Patterson-UTI Energy, Inc.

Hello, everyone. Thank you for joining us and welcome to Patterson UTI's second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Mike Sabella, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Patterson UTI's earnings conference call to discuss our second quarter 2026 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 at 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.

Thank you, Mike, and welcome to our second quarter earnings conference call. The first half of the year was a clear reminder of how quickly the global energy landscape can change. It also reinforced why secure, reliable oil supply matters, particularly with geopolitical uncertainty still elevated. That backdrop is likely to remain part of the market for some time, and it highlights the important role U.S. oil and natural gas production plays in supporting energy security both domestically and abroad. U.S. shale remains one of the world's most innovative and resilient energy markets. As the industry evolves, we are seeing a clear separation between service companies that are investing in oilfield technology, performance, and execution, and those that are not. Operators are placing a premium on efficiency and reliability, and value is increasingly being created by a smaller group of oilfield service companies with the scale, technology, and capability to meet those expectations. This differentiation is offering us opportunities to invest capital into assets that support premium pricing and returns. We see this dynamic playing out across both drilling and completions. For customers, those capabilities make it easier to economically develop more complex resources and extract more value from their assets. For Patterson UTI, Our technology leadership is a competitive advantage and creates a longer runway of high return opportunities for us. During the second quarter, each of our businesses demonstrated growth and performed ahead of expectations, including compared to the improved guidance we provided in our mid-quarter update. That momentum carried into the third quarter. These results reflect the value created from targeted investments we have made to strengthen our technology leadership across core markets, and prepare Patterson UTI for the next phase of U.S. shale development. Importantly, we achieved these results before any benefit from the additional growth capital announced during the quarter. Those investments are now underway, and we expect them to support further profitability growth into 2027 and beyond, while further extending our competitive advantage across the industry. Momentum strengthened as the quarter progressed. We entered the quarter cautiously optimistic that activity and pricing were beginning to improve, but both the pace and the magnitude of that improvement exceeded our expectations. As customers gained confidence in the commodity outlook and began increasing activity, our scale, fleet quality, and operational capability allowed us to capture upside across our businesses. Just as importantly, our team secured better pricing in each segment. Customer requirements are becoming more demanding as shale development grows more complex. Operators are increasingly seeking drilling rigs with larger structures capable of handling deeper zones and longer laterals, completion equipment that can be powered by natural gas, and more advanced digital and automation capabilities. At the same time, the supply of the most capable equipment remains constrained, and we believe our asset base and technical expertise are among the best in the industry. As U.S. shale moves into its next phase, Patterson UTI has the scale, fleet quality, and technology platform to extend its competitive advantage and deliver attractive returns for our investors. From a macro perspective, the outlook has become more constructive, even with the commodity price volatility we've seen over the past couple of months. While prices have since pulled back from recent highs, they remain well above the levels many customers assumed and their initial 2026 budgets. The current strip supports a higher pace of U.S. shale drilling and completion activity than we are seeing today. The oil strip, around $70 per barrel through the end of 2027, our outlook remains constructive, especially given that much of the industry planned for 2026 using assumptions of $60 per barrel or less. Even as the U.S. rig count has increased over the past several months, and many others. Public EMPs have generally kept activity close to the levels that they planned before oil prices moved higher. That discipline among larger public operators has been one of the defining features of U.S. shale in recent years and has helped reduce earnings volatility for our sector compared with prior cycles. At the same time, the stronger commodity backdrop has underscored the important role private operators are playing in the market. Private EMPs have responded more quickly to higher oil prices and are now driving a meaningful increase in drilling activity. Still, our discussions with the public EMPs about higher activity levels are gaining momentum and are increasingly concentrated around our highest specification rigs and most advanced completion equipment. Large public customers are planning several years ahead in prioritizing rigs with greater hook load and pipe racking capacity to drill deeper wells and longer laterals. along with hydraulic fracturing equipment that can be powered by natural gas. These requirements are becoming more important as shale development grows more complex and the equipment capable of meeting them remains in very short supply across the industry. This should create opportunities for us to drive growth into 2027 and earn strong returns as the industry moves forward. Overall, we expect oil-directed activity to improve further into 2027. Private EMPs are leading the initial recovery, but the next phase of growth should be supported by increasing demand from public customers. Importantly, that demand is expected to be concentrated around higher specification equipment that can improve efficiency, reduce operating risk, and deliver better returns for both our customers and investors. In drilling services, rig activity recovered faster than we expected during the quarter. Pricing on new contracts increased by approximately 10% to 15% versus first quarter levels. And upgraded rigs are being deployed at day rates several thousand dollars per day above standard super spec rigs. Across most regions outside the Permian, high quality rigs are effectively sold out with little to no idle equipment available for reactivation. While rigs can be mobilized between basins, the cost of mobilizing incremental capacity should support pricing momentum for rigs already working in those basins, even if the overall rig count holds near current levels. In the Permian, demand is increasing and customers are reluctant to lose active proven rigs and crews given the startup costs and re-crewing needs associated with reactivating cold stacked equipment. That dynamic is also supporting additional pricing improvement in the Permian. As EMPs plan their drilling programs for the next several years, they are increasingly looking for rigs capable of drilling deeper wells and longer laterals more efficiently. That means larger structures, higher hook load capacity, greater pipe racking capability, expanded circulating systems, and more advanced digital and automation features. These upgrades require capital and expertise, but the returns are very attractive and are typically supported by firm take-or-pay contracts or long-term customer agreements that allow us to recover the investment within the