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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 1-39270

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware |  | 75-2504748
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
10713 W. Sam Houston Pkwy N, Suite 800 Houston, Texas |  | 77064
(Address of principal executive offices) |  | (Zip Code)

(281) 765-7100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, $0.01 Par Value |  | PTEN |  | The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer |  | ☑ |  | Accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
Non-accelerated filer |  | ☐ |  |  |  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

216,821,730 shares of common stock, $0.01 par value, as of October 27, 2022.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

|  | PART I — FINANCIAL INFORMATION |  |
|  |  |  | Page
ITEM 1. |  | Financial Statements |  |
|  | Unaudited condensed consolidated balance sheets |  | 3
|  | Unaudited condensed consolidated statements of operations |  | 4
|  | Unaudited condensed consolidated statements of comprehensive income (loss) |  | 5
|  | Unaudited condensed consolidated statements of changes in stockholders’ equity |  | 6
|  | Unaudited condensed consolidated statements of cash flows |  | 7
|  | Notes to unaudited condensed consolidated financial statements |  | 8
ITEM 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 24
ITEM 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 37
ITEM 4. |  | Controls and Procedures |  | 38
|  | PART II — OTHER INFORMATION |  |
ITEM 1. |  | Legal Proceedings |  | 38
ITEM 6. |  | Exhibits |  | 39
Signature |  |  |  |

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED C ONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

| September 30, |  |  | December 31, |
| 2022 |  |  | 2021 |
ASSETS |  |  |  |  |
Current assets: |  |  |  |  |
Cash and cash equivalents | $ | 42,735 |  |  | $ | 117,524 |
Accounts receivable, net of allowance for credit losses of $2,873 and $8,493 at September 30, 2022 and December 31, 2021, respectively |  | 546,436 |  |  |  | 356,083 |
Federal and state income taxes receivable |  | 275 |  |  |  | 67 |
Inventory |  | 55,216 |  |  |  | 42,359 |
Other |  | 68,287 |  |  |  | 67,620 |
Total current assets |  | 712,949 |  |  |  | 583,653 |
Property and equipment, net |  | 2,278,639 |  |  |  | 2,331,755 |
Right of use asset |  | 21,893 |  |  |  | 19,024 |
Intangible assets, net |  | 6,112 |  |  |  | 7,537 |
Deposits on equipment purchases |  | 8,405 |  |  |  | 849 |
Other |  | 10,434 |  |  |  | 11,055 |
Deferred tax assets, net |  | 3,567 |  |  |  | 3,975 |
Total assets | $ | 3,041,999 |  |  | $ | 2,957,848 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |
Current liabilities: |  |  |  |  |
Accounts payable | $ | 263,761 |  |  | $ | 190,219 |
Federal and state income taxes payable |  | 2,568 |  |  |  | 232 |
Accrued liabilities |  | 188,246 |  |  |  | 238,511 |
Lease liability |  | 5,421 |  |  |  | 6,891 |
Total current liabilities |  | 459,996 |  |  |  | 435,853 |
Long-term lease liability |  | 20,591 |  |  |  | 18,108 |
Long-term debt, net of debt discount and issuance costs of $5,806 and $6,432 at September 30, 2022 and December 31, 2021, respectively |  | 852,949 |  |  |  | 852,323 |
Deferred tax liabilities, net |  | 23,027 |  |  |  | 29,234 |
Other |  | 51,051 |  |  |  | 12,843 |
Total liabilities |  | 1,407,614 |  |  |  | 1,348,361 |
Commitments and contingencies (see Note 9) |  |  |  |  |
Stockholders' equity: |  |  |  |  |
Preferred stock, par value $0.01; authorized 1,000,000 shares, no shares issued |  | — |  |  |  | — |
Common stock, par value $0.01; authorized 400,000,000 shares with 302,325,853 and 299,268,967 issued and 216,821,730 and 215,139,972 outstanding at September 30, 2022 and December 31, 2021, respectively |  | 3,023 |  |  |  | 2,993 |
Additional paid-in capital |  | 3,197,334 |  |  |  | 3,171,536 |
Retained deficit |  | (170,066 | ) |  |  | (198,316 | )
Accumulated other comprehensive income |  | — |  |  |  | 5,915 |
Treasury stock, at cost, 85,504,123 and 84,128,995 shares at September 30, 2022 and December 31, 2021, respectively |  | (1,395,906 | ) |  |  | (1,372,641 | )
Total stockholders' equity |  | 1,634,385 |  |  |  | 1,609,487 |
Total liabilities and stockholders' equity | $ | 3,041,999 |  |  | $ | 2,957,848 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED C ONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | September 30, |
| 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Operating revenues: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 356,044 |  |  | $ | 157,925 |  |  | $ | 917,270 |  |  | $ | 433,158 |
Pressure pumping |  | 287,664 |  |  |  | 152,634 |  |  |  | 715,630 |  |  |  | 340,464 |
Directional drilling |  | 58,871 |  |  |  | 31,728 |  |  |  | 157,030 |  |  |  | 76,267 |
Other |  | 24,924 |  |  |  | 15,598 |  |  |  | 69,186 |  |  |  | 40,699 |
Total operating revenues |  | 727,503 |  |  |  | 357,885 |  |  |  | 1,859,116 |  |  |  | 890,588 |
Operating costs and expenses: |  |  |  |  |  |  |  |  |  |  |
Contract drilling |  | 227,063 |  |  |  | 111,537 |  |  |  | 600,038 |  |  |  | 291,049 |
Pressure pumping |  | 211,704 |  |  |  | 134,726 |  |  |  | 560,627 |  |  |  | 313,556 |
Directional drilling |  | 48,445 |  |  |  | 28,360 |  |  |  | 130,837 |  |  |  | 67,367 |
Other |  | 13,409 |  |  |  | 10,444 |  |  |  | 39,231 |  |  |  | 31,079 |
Depreciation, depletion, amortization and impairment |  | 122,150 |  |  |  | 141,065 |  |  |  | 360,641 |  |  |  | 437,984 |
Selling, general and administrative |  | 28,472 |  |  |  | 22,063 |  |  |  | 82,012 |  |  |  | 68,176 |
Merger and integration expenses |  | 24 |  |  |  | 918 |  |  |  | 2,069 |  |  |  | 2,066 |
Other operating income, net |  | (109 | ) |  |  | (1,219 | ) |  |  | (10,565 | ) |  |  | (3,743 | )
Total operating costs and expenses |  | 651,158 |  |  |  | 447,894 |  |  |  | 1,764,890 |  |  |  | 1,207,534 |
Operating income (loss) |  | 76,345 |  |  |  | (90,009 | ) |  |  | 94,226 |  |  |  | (316,946 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 58 |  |  |  | 37 |  |  |  | 87 |  |  |  | 196 |
Interest expense, net of amount capitalized |  | (10,975 | ) |  |  | (10,683 | ) |  |  | (32,198 | ) |  |  | (31,396 | )
Other |  | (1,774 | ) |  |  | 14 |  |  |  | (2,644 | ) |  |  | 840 |
Total other expense |  | (12,691 | ) |  |  | (10,632 | ) |  |  | (34,755 | ) |  |  | (30,360 | )
Income (loss) before income taxes |  | 63,654 |  |  |  | (100,641 | ) |  |  | 59,471 |  |  |  | (347,306 | )
Income tax expense (benefit) |  | 2,202 |  |  |  | (17,643 | ) |  |  | 4,910 |  |  |  | (54,586 | )
Net income (loss) | $ | 61,452 |  |  | $ | (82,998 | ) |  | $ | 54,561 |  |  | $ | (292,720 | )
Net income (loss) per common share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.28 |  |  | $ | (0.44 | ) |  | $ | 0.25 |  |  | $ | (1.55 | )
Diluted | $ | 0.28 |  |  | $ | (0.44 | ) |  | $ | 0.25 |  |  | $ | (1.55 | )
Weighted average number of common shares outstanding: |  |  |  |  |  |  |  |  |  |  |
Basic |  | 216,822 |  |  |  | 188,965 |  |  |  | 216,090 |  |  |  | 188,355 |
Diluted |  | 220,454 |  |  |  | 188,965 |  |  |  | 219,381 |  |  |  | 188,355 |
Cash dividends per common share | $ | 0.04 |  |  | $ | 0.02 |  |  | $ | 0.12 |  |  | $ | 0.06 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STAT EMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | September 30, |
| 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net income (loss) | $ | 61,452 |  |  | $ | (82,998 | ) |  | $ | 54,561 |  |  | $ | (292,720 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment, net of taxes of $0 for all periods |  | — |  |  |  | (232 | ) |  |  | 1,793 |  |  |  | 441 |
Release of cumulative translation adjustment, net of taxes of $0 and $3,770, into net income (loss) for three and nine months ended September 30, 2022 |  | — |  |  |  | — |  |  |  | (7,708 | ) |  |  | — |
Total comprehensive income (loss) | $ | 61,452 |  |  | $ | (83,230 | ) |  | $ | 48,646 |  |  | $ | (292,279 | )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED C ONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

