven by a $3.1 million increase in labor and labor-related expenses. Other Operations Results of our other operations, excluding corporate selling, general and administrative costs, and corporate depreciation, are as follows: Three Months Ended December 31, (in thousands) 2024 2023 % Change Operating revenues $ 19,282 $ 17,808 8.3 % Direct operating expenses 17,737 17,089 3.8 Depreciation 402 472 (14.8) Selling, general and administrative expense 369 314 17.5 Operating income (loss) $ 774 $ (67) 1,255.2 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 $19.3 million and $17.8 million during the three months ended December 31, 2024 and 2023, respectively, primarily consisted of $16.6 million and $15.2 million, respectively, in intercompany premium revenues recorded by the Captives. These revenues were eliminated upon consolidation. Direct Operating Expenses Direct operating expenses of $17.7 million and $17.1 million during the three months ended December 31, 2024 and 2023, respectively, primarily consisted of $3.9 million and $3.5 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $10.5 million and $9.1 million, respectively, and medical stop loss expenses of $5.2 million and $4.1 million, respectively. The change to accruals for estimated losses was primarily due to actuarial valuation adjustments by our third-party actuary. Q1 FY25 FORM 10-Q | 33 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 Amended Credit Facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital expenditure projects, paying dividends declared, repaying our outstanding indebtedness, and funding the pending acquisition of KCA Deutag. 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 Amended 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, net working capital is typically a use of capital, while conversely, as our revenues decrease, net working capital is typically a source of capital. Net working capital (defined as current assets less current liabilities) was $789.1 million and $745.1 million as of December 31, 2024 and September 30, 2024, respectively. As of December 31, 2024, we had cash and cash equivalents of $391.2 million, restricted cash of $1.3 billion and short-term investments of $135.3 million. Our cash flows for the three months ended December 31, 2024, and 2023 are presented below: Three Months Ended December 31, (in thousands) 2024 2023 Net cash provided by (used in): Operating activities $ 158,358 $ 174,798 Investing activities 52,651 (113,067) Financing activities (33,150) (98,728) Net increase (decrease) in cash and cash equivalents and restricted cash $ 177,859 $ (36,997) Operating Activities Cash flows provided by operating activities were approximately $158.4 million and $174.8 million for the three months ended December 31, 2024 and 2023, respectively. The change in cash provided by operating activities is primarily driven by start-up costs associated with our commencement of our operations in Saudi Arabia. Investing Activities Capital Expenditures Our capital expenditures during the three months ended December 31, 2024 were $106.5 million compared to $136.4 million during the three months ended December 31, 2023. The decrease in capital expenditures is driven by the timing of procurement associated with equipment overhauls and certain long-term projects including skidding to walking rig conversions. Net Sales of Short-Term Investments Our net sales of short-term investments during the three months ended December 31, 2024 were $147.0 million compared to net sales of $11.7 million during the three months ended December 31, 2023. The change in activity is primarily driven by $193.3 million of net proceeds received from the liquidation of shares in ADNOC Drilling and our ongoing liquidity management. Q1 FY25 FORM 10-Q | 34 Table of Contents Sale of Assets Our proceeds from asset sales during the three months ended December 31, 2024 were $12.1 million compared to proceeds of $11.9 million during the three months ended December 31, 2023. The increase in proceeds is mainly driven by higher rig activity which drives higher reimbursement from customers for lost or damaged drill pipe and other used drilling equipment. Financing Activities Dividends We paid a cash dividend of $0.25 per share during the three months ended December 31, 2024. Comparatively, during the three months ended December 31, 2023, we paid cash dividends of $0.42 per share, comprising of a base cash dividend of $0.25 and a supplemental cash dividend of $0.17. Total dividends paid were $25.0 million and $42.3 million during the three months ended December 31, 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 and are held as treasury shares on our Unaudited Condensed Consolidated Balance Sheets. We did not make any share repurchases during the three months ended December 31, 2024. We repurchased 1.3 million common shares at an aggregate cost of $47.7 million, including excise tax of $0.3 million during the three months ended December 31, 2023. Senior Notes Issued in Fiscal Year 2024 On September 17, 2024, we completed a private offering of $1.25 billion aggregate principal amount of senior notes, comprised of the following tranches (collectively, the "Notes"): $350.0 million aggregate principal amount of 4.65 percent senior notes due 2027 issued at a price equal to 99.958 percent of their face value, $350.0 million aggregate principal amount of 4.85 percent senior notes due 2029 issued at a price equal to 99.883 percent of their face value and $550.0 million aggregate principal amount of 5.50 percent senior notes due 2034 issued at a price equal to 99.670 percent of their face value. Interest on the Notes is payable semi-annually on June 1 and December 1 of each year, commencing on June 1, 2025. On January 16, 2025, H&P completed the Acquisition, and the Company used