Patterson-UTI Energy, Inc.

Good morning. Thank you for standing by. My name is Prila, and I will be your conference operator today. At this time, I would like to welcome everyone to the Paterson UTI Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. Thank you. I would now like to turn the conference over to Michael Isabella. You may begin.

Thank you, operator. Good morning, and welcome to Patterson UTI's earnings conference call to discuss our third quarter 2024 results. With me today are Andy Hendricks, President and Chief Executive Officer, and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations, or predictions for the future are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward-looking statements Statements made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures are included on our website, patenergy.com, and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson UTI's Chief Executive Officer.

Thanks, Mike. Welcome to our third quarter earnings conference call. It's been one year since our first earnings call after acquiring Altera and merging with Next Year, and the year has been transformative for Patterson UTI. These strategic moves have solidified our position as a leading player in the oilfield services sector. Despite a challenging macro environment, including fluctuations in oil and natural gas prices and shifting industry activity across key basins, we have successfully integrated Next Year and Altera. All of our segments are performing well given the backdrop, and we have stayed focused on operational excellence for our customers and free cash flow for our investors. We believe that the progress we have made in just one year will create value over the long term for the company and for shareholders. I want to extend a sincere thank you to all of our employees whose hard work and dedication have been crucial to the success of the integration. We could not have done it without you, and we are grateful for your contributions in making this process smoother and more efficient. We believe we have only begun to unlock the true value of our company. There are many opportunities to further integrate our operations, and we are just starting to realize the potential commercial synergies. Our integrated approach across the entire drilling and completions process is strengthening relationships with a broader customer base and positioning us for long-term success and strong financial returns. Even in a challenging market, we think there is still room for capital-efficient, profitable growth for Patterson UTI. In the first four quarters since the transaction closed, we generated almost $570 million of free cash flow. We have used that free cash flow to make $346 million of share repurchases, while paying a steady dividend and reducing our net debt, including leases. The total cash returned to shareholders through share repurchases and dividends amounts to 15% of our current market cap, while our net debt, including leases, is down by 7%. This past year has showcased Patterson UTI's resilience and strength through different points in the cycle. We always recognize that there can be fluctuating demand for our services, and our combined size, scale, and broad service offerings position us well to compete in any market. On our previous earnings call, we shared exciting news that we had entered into our first fully integrated drilling and completion arrangement under a performance-based agreement. This customer is using a broad suite of our products and services across an entire pad, marking a new chapter in how we deliver value. As Shale evolves, we believe companies with differentiated business models will be best positioned for premium returns. As one of the largest drilling and completion companies in U.S. Shale, we are confident in our ability over the long term to deliver best-in-class results to our customers while driving accretive returns for our investors. The results have been very encouraging. Both our customer and Patterson UTI are benefiting from this integrated approach. We are on track to complete the pad ahead of schedule and expect accretive returns relative to our overall business. Our unique commercial strategy is being noticed by the market and there are several potential new customers that are paying close attention to the success of our integrated approach. We are in discussions with other potential customers for a similar concept, and we think this commercial strategy could have significant upside. The well-side integration opportunities will be enabled by a cutting-edge P10 Performance Center, where our customers, along with our teams, will be able to digitally track their full pad from start to finish. This is truly shaping up to be a win-win situation, And we think this commercial strategy has the potential to bring significant value to our customers and our investors. Rather than reacting to the market, we are anticipating its direction and positioning our company to lead shale into its next phase. On the macro front in drilling, we expect to see a relatively steady rig count for our tier one high spec drilling rigs through the rest of the year and into 2025 based on our contracts and also based on our large customer programs. However, at the same time, the overall industry rig count may fluctuate as older, lower spec assets could see weaker demand from smaller EMPs. In completions, we expect customers will continue to flex activity to maintain spending within their budget, which is likely to impact frac activity through year end before recovering in the first half of 2025. On the natural gas side, we've seen commodity prices somewhat stabilize recently, reinforcing our optimism about the long-term outlook for natural gas activity. While it will take some time for the natural gas market to fully rebalance, we think the market is stabilizing and should have some upside at some point in 2025 as domestic