| Common Stock |  |  | Additional |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |
| Number of |  |  |  |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury |  |  |  |
| Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Income |  |  | Stock |  |  | Total |
Balance, December 31, 2021 |  | 299,269 |  |  | $ | 2,993 |  |  | $ | 3,171,536 |  |  | $ | (198,316 | ) |  | $ | 5,915 |  |  | $ | (1,372,641 | ) |  | $ | 1,609,487 |
Net loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (28,777 | ) |  |  | — |  |  |  | — |  |  |  | (28,777 | )
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 115 |  |  |  | — |  |  |  | 115 |
Vesting of restricted stock units |  | 150 |  |  |  | 1 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 4,642 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,642 |
Payment of cash dividends ($0.04 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,611 | ) |  |  | — |  |  |  | — |  |  |  | (8,611 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (144 | ) |  |  | — |  |  |  | — |  |  |  | (144 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (13 | ) |  |  | (13 | )
Balance, March 31, 2022 |  | 299,419 |  |  | $ | 2,994 |  |  | $ | 3,176,177 |  |  | $ | (235,848 | ) |  | $ | 6,030 |  |  | $ | (1,372,654 | ) |  | $ | 1,576,699 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 21,886 |  |  |  | — |  |  |  | — |  |  |  | 21,886 |
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,678 |  |  |  | — |  |  |  | 1,678 |
Release of cumulative translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,708 | ) |  |  | — |  |  |  | (7,708 | )
Issuance of restricted stock |  | 980 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vesting of restricted stock units |  | 1,287 |  |  |  | 13 |  |  |  | (13 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Exercise of stock options |  | 640 |  |  |  | 6 |  |  |  | 10,362 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,368 |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,162 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,162 |
Payment of cash dividends ($0.04 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,652 | ) |  |  | — |  |  |  | — |  |  |  | (8,652 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (100 | ) |  |  | — |  |  |  | — |  |  |  | (100 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (23,252 | ) |  |  | (23,252 | )
Balance, June 30, 2022 |  | 302,326 |  |  | $ | 3,023 |  |  | $ | 3,191,678 |  |  | $ | (222,714 | ) |  | $ | — |  |  | $ | (1,395,906 | ) |  | $ | 1,576,081 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 61,452 |  |  |  | — |  |  |  | — |  |  |  | 61,452 |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,656 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,656 |
Payment of cash dividends ($0.04 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,673 | ) |  |  | — |  |  |  | — |  |  |  | (8,673 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (131 | ) |  |  | — |  |  |  | — |  |  |  | (131 | )
Balance, September 30, 2022 |  | 302,326 |  |  | $ | 3,023 |  |  | $ | 3,197,334 |  |  | $ | (170,066 | ) |  | $ | — |  |  | $ | (1,395,906 | ) |  | $ | 1,634,385 |