the net proceeds of the Notes, together with the proceeds of its term loan credit agreement (discussed below) and cash on hand, to finance the purchase price for the Acquisition, to repay or redeem certain of KCA Deutag’s outstanding indebtedness, and to pay related fees and expenses. For additional information regarding the completion of the Acquisition, refer to Note 14—Subsequent Events. The net proceeds reduced the commitments under the Company’s Bridge Loan Facility (discussed herein) for purposes of financing the Acquisition. In connection with the issuance of the Notes, the Company also entered into a registration rights agreement, dated as of September 17, 2024 (the "Registration Rights Agreement'), with the initial purchasers of the Notes named therein. Under the Registration Rights Agreement, the Company agreed, among other things, to: (i) file a registration statement (the “Exchange Offer Registration Statement”) with the SEC to register an offer to exchange each series of the Notes for freely tradable notes having terms identical in all material respects to each such series of Notes (the “Registered Exchange Offer”); (ii) use commercially reasonable efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act not later than the later of (x) the 30th day following the Company’s filing of a Current Report on Form 8-K or an amendment thereto including the financial statements of KCA Deutag and pro forma financial information related to the Company’s acquisition of KCA Deutag required by Items 9.01(a) and 9.01(b) of Form 8-K (the “KCA Deutag Financials Form 8-K”) and (y) June 16, 2025; and (iii) use commercially reasonable efforts to cause the Registered Exchange Offer to be completed not later than the later of (x) the 60th day following the Company’s filing of the KCA Deutag Financials Form 8-K and (y) July 14, 2025 (the “Exchange Offer Closing Deadline”), subject to certain limitations. If, among other events, the Registered Exchange Offer is not completed by the Exchange Offer Closing Deadline, then special additional interest will accrue in an amount equal to 0.25 percent per annum of the principal amount of the Notes, from and including the date on which such default shall occur to but excluding the date on which such default is cured. The indenture governing the Notes contains certain covenants that, among other things, 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 Notes also contains customary events of default with respect to the Notes. Q1 FY25 FORM 10-Q | 35 Table of Contents Senior Notes Issued in Fiscal Year 2021 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent senior notes due 2031 ("the 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 and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act. 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 “2022 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. Term Loan Credit Agreement On August 14, 2024, the Company entered into a unsecured term loan credit agreement (the "Term Loan Credit Agreement"), dated as of August 14, 2024, among the Company, Morgan Stanley Senior Funding, Inc. (“MSSF”) as administrative agent, and the other lenders party thereto. Under the Term Loan Credit Agreement, the Company may obtain unsecured term loans in a single delayed draw in an aggregate principal amount up to $400.0 million, which reduced the commitments under the Company's Bridge Loan Facility (discussed herein) for purposes of financing the Acquisition. The Term Loan Credit Agreement matures at the two -year anniversary of the funding of the term loans unless earlier terminated pursuant to the terms of the Term Loan Credit Agreement. The benchmark rate is the Secured Overnight Financing Rate ("SOFR"). We can elect to borrow at either an adjusted SOFR rate or an adjusted base rate, plus an applicable margin. The adjusted SOFR rate is the forward-looking term rate based on SOFR for the applicable tenor of one, three, or six months, plus 0.10 percent per annum. The adjusted base rate is a fluctuating rate per annum equal to the highest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus 0.50 percent , or (iii) the one-month adjusted SOFR rate plus 1.0 percent. We also pay a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor’s. The applicable margin for SOFR borrowings and adjusted base rate borrowings ranges from 1.0 percent to 1.625 percent per annum and zero to 0.625 percent per annum, respectively. Commitment fees for both rates range from 0.10 percent to 0.250 percent per annum. Based on the unsecured debt rating of the Company on December 31, 2024 , the spread over SOFR would have been 1.375 percent had borrowings been outstanding under the Term Loan Credit Agreement and commitment fees would have been 0.175 percent. The funding of the term loans had not occurred as of December 31, 2024. On January 16, 2025, H&P completed the Acquisition, and the Company used the proceeds from the Term Loan Credit Agreement, together with the net proceeds from the sale of the Notes and cash on hand, to finance the purchase price for the Acquisition, to repay or redeem certain of KCA Deutag's outstanding indebtedness, and to pay related fees and expenses. For additional information regarding the completion of the Acquisition, refer to Note 14—Subsequent Events. Revolving Credit Facility On August 14, 2024, the Company entered into an Amended and Restated Credit Agreement (the "Amended Credit Facility") with the lenders party thereto (the "Revolving Credit Agreement Lenders"), the issuing lenders party thereto and Wells Fargo, National Association ("Wells Fargo") as administrative agent, swing line lender and issuing lender, which amended and restated the Credit Agreement, dated as of November 13, 2018 (as amended through Amendment No. 2 to the Credit Agreement dated as of