initial term of the agreement. The direction of the market is clear. Roughly half of recent wells drilled have laterals longer than two miles compared with about one-third last year. And four-mile-plus laterals now represent more than 10% of recent wells, roughly four times last year's average. We are also seeing a meaningful increase in wells targeting deeper shale intervals. with that activity more than doubling from last year. For larger EMPs, these trends reflect where U.S. shale development is headed and we are moving decisively to capture this work through high-return rig upgrades and differentiated execution. As demand for upgraded rigs accelerated during the first half of the year, our technology and engineering teams moved quickly to offer capital-efficient solutions to our customers by upgrading our existing high-quality fleet to fit these new specifications. In completion services, we saw a meaningful sequential improvement in the second quarter. Pricing discussions were more favorable than we expected at the start of the period, and frac calendars remained largely full throughout the quarter. Our teams also stayed focused on aligning our capacity with the most efficient customers in the industry, which enhances fleet profitability. Completion demand improved from the first quarter levels as customers began working through a relatively modest inventory of drilled but uncompleted wells. Even that modest increase highlighted how tight the market remains for capable frac equipment. Natural gas-powered capacity is effectively fully utilized across the industry, and the horsepower still available in the market is largely older, less efficient, and more expensive to operate diesel equipment that many customers prefer not to use. As we look to the second half of the year, completion demand tied to the roughly 50 rigs added across the industry since this spring has not yet fully shown up in the market. The additional drilling activity will require incremental frac fleets during the second half and support growth into 2027. With capable equipment already highly utilized, incremental demand should support further pricing momentum. Our strategy and completions have been focused on improving the quality of our fleet, not adding horsepower. We are systematically retiring older diesel equipment and replacing it with more capable gas-powered assets that are better aligned with customer demand and the direction of the market. At the beginning of the year, we expected our available frac horsepower to decline as diesel retirements outpaced the addition of new technology. The capital increase we announced in May allows us to add more direct-drive, 100% natural gas-powered Emerald Frac assets. As a result, we now expect our available horsepower in the second half to remain broadly in line with the first half. The objective remains growth in earnings and returns. By shifting more of the fleet toward gas-powered equipment, we are increasing the share of assets that customers value most and are commanding better pricing and margins. By year-end, we expect about 90% of our active horsepower to be powered substantially by natural gas. That mix enhances what we believe is already one of the highest quality fleets in the industry and should allow Patterson UTI to capture a larger share of customer demand. Taken together, improving demand, limited availability of capable equipment, and our strategic shift towards gas-powered assets supports an increasingly constructive pricing and margin environment as the year progresses. Our drilling product segment delivered an excellent quarter in a challenging operating environment, achieving its highest revenue since we acquired Altera in 2023. The conflict in the Middle East created disruption across logistics, supply chain, and activity levels in several important markets, but our team stayed focused and managed effectively through those challenges while keeping employee safety at the forefront. Even with those headwinds, along with the seasonal impact of spring breakup in Canada, both revenue and adjusted gross profit increased sequentially. We gained share across several markets and achieved a meaningful improvement in pricing from earlier this year. Internationally, the business built momentum despite conflict-related disruption in the Middle East, our largest international region. Drilling products delivered record international revenue in the quarter, with sequential growth across our key geographies. That performance reinforces our view that international markets continue to provide attractive long-term growth opportunities for this business. At the same time, our U.S. business remains a stead of foundation for this segment, representing roughly 70% of revenue. Our U.S. team has executed well at multiple points in the rig count cycle, consistently increasing the value we capture per active rig. In the second quarter, we neared another company record for revenue per industry rig. We were also encouraged by the progress in our downhole tools business, which is proving to be both highly innovative and complementary to our drill bit platform. Revenue from downhole tools has increased significantly since the end of 2025 and now represents approximately 5% of segment revenue. We see this product line as a natural extension of our drill bit offering and an attractive platform for long-term global growth. Geothermal also offers a small but quickly growing source of demand where bit runs have doubled compared with the end of 2025 and should grow further. These results reinforce our confidence in the long-term expansion opportunity within drilling products, as well as the segment's ability to generate attractive cash conversion. We remain focused on becoming the leading drill bit supplier in every market we serve by combining differentiated technology with consistent execution and deep customer relationships. As we begin the second half of the year, we feel very good about our role as a leading U.S. oilfield services provider and the quality of our operations. We are working with the right customers, deploying the right assets, and delivering high-quality services and products across the markets we serve. That focus on strengthening the core of our business is central to creating long-term shareholder value while also giving us the flexibility to pursue disciplined opportunities to expand our footprint and drive additional growth. While oil prices have moderated from the highs we saw earlier this year, the current strip remains supportive of higher demand for U.S. shale services and products over the next year. Both public and private customers are focused on maximizing value for their shareholders, and that should translate into greater demand for Patterson UTI's differentiated capabilities. With the upgrades we are making across our drilling and completions fleet in 2026, we believe we can capture a larger share of the market and deliver attractive returns for our shareholders. As the year has progressed, we have seen growth in long-term, high-return work. Many of the investments we are making in 2026 will not meaningfully contribute to results until late this year and into 2027, and working capital needs are increasing as activity accelerates. Even so, we still expect adjusted free cash flow this year to more than cover our 2026 dividend payments, and our capital allocation strategy remains unchanged. We are directing capital toward investments we believe will drive the highest long-term free cash flow per share for our investors. Those investments should support a meaningfully higher free cash flow year in 2027. I'll now turn it over to Andy Smith to review the financial results for the quarter.