| Common Stock |  |  | Additional |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |
| Number of |  |  |  |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury |  |  |  |
| Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Income |  |  | Stock |  |  | Total |
Balance, December 31, 2020 |  | 271,029 |  |  | $ | 2,710 |  |  | $ | 2,902,236 |  |  | $ | 472,014 |  |  | $ | 5,412 |  |  | $ | (1,366,313 | ) |  | $ | 2,016,059 |
Net loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (106,413 | ) |  |  | — |  |  |  | — |  |  |  | (106,413 | )
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 418 |  |  |  | — |  |  |  | 418 |
Vesting of restricted stock units |  | 163 |  |  |  | 2 |  |  |  | (2 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,891 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,891 |
Payment of cash dividends ($0.02 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,754 | ) |  |  | — |  |  |  | — |  |  |  | (3,754 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (55 | ) |  |  | — |  |  |  | — |  |  |  | (55 | )
Balance, March 31, 2021 |  | 271,192 |  |  | $ | 2,712 |  |  | $ | 2,908,125 |  |  | $ | 361,792 |  |  | $ | 5,830 |  |  | $ | (1,366,313 | ) |  | $ | 1,912,146 |
Net loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (103,309 | ) |  |  | — |  |  |  | — |  |  |  | (103,309 | )
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 255 |  |  |  | — |  |  |  | 255 |
Issuance of restricted stock |  | 621 |  |  |  | 6 |  |  |  | (6 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vesting of restricted stock units |  | 1,022 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,934 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,934 |
Payment of cash dividends ($0.02 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,769 | ) |  |  | — |  |  |  | — |  |  |  | (3,769 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (18 | ) |  |  | — |  |  |  | — |  |  |  | (18 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,522 | ) |  |  | (3,522 | )
Balance, June 30, 2021 |  | 272,835 |  |  | $ | 2,728 |  |  | $ | 2,914,043 |  |  | $ | 254,696 |  |  | $ | 6,085 |  |  | $ | (1,369,835 | ) |  | $ | 1,807,717 |
Net loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (82,998 | ) |  |  | — |  |  |  | — |  |  |  | (82,998 | )
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (232 | ) |  |  | — |  |  |  | (232 | )
Vesting of restricted stock units |  | 51 |  |  |  | 1 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,048 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,048 |
Payment of cash dividends ($0.02 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,780 | ) |  |  | — |  |  |  | — |  |  |  | (3,780 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (58 | ) |  |  | — |  |  |  | — |  |  |  | (58 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (52 | ) |  |  | (52 | )
Balance, September 30, 2021 |  | 272,886 |  |  | $ | 2,729 |  |  | $ | 2,919,090 |  |  | $ | 167,860 |  |  | $ | 5,853 |  |  | $ | (1,369,887 | ) |  | $ | 1,725,645 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED C ONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

| Nine Months Ended |
| September 30, |
| 2022 |  |  | 2021 |
Cash flows from operating activities: |  |  |  |  |
Net income (loss) | $ | 54,561 |  |  | $ | (292,720 | )
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |  |
Depreciation, depletion, amortization and impairment |  | 360,641 |  |  |  | 437,984 |
Dry holes and abandonments |  | 119 |  |  |  | 177 |
Deferred income tax expense (benefit) |  | 930 |  |  |  | (54,754 | )
Stock-based compensation expense |  | 15,460 |  |  |  | 16,873 |
Net gain on asset disposals |  | (10,558 | ) |  |  | (5,595 | )
Amortization of debt discount and issuance costs |  | 626 |  |  |  | 620 |
Changes in operating assets and liabilities: |  |  |  |  |
Accounts receivable |  | (190,142 | ) |  |  | (103,241 | )
Income taxes receivable/payable |  | 2,219 |  |  |  | 4,378 |
Inventory and other assets |  | (12,190 | ) |  |  | 1,486 |
Accounts payable |  | 59,469 |  |  |  | 59,357 |
Accrued liabilities |  | (50,541 | ) |  |  | (8,009 | )
Other liabilities |  | 32,653 |  |  |  | (4,958 | )
Net cash provided by operating activities |  | 263,247 |  |  |  | 51,598 |
Cash flows from investing activities: |  |  |  |  |
Purchases of property and equipment |  | (317,553 | ) |  |  | (90,837 | )
Proceeds from disposal of assets |  | 20,305 |  |  |  | 20,558 |
Other |  | (2,404 | ) |  |  | (345 | )
Net cash used in investing activities |  | (299,652 | ) |  |  | (70,624 | )
Cash flows from financing activities: |  |  |  |  |
Purchases of treasury stock |  | (12,897 | ) |  |  | (3,574 | )
Dividends paid |  | (25,936 | ) |  |  | (11,303 | )
Proceeds from borrowings under revolving credit facility |  | 90,000 |  |  |  | — |
Repayment of borrowings under revolving credit facility |  | (90,000 | ) |  |  | — |
Net cash used in financing activities |  | (38,833 | ) |  |  | (14,877 | )
Effect of foreign exchange rate changes on cash |  | 449 |  |  |  | 272 |
Net decrease in cash and cash equivalents |  | (74,789 | ) |  |  | (33,631 | )
Cash and cash equivalents at beginning of period |  | 117,524 |  |  |  | 224,915 |
Cash and cash equivalents at end of period | $ | 42,735 |  |  | $ | 191,284 |
Supplemental disclosure of cash flow information: |  |  |  |  |
Net cash received (paid) during the period for: |  |  |  |  |
Interest, net of capitalized interest of $689 in 2022 and $117 in 2021 | $ | (31,332 | ) |  | $ | (31,031 | )
Income taxes |  | (1,166 | ) |  |  | 4,196 |
Non-cash investing and financing activities: |  |  |  |  |
Net increase in payables for purchases of property and equipment | $ | 14,175 |  |  | $ | 14,801 |
Net increase in deposits on equipment purchases |  | (7,556 | ) |  |  | (66 | )
Cashless exercise of stock options |  | 10,368 |  |  |  | — |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Basis of presentation — The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. and its wholly-owned subsidiaries (collectively referred to herein as “we,” “us,” “our,” “ours” and like terms). All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, we have no controlling financial interests in any other entity which would require consolidation. As used in these notes, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its business operations through its wholly-owned subsidiaries and has no employees or independent operations. The U.S. dollar is the functional currency for all of our operations.