demand rises and LNG takeaway begins to come online. On the oil front, we observed a slight softening of activity during the third quarter, primarily driven by customer-specific M&A and ongoing natural gas takeaway constraints from the Permian Basin. Going forward, we expect oil activity will remain steady into next year. Over the past couple of years, our customers have been less responsive to fluctuations in oil prices, which has reduced the cyclicality of our business. When oil prices declined towards the end of the third quarter, we did not see any change in customer plans, and we do not expect our customers to change their plans absent an extended move in the commodity relative to what we have seen recently. The stability has been an advantage as we make long-term plans for our business, and we have maintained a disciplined approach to capital deployment. Even in the challenging market we have seen in the second half of this year, we are generating strong free cash flow. Looking ahead, we anticipate average activity in 2025 will be slightly below 2024, with our rig count essentially steady from current levels. There is some potential for modest improvements in natural gas markets later next year, although we are not planning for it at this time based on industry LNG facility delays. We are working to ensure that the company has the appropriate cost structure for this environment. We think there is room for Patterson UTI to capitalize on future opportunities as the market evolves while still generating strong free cash flow. We are committed to returning cash to shareholders. In our drilling services segment, we saw a slight reduction in our rig count early in the third quarter, mainly due to cuts from M&A and oil basins. Our natural gas drilling activity saw a slight increase as the quarter progressed. Once again, our adjusted daily gross margin exceeded expectations. Revenue per day continues to remain stable while we continue to focus on our cost structure, demonstrating our commitment to return on capital even in a challenging market. In the U.S., we began the fourth quarter operating 107 rigs and are currently operating 105 rigs. We believe our rig count is likely to remain steady through the rest of the year with steady activity in both oil and natural gas basins. For the industry, we see the potential for the overall rig count to move somewhat lower, while at the same time, the industry continues to move towards Tier 1 rigs. This provides a steady level of activity for our company compared to the overall industry. We believe we operate one of the highest quality rig fleets in the U.S. In completion services, revenue was up slightly sequentially as we saw a mixed shift towards more integrated services. Although we did see some unplanned gaps that impacted fixed cost leverage and caused the segment adjusted gross profit to decline sequentially. Natural gas completion activity was up compared to the second quarter. We anticipate that completion activity will decline sequentially in the fourth quarter on a combination of the usual holiday seasonality and also slowing completion activity as customers look to maintain their budgets. We continue to see strong financial results from our electric fleets that have been fully deployed, which are delivering higher than average returns compared to the completion services segment average. We should see the percentage of pump hours generated by our electric frac equipment to increase again in the fourth quarter. Even as we recently lowered our 2024 capex expectation, we increased our electric horsepower to 155,000 in the fourth quarter as we continue to high-grade our fleet. In the years since we merged the completion businesses of next year in Patterson UTI, we are pleased with our performance during this time given industry trends. We have maintained capital discipline relative to our peers while also upgrading our fleet, and this has contributed significantly to the strong free cash flow generation of the company. We believe our entire fleet of horsepower is one of the highest quality in the industry, with approximately 80% being able to be powered by natural gas. Over the past year, we have made significant investments in our business to secure future work while simultaneously delivering strong free cash flow for our investors. This dual focus on technology growth and financial discipline underscores our commitment to enhancing shareholder value in a competitive landscape. Results in our drilling product segment remain strong, with revenue in the U.S. improving sequentially, even as the industry rig count declined. In addition, the team has done an excellent job outperforming the broader market through superior customer service. Over the past year, one of the most exciting developments has been the coordination between our drilling services teams and our drilling products team. Since we closed the Altera transaction last year, the market share of our drill bits on our own rigs has increased by more than 10%, which shows a strong industrial logic to this M&A. We think there is still significant upside as we see the opportunity to deliver a unique product to our customers. On the international front, we are also excited to have signed the previously announced joint venture agreement in the UAE with subsidiaries of Adnock Drilling and SLB. We will hold a 15% interest in a newly created company named Turnwell Industries, which has been awarded a contract to drill and complete 144 unconventional wells for Adnock. We will provide expertise as Adnock begins what we believe will be a groundbreaking project that could result in multiple years of unconventional drilling and completion activity, and our participation allows us to gain a valuable presence in the region with a limited capital contribution. I'll now turn it over to Andy Smith, who will review the financial results for the third quarter. Thanks, Andy.