March 8, 2022, the “Existing Credit Agreement”), among the Company, the lenders party thereto and Wells Fargo, as administrative agent, swing line lender and issuing lender. Under the terms of the Amended Credit Facility, the Company may obtain unsecured revolving loans in an aggregate principal amount not to exceed $950.0 million outstanding at any time (the “Revolving Credit Facility”). $775.0 million of the revolving commitments under the Amended Credit Facility expire on November 12, 2028 and $175.0 million of the revolving commitments mature on November 10, 2027 (the “Stated Maturity Date”), but the Company may request two one-year extensions of the Stated Maturity Date, subject to satisfaction of certain conditions. Commitments under the Amended Credit Facility may be increased by up to $100.0 million, subject to the agreement of the Company and new or existing Revolving Credit Agreement Lenders. Q1 FY25 FORM 10-Q | 36 Table of Contents The proceeds of the loans made under the Amended Credit Facility may be used by the Company for (i) working capital and other general corporate purposes, (ii) for the payment of fees and expenses related to the entering into of the Amended Credit Facility and the other credit documents and (iii) for the refinancing of the extensions of credit under the Existing Credit Agreement. The benchmark rate is the SOFR. We can elect to borrow at either an adjusted SOFR rate or an adjusted base rate, plus an applicable margin. The adjusted SOFR rate is the forward-looking term rate based on SOFR for the applicable tenor of one, three, or six months, plus 0.10 percent per annum. The adjusted base rate is a fluctuating rate per annum equal to the highest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus 0.50 percent, or (iii) the one-month adjusted SOFR rate plus 1.0 percent. We also pay a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor’s. The applicable margin for SOFR borrowings and adjusted base rate borrowings ranges from 0.875 percent to 1.500 percent per annum and zero to 0.50 percent per annum, respectively. Commitment fees for both rates range from 0.075 percent to 0.200 percent per annum. Based on the unsecured debt rating of the Company on December 31, 2024, the spread over SOFR would have been 1.250 percent had borrowings been outstanding under the Amended Credit Facility and commitment fees would have been 0.150 percent. There is a financial covenant in the Amended Credit Facility that requires us to maintain a total funded debt to total capitalization ratio of less than or equal to 55.0 percent. The Amended Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. As of December 31, 2024, there were no borrowings or letters of credit outstanding, leaving $950.0 million available to borrow under the Amended Credit Facility. As of December 31, 2024, we had $160.0 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 $160.0 million, $47.2 million was outstanding as of December 31, 2024. Separately, we had $5.0 million in standby letters of credit and bank guarantees outstanding. In total, we had $52.2 million outstanding as of December 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 December 31, 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 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 $950.0 million Amended Credit Facility. As of December 31, 2024, our indebtedness under our unsecured senior notes totaled $1.8 billion and comprised with the following maturities: $350.0 million due December 2027, $350.0 million due December 2029, $550.0 million due September 2031, and $550.0 million due December 2034. As of December 31, 2024, we had a $485.7 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 December 31, 2024, we have recorded unrecognized tax benefits and related interest and penalties of approximately $0.6 million. Subsequent to December 31, 2024, we drew $400.0 million from the Term Loan Credit Agreement and the Company used the proceeds from the Term Loan Credit Agreement, together with the net proceeds from the sale of the Notes and cash on hand, to finance the purchase price for the Acquisition, to repay or redeem certain of KCA Deutag's outstanding indebtedness, and to pay related fees and expenses. We utilized approximately $2.0 billion of cash, cash equivalents, and restricted cash to finance the purchase price for the Acquisition, to repay or redeem certain of KCA Deutag’s outstanding indebtedness, and to pay related fees and expenses. For additional information regarding the completion of the Acquisition, refer to Note 14—Subsequent Events. . Material Commitments Material commitments as reported in our 2024 Annual Report on Form 10-K have not changed significantly as of December 31, 2024, other than those disclosed in Note 12—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements. Q1 FY25 FORM 10-Q | 37 Table of Contents 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 2024 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. 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 December 31, December 31, (in thousands) 2024 2023 NORTH AMERICA SOLUTIONS Segment operating income $ 151,994 $ 144,490 Add back: Depreciation and amortization 88,336 87,019 Research and development 9,440 8,689 Selling, general and administrative expense 15,773 15,876 Direct margin (Non-GAAP) $ 265,543 $ 256,074 INTERNATIONAL SOLUTIONS Segment operating income (loss) $ (15,170) $ 5,423 Add back: Depreciation and amortization 4,828 2,334 Selling, general and administrative expense 2,708 2,476 Direct margin (Non-GAAP) $ (7,634) $ 10,233 OFFSHORE GULF OF MEXICO Segment operating income $ 3,505 $ 3,052 Add back: Depreciation and amortization 1,980 2,068 Selling, general and administrative expense 1,064 832 Direct margin (Non-GAAP) $ 6,549 $ 5,952 Q1 FY25 FORM 10-Q | 38 Table of Contents