The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although we believe the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all recurring adjustments considered necessary for a fair statement of the information in conformity with GAAP have been included. The unaudited condensed consolidated balance sheet as of December 31, 2021, as presented herein, was derived from our audited consolidated balance sheet but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year.

Recently Adopted Accounting Standards — In December 2019, the FASB issued an accounting standards update to simplify the accounting for income taxes. The amendments in the update were effective for public business entities for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted this new guidance on January 1, 2021, and there was no material impact on our consolidated financial statements.

Recently Issued Accounting Standards — In March 2020, the FASB issued an accounting standards update to provide temporary optional expedients that simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in the update are effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications from the beginning of an interim period that includes or is subsequent to March 12, 2020. We plan to adopt this standard when LIBOR is discontinued, and we do not expect this new guidance will have a material impact on our consolidated financial statements.

In October 2021, the FASB issued an accounting standards update, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The amendments should be applied prospectively to acquisitions occurring on or after the effective date. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption permitted. We plan to adopt this new guidance on January 1, 2023, and we do not expect this new guidance will have a material impact on our consolidated financial statements.

2. Acquisiti on and Discontinued Operations

Pioneer Energy Services Corp. ("Pioneer")

On October 1, 2021, we completed the acquisition of Pioneer by acquiring 100% of its equity interests. Total consideration for the acquisition included the issuance of approximately 26.3 million shares of our common stock and payment of $30 million cash, which based on the closing price of our common stock of $9.44 on October 1, 2021, valued the transaction at approximately $278 million.

Pioneer provided land-based contract drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia.

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The acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date.

The total fair value of the consideration transferred was determined as follows (in thousands, except stock price):

Shares of our common stock issued to Pioneer shareholders |  | 26,274 |
Our common stock price on October 1, 2021 | $ | 9.44 |
Fair value of common stock issued | $ | 248,025 |
Plus cash consideration | $ | 30,007 |
Total fair value of consideration transferred | $ | 278,032 |

A discounted cash flow model was used by a third-party specialist in determining the fair value of the property and equipment and intangible assets. We applied significant judgment in estimating the fair value of assets acquired and liabilities assumed, which involved the use of significant estimates and assumptions with respect to market day rates, direct operating costs, rig utilization percentages, expectations regarding the amount of future capital and operating costs, and discount rates. Certain data necessary to complete the purchase price allocation is not yet available, including final tax returns that provide the underlying tax basis of Pioneer's assets and liabilities. The purchase price allocation was finalized as of September 30, 2022. The valuation period adjustments did not have a material impact on our consolidated financial statements.

Identifiable assets acquired |  |
Cash and cash equivalents | $ | 649 |
Accounts receivable |  | 44,832 |
Inventory |  | 8,513 |
Held for sale assets |  | 73,649 |
Other current assets |  | 4,479 |
Property and equipment |  | 215,356 |
Other long-term assets |  | 9,698 |
Total identifiable assets acquired |  | 357,176 |
Liabilities assumed |  |
Accounts payable and accrued liabilities |  | 30,222 |
Held for sale liabilities |  | 32,160 |
Deferred income taxes |  | 11,832 |
Other long-term liabilities |  | 4,930 |
Total liabilities assumed |  | 79,144 |
Total net assets acquired | $ | 278,032 |

Approximately $41.5 million of revenues and $30.5 million of direct operating expenses attributed to the Pioneer acquisition were included in the consolidated statements of operations for the period from the closing date on October 1, 2021 through December 31, 2021, excluding the acquired well servicing rig business and the wireline business that were presented as a discontinued operation in the consolidated statements of operations during the fourth quarter of 2021. Revenues and direct operating expenses for our discontinued operations are presented below.

Discontinued Operations

On December 31, 2021, we completed the sale of the previously acquired well servicing rig business and wireline business to Clearwell Dynamics, LLC. The sale price was $43.0 million in cash consideration, subject to customary purchase price adjustments at closing for cash and working capital. The results of operations of these businesses were presented as a discontinued operation in the consolidated financial statements during the fourth quarter of 2021.

Summarized operating results from discontinued operations that were included in our consolidated statements of operations for the year ended December 31, 2021 are shown below (in thousands):

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|  | 2021 |
Operating revenues: |  |  |
Wireline revenue |  | $ | 9,868 |
Well servicing revenue |  |  | 19,652 |
Total operating revenues |  |  | 29,520 |
Operating costs and expenses: |  |  |
Wireline |  |  | 10,465 |
Well servicing |  |  | 16,585 |
Total operating costs and expenses |  |  | 27,050 |
Operating income |  |  | 2,470 |
Total other income (expense) |  |  | 64 |
Income from discontinued operations before income taxes |  |  | 2,534 |
Income tax benefit |  |  | — |
Income from discontinued operations, net of tax |  | $ | 2,534 |

3. Revenues

ASC Topic 606 Revenue from Contracts with Customers

Our contracts with customers include both long-term and short-term contracts. Services that primarily generate our earned revenue include the operating business segments of contract drilling, pressure pumping and directional drilling, which comprise our reportable segments. We also derive revenues from our other operations, which include our operating business segments of oilfield rentals, equipment servicing, electrical controls and automation, and oil and natural gas working interests. For more information on our business segments, including disaggregated revenue recognized from contracts with customers, see Note 14.

Charges for services are considered a series of distinct services. Since each distinct service in a series would be satisfied over time if it were accounted for separately, and the entity would measure its progress towards satisfaction using the same measure of progress for each distinct service in the series, we are able to account for these integrated services as a single performance obligation that is satisfied over time.

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer, based on terms of our contracts with our customers. The consideration promised in a contract with a customer may include fixed amounts and/or variable amounts. Payments received for services are considered variable consideration as the time in service will fluctuate as the services are provided. Topic 606 provides an allocation exception, which allows us to allocate variable consideration to one or more distinct services promised in a series of distinct services that form part of a single performance obligation as long as certain criteria are met. These criteria state that the variable payment must relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service, and allocation of the variable consideration is consistent with the standards’ allocation objective. Since payments received for services meet both criteria requirements, we recognize revenue when the service is performed.

An estimate of variable consideration should be constrained to the extent that it is not probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Payments received for other types of consideration are fully constrained as they are highly susceptible to factors outside the entity’s influence and therefore could be subject to a significant revenue reversal once resolved. As such, revenue received for these types of consideration is recognized when the service is performed.

Estimates of variable consideration are subject to change as facts and circumstances evolve. As such, we will evaluate our estimates of variable consideration that are subject to constraints throughout the contract period and revise estimates, if necessary, at the end of each reporting period.

We are a non-operating working interest owner of oil and natural gas properties primarily located in Texas and New Mexico. The ownership terms are outlined in joint operating agreements for each well between the operator of the well and the various interest

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owners, including us, who are considered non-operators of the well. We receive revenue each period for our working interest in the well during the period. The revenue received for the working interests from these oil and gas properties does not fall under the scope of the new revenue standard, and therefore, will continue to be reported under current guidance ASC 932-323 Extractive Activities – Oil and Gas, Investments – Equity Method and Joint Ventures.

Reimbursement Revenue — Reimbursements for the purchase of supplies, equipment, personnel services, shipping and other services that are provided at the request of our customers are recorded as revenue when incurred. The related costs are recorded as operating expenses when incurred.

Operating Lease Revenue — Lease income from equipment that we lease to others is recognized on a straight-line basis over the lease term. Lease income recognized during the nine months ended September 30, 2022 and 2021 was not material.

Accounts Receivable and Contract Liabilities

Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from 30 to 60 days.

Accounts receivable balances were $541 million and $352 million as of September 30, 2022 and December 31, 2021, respectively. These balances do not include amounts related to our oil and gas working interests as those contracts are excluded from Topic 606. Accounts receivable balances are included in “Accounts receivable” in the condensed consolidated balance sheets.

We do not have any significant contract asset balances. Contract liabilities include prepayments received from customers prior to the requested services being completed. Once the services are complete and have been invoiced, the prepayment is applied against the customer’s account to offset the accounts receivable balance. Also included in contract liabilities are payments received from customers for reactivation, initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site. These payments are allocated to the overall performance obligation and amortized over the initial term of the contract. During the nine months ended September 30, 2022, $0.6 million of such payments were amortized and recorded in drilling revenue. During the nine months ended September 30, 2021, no such payments were amortized and recorded in drilling revenue.

Total contract liability balances were $48.8 million and $60.3 million as of September 30, 2022 and December 31, 2021, respectively. We recognized $59.7 million of revenue in the nine months ended September 30, 2022 that was included in the contract liability balance at the beginning of the period. Revenue related to our contract liabilities balance is expected to be recognized through 2026. The $8.5 million current portion of our contract liability balance is included in “Accrued liabilities” and $40.3 million noncurrent portion of our contract liability balance is included in “Other” in the condensed consolidated balance sheets.

Contract Costs

Costs incurred for newly constructed rigs or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.

Remaining Performance Obligations

We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of September 30, 2022 was approximately $710 million. Approximately 32% of the total contract drilling backlog in the United States at September 30, 2022 is reasonably expected to remain at September 30, 2023. We generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract. The calculation does not include any revenues related to fees for other services such as for mobilization, other than initial mobilization, demobilization and customer reimbursables, nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract. For contracts that contain variable dayrate pricing, our backlog calculation uses the dayrate in effect for periods where the dayrate is fixed, and, for periods that remain subject to variable pricing, uses commodity pricing or other related indices in effect at September 30, 2022. In addition, our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer. For contracts on which we have received notice for the rig to be placed on standby, our backlog calculation uses the standby rate for the period over which we expect to receive the standby rate. For contracts on which we have received an early termination notice, our backlog calculation includes the early termination rate, instead of the dayrate, for the period over which we expect to receive the lower rate. Please see “Our Current Backlog of Contract Drilling Revenue May Decline and May Not Ultimately Be Realized, as Fixed-Term Contracts May in Certain Instances Be Terminated Without an Early Termination Payment” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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4. Inventory

Inventory consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
Finished goods | $ | 711 |  |  | $ | 515 |
Work-in-process |  | 2,345 |  |  |  | 882 |
Raw materials and supplies |  | 52,160 |  |  |  | 40,962 |
Inventory | $ | 55,216 |  |  | $ | 42,359 |

5. Property and Equipment

Property and equipment consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
Equipment | $ | 7,533,455 |  |  | $ | 7,742,101 |
Oil and natural gas properties |  | 235,593 |  |  |  | 229,403 |
Buildings |  | 178,024 |  |  |  | 182,280 |
Land |  | 23,831 |  |  |  | 24,562 |
Total property and equipment |  | 7,970,903 |  |  |  | 8,178,346 |
Less accumulated depreciation, depletion and impairment |  | (5,692,264 | ) |  |  | (5,846,591 | )
Property and equipment, net | $ | 2,278,639 |  |  | $ | 2,331,755 |

On a periodic basis, we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type. The components comprising rigs that will no longer be marketed are evaluated, and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment. The remaining components of these rigs are retired. We had no impairment related to the marketability or condition of our drilling rigs during the three and nine months ended September 30, 2022.

We review our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. We estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as our expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.

6. Intangible Assets

The following table presents the gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
| Gross |  |  |  |  |  | Net |  |  | Gross |  |  |  |  |  | Net |
| Carrying |  |  | Accumulated |  |  | Carrying |  |  | Carrying |  |  | Accumulated |  |  | Carrying |
| Amount |  |  | Amortization |  |  | Amount |  |  | Amount |  |  | Amortization |  |  | Amount |
Developed technology | $ | 7,772 |  |  | $ | (3,579 | ) |  | $ | 4,193 |  |  | $ | 55,772 |  |  | $ | (50,996 | ) |  | $ | 4,776 |
Other |  | 3,150 |  |  |  | (1,231 | ) |  |  | 1,919 |  |  |  | 4,135 |  |  |  | (1,374 | ) |  |  | 2,761 |
Intangible assets, net | $ | 10,922 |  |  | $ | (4,810 | ) |  | $ | 6,112 |  |  | $ | 59,907 |  |  | $ | (52,370 | ) |  | $ | 7,537 |

Amortization expense on intangible assets of approximately $0.3 million and $3.1 million was recorded in the three months ended September 30, 2022 and 2021, respectively. Amortization expense on intangible assets of approximately $1.0 million and $9.4 million was recorded in the nine months ended September 30, 2022 and 2021, respectively.

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7. Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
Salaries, wages, payroll taxes and benefits | $ | 48,496 |  |  | $ | 52,252 |
Workers' compensation liability |  | 66,395 |  |  |  | 67,921 |
Property, sales, use and other taxes |  | 16,248 |  |  |  | 9,673 |
Insurance, other than workers' compensation |  | 4,477 |  |  |  | 6,494 |
Accrued interest payable |  | 11,575 |  |  |  | 11,226 |
Accrued restructuring expenses |  | — |  |  |  | 7,884 |
Deferred revenue |  | 8,530 |  |  |  | 60,282 |
Other |  | 32,525 |  |  |  | 22,779 |
Accrued liabilities | $ | 188,246 |  |  | $ | 238,511 |

8. Long-Term Debt

Long-term debt consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
3.95% Senior Notes | $ | 509,505 |  |  | $ | 509,505 |
5.15% Senior Notes |  | 349,250 |  |  |  | 349,250 |
|  | 858,755 |  |  |  | 858,755 |
Less deferred financing costs and discounts |  | (5,806 | ) |  |  | (6,432 | )
Total | $ | 852,949 |  |  | $ | 852,323 |

Credit Agreement — On March 27, 2018, we entered into an amended and restated credit agreement (as amended, the “Credit Agreement”) among us, as borrower, Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer, swing line lender and lender, each of the other lenders and letter of credit issuers party thereto, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Syndication Agents, Royal Bank of Canada, as Documentation Agent and Wells Fargo Securities, LLC, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Lead Arrangers and Joint Book Runners.

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million. The maturity date for $550 million of the revolving credit commitments under the Credit Agreement is March 27, 2025, and the maturity date for the remaining $50 million of revolving credit commitments is March 27, 2024. We have the option, subject to certain conditions, to exercise an additional one-year extension of the maturity date.

Loans under the Credit Agreement bear interest by reference, at our election, to the LIBOR rate or base rate. The applicable margin on LIBOR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based upon our credit rating. As of September 30, 2022, applicable margin on LIBOR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. A letter of credit fee is payable by us equal to the applicable margin for LIBOR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on our credit rating.

None of our subsidiaries are currently required to be a guarantor under the Credit Agreement. However, if any subsidiary guarantees or incurs debt in excess of the Priority Debt Basket (as defined in the Credit Agreement), such subsidiary is required to become a guarantor under the Credit Agreement.

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The Credit Agreement contains representations, warranties, affirmative and negative covenants and events of default and associated remedies that we believe are customary for agreements of this nature, including certain restrictions on our ability and the ability of each of our subsidiaries to incur debt and grant liens. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant, which would require us to have a Pro Forma Debt Service Coverage Ratio (as defined in the Credit Agreement) greater than or equal to 1.50 to 1.00 immediately before and immediately after making any restricted payment. Restricted payments include, among other things, dividend payments, repurchases of our common stock, distributions to holders of our common stock or any other payment or other distribution to third parties on account of our or our subsidiaries’ equity interests. Our credit rating is currently investment grade at one of the two ratings agencies. The Credit Agreement also requires that our total debt to capitalization ratio, expressed as a percentage, not exceed 50%. The Credit Agreement generally defines the total debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the end of the most recently ended fiscal quarter. We were in compliance with these covenants at September 30, 2022.

As of September 30, 2022, we had no borrowings outstanding under our revolving credit facility. We had no letters of credit outstanding under the Credit Agreement at September 30, 2022 and, as a result, had available borrowing capacity of $600 million at that date.

2015 Reimbursement Agreement — On March 16, 2015, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. As of September 30, 2022, we had $65.0 million in letters of credit outstanding under the Reimbursement Agreement.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum, calculated daily and payable monthly, in arrears, on the basis of a calendar year for the actual number of days elapsed, with interest on overdue interest at the same rate as on the reimbursement amounts.

We have also agreed that if obligations under the Credit Agreement are secured by liens on any of our or our subsidiaries’ property, then our reimbursement obligations and (to the extent similar obligations would be secured under the Credit Agreement) other obligations under the Reimbursement Agreement and any letters of credit will be equally and ratably secured by all property subject to such liens securing the Credit Agreement.

Pursuant to a Continuing Guaranty dated as of March 16, 2015, our payment obligations under the Reimbursement Agreement are jointly and severally guaranteed as to payment and not as to collection by our subsidiaries that from time to time guarantee payment under the Credit Agreement. None of our subsidiaries are currently required to guarantee payment under the Credit Agreement.

2028 Senior Notes and 2029 Senior Notes — On January 19, 2018, we completed an offering of $525 million in aggregate principal amount of our 3.95% Senior Notes due 2028 (the “2028 Notes”). On November 15, 2019, we completed an offering of $350 million in aggregate principal amount of our 5.15% Senior Notes due 2029 (the “2029 Notes”).

We pay interest on the 2028 Notes on February 1 and August 1 of each year. The 2028 Notes will mature on February 1, 2028. The 2028 Notes bear interest at a rate of 3.95% per annum.

We pay interest on the 2029 Notes on May 15 and November 15 of each year. The 2029 Notes will mature on November 15, 2029. The 2029 Notes bear interest at a rate of 5.15% per annum.

The 2028 Notes and 2029 Notes (together, the “Senior Notes”) are our senior unsecured obligations, which rank equally with all our other existing and future senior unsecured debt and will rank senior in right of payment to all our other future subordinated debt. The Senior Notes will be effectively subordinated to any of our future secured debt to the extent of the value of the assets securing such debt. In addition, the Senior Notes will be structurally subordinated to the liabilities (including trade payables) of our subsidiaries that do not guarantee the Senior Notes. None of our subsidiaries are currently required to be a guarantor under the Senior Notes. If our subsidiaries guarantee the Senior Notes in the future, such guarantees (the “Guarantees”) will rank equally in right of payment with all the guarantors’ future unsecured senior debt and senior in right of payment to all the guarantors’ future subordinated debt. The Guarantees will be effectively subordinated to any of the guarantors’ future secured debt to the extent of the value of the assets securing such debt.

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At our option, we may redeem the Senior Notes in whole or in part, at any time or from time to time at a redemption price equal to 100% of the principal amount of such Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the redemption date, plus a “make-whole” premium. Additionally, commencing on November 1, 2027, in the case of the 2028 Notes, and on August 15, 2029, in the case of the 2029 Notes, at our option, we may redeem the respective Senior Notes in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the redemption date.

The indentures pursuant to which the Senior Notes were issued include covenants that, among other things, limit our and our subsidiaries’ ability to incur certain liens, engage in sale and lease-back transactions or consolidate, merge, or transfer all or substantially all of their assets. These covenants are subject to important qualifications and limitations set forth in the indentures.

Upon the occurrence of a change of control triggering event, as defined in the indentures, each holder of the Senior Notes may require us to purchase all or a portion of such holder’s Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The indentures also provide for events of default which, if any of them occurs, would permit or require the principal of, premium, if any, and accrued interest, if any, on the Senior Notes to become or to be declared due and payable.

Debt issuance costs — Debt issuance costs, except those related to line-of-credit arrangements, are presented in the balance sheet as a direct reduction of the carrying amount of the related debt. Debt issuance costs related to line-of-credit arrangements are included in “Other non-current assets” in the condensed consolidated balance sheets. Amortization of debt issuance costs is reported as interest expense.

Interest expense related to the amortization of debt issuance costs was approximately $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.

Presented below is a schedule of the principal repayment requirements of long-term debt as of September 30, 2022 (in thousands):

Year ending December 31, |  |
2022 | $ | — |
2023 |  | — |
2024 |  | — |
2025 |  | — |
2026 |  | — |
Thereafter |  | 858,755 |
Total | $ | 858,755 |

9. Commitments and Contingencies

As of September 30, 2022, we maintained letters of credit in the aggregate amount of $65.0 million primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of September 30, 2022, no amounts had been drawn under the letters of credit.

As of September 30, 2022, we had commitments to purchase major equipment totaling approximately $109 million for our contract drilling, pressure pumping, directional drilling and oilfield rentals businesses.

Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of September 30, 2022, the remaining minimum obligation under these agreements was approximately $16.1 million, of which approximately $2.8 million, $10.3 million, and $3.0 million relate to the remainder of 2022, 2023, and 2024, respectively.

We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows or results of operations.

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10. Stockholders’ Equity

Cash Dividend — On October 26, 2022, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on December 15, 2022 to holders of record as of December 1, 2022. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.

Share Repurchases and Acquisitions — In September 2013, our Board of Directors approved a stock buyback program. In July 2019, our Board of Directors increased the amount authorized to be repurchased under the program to up to $250 million of our common stock. All purchases executed to date have been through open market transactions. Purchases under the program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the program. As of September 30, 2022, we had remaining authorization to purchase approximately $130 million of our outstanding common stock under the program. Shares of stock purchased under the program are held as treasury shares. On October 26, 2022, our Board of Directors approved another increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases.

Treasury stock acquisitions during the nine months ended September 30, 2022 were as follows (dollars in thousands):

| Shares |  |  | Cost |
Treasury shares at January 1, 2022 |  | 84,128,995 |  |  | $ | 1,372,641 |
Acquisitions pursuant to long-term incentive plan |  | 1,372,101 |  |  |  | 23,237 |
Other |  | 3,027 |  |  |  | 28 |
Treasury shares at September 30, 2022 |  | 85,504,123 |  |  | $ | 1,395,906 |

Release of Cumulative Translation Adjustment — In April 2022, we sold certain assets to substantially complete our exit from our Canadian operations. We used the Canadian dollar as our functional currency for our Canadian operations. Prior to the substantial completion of our exit, the effects of exchange rate changes were reflected in accumulated other comprehensive income, which is a separate component of stockholders' equity. Upon substantial completion of our exit, we released the $7.7 million cumulative translation adjustment, net of tax of $3.8 million, from accumulated other comprehensive income into net income (loss) in the second quarter of 2022. The release resulted in an $11.5 million pre-tax gain, which was recorded in other operating income, net.

11. Stock-based Compensation

We use share-based payments to compensate employees and non-employee directors. We recognize the cost of share-based payments under the fair-value-based method. Outstanding share-based awards include equity instruments in the form of stock options or restricted stock units that have included service conditions and, in certain cases, performance conditions. Our share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. In 2020, we granted performance-based cash-settled phantom units, which are accounted for as a liability classified award. We issue shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.

Stock Options — We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. No options were granted during the nine months ended September 30, 2022 or 2021.

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Stock option activity from January 1, 2022 to September 30, 2022 follows:

|  |  |  | Weighted |
|  |  |  | Average |
| Underlying |  |  | Exercise Price |
| Shares |  |  | Per Share |
Outstanding at January 1, 2022 |  | 3,720,150 |  |  | $ | 20.93 |
Exercised |  | (640,000 | ) |  | $ | 16.20 |
Expired |  | (135,000 | ) |  | $ | 17.00 |
Outstanding at September 30, 2022 |  | 2,945,150 |  |  | $ | 22.14 |
Exercisable at September 30, 2022 |  | 2,945,150 |  |  | $ | 22.14 |

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2022 to September 30, 2022 follows:

|  |  |  |  |  |  | Weighted |
|  |  |  |  |  |  | Average Grant |
| Time |  |  | Performance |  |  | Date Fair Value |
| Based |  |  | Based |  |  | Per Share |
Non-vested restricted stock units outstanding at January 1, 2022 |  | 3,044,719 |  |  |  | 359,315 |  |  | $ | 8.31 |
Granted |  | 1,554,849 |  |  |  | — |  |  | $ | 17.37 |
Vested |  | (1,437,286 | ) |  |  | — |  |  | $ | 7.32 |
Forfeited |  | (57,668 | ) |  |  | — |  |  | $ | 12.90 |
Non-vested restricted stock units outstanding at September 30, 2022 |  | 3,104,614 |  |  |  | 359,315 |  |  | $ | 12.71 |

As of September 30, 2022, we had unrecognized compensation cost related to our unvested restricted stock units totaling $30.1 million. The weighted-average remaining vesting period for these unvested restricted stock units was 1.65 years.

Performance Unit Awards — We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is generally the three-year period commencing on April 1 of the year of grant.

The performance goals for the Performance Units are tied to our total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. For the performance units granted in April 2022 and April 2021, the peer group includes one market index and three market indices, respectively. The performance goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective Performance Units. For the Performance Units granted beginning in April 2019, the recipients will receive the target number of shares if our total shareholder return during the performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive two times the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points.

For the Performance Units granted beginning in April 2019, the payout shall not exceed the target number of shares if our total shareholder return is negative or zero. Additionally, the Performance Units granted in April 2020 will not pay out if our total shareholder return is not equal to or greater than the total stockholder return of the S&P 500 Index for the performance period.

The total target number of shares with respect to the Performance Units for the awards granted in 2018-2022 is set forth below:

| 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Target number of shares |  | 414,000 |  |  |  | 843,000 |  |  |  | 500,500 |  |  |  | 489,800 |  |  |  | 310,700 |

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In April 2021, 621,400 shares were issued to settle the 2018 Performance Units. In April 2022, 979,600 shares were issued to settle the 2019 Performance Units. The Performance Units granted in 2020, 2021 and 2022 have not reached the end of their respective performance periods.

Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):

| 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Aggregate fair value at date of grant | $ | 10,743 |  |  | $ | 7,225 |  |  | $ | 826 |  |  | $ | 9,958 |  |  | $ | 8,004 |

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is shown below (in thousands):

| 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Three months ended September 30, 2022 | $ | 895 |  |  | $ | 602 |  |  | $ | 69 |  |  | NA |  |  | NA |
Three months ended September 30, 2021 | NA |  |  | $ | 602 |  |  | $ | 69 |  |  | $ | 830 |  |  | NA |
Nine months ended September 30, 2022 | $ | 1,791 |  |  | $ | 1,806 |  |  | $ | 206 |  |  | $ | 830 |  |  | NA |
Nine months ended September 30, 2021 | NA |  |  | $ | 1,204 |  |  | $ | 206 |  |  | $ | 2,489 |  |  | $ | 667 |

As of September 30, 2022, we had unrecognized compensation cost related to our unvested Performance Units totaling $12.7 million. The weighted-average remaining vesting period for these unvested Performance Units was 1.45 years.

Phantom Units — In May 2020, the Compensation Committee approved a grant of long-term performance-based phantom units to our Chief Executive Officer and President, William A. Hendricks, Jr (the “Phantom Units”). The Phantom Units were granted outside of the 2014 Plan. Pursuant to this phantom unit grant, Mr. Hendricks may earn from 0% to 200% of a target award of 298,500 phantom units based on our achievement of the same performance conditions over the same performance period that applies to the Performance Units granted in April 2020, as described above. Earned Phantom Units, if any, will be settled in 2023, following completion of the three-year performance period, in a cash payment equal to the number of earned phantom units multiplied by our average trading price per share over the twenty consecutive trading days ending March 31, 2023. Because the Phantom Units are cash-settled awards, they are accounted for as a liability classified award. The grant date fair value of the Phantom Units was $1.2 million. Compensation expense is recognized on a straight-line basis over the performance period, with the amount recognized fluctuating as a result of the Phantom Units being remeasured to fair value at the end of each reporting period due to their liability-award classification. We recognized a $1.4 million and $0.2 million decrease to compensation expense associated with the Phantom Units during the three months ended September 30, 2022 and 2021, respectively, due to a decrease in fair value during the periods. We recognized $2.3 million and $1.3 million of compensation expense for the nine months ended September 30, 2022 and 2021, respectively.

12. Income Taxes

Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.

Our effective income tax rate for the three months ended September 30, 2022 was 3.5%, compared with 17.5% for the three months ended September 30, 2021. The lower effective income tax rate for the three months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods. For the three months ended September 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded, resulting in a lower overall effective income tax rate.

Our effective income tax rate for the nine months ended September 30, 2022 was 8.3%, compared with 15.7% for the nine months ended September 30, 2021. The lower effective income tax rate for the nine months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods. For the period ended September 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded, resulting in a lower overall effective income tax rate.

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In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We assess the realizability of our deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In the first three quarters of 2022, the effective tax rate takes into consideration the estimated valuation allowance based on forecasted 2022 income.

We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.

13. Earnings Per Share

We provide a dual presentation of our net income (loss) per common share in our unaudited condensed consolidated statements of operations: basic net income (loss) per common share (“Basic EPS”) and diluted net income (loss) per common share (“Diluted EPS”).

Basic EPS excludes dilution and is determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options, non-vested shares of restricted stock, performance units and restricted stock units. The dilutive effect of stock options, performance units and non-vested restricted stock units is determined using the treasury stock method.

The following table presents information necessary to calculate net income (loss) per share for the three and nine months ended September 30, 2022 and 2021 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | September 30, |
| 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
BASIC EPS: |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributed to common stockholders | $ | 61,452 |  |  | $ | (82,998 | ) |  | $ | 54,561 |  |  | $ | (292,720 | )
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock |  | 216,822 |  |  |  | 188,965 |  |  |  | 216,090 |  |  |  | 188,355 |
Basic net income (loss) per common share | $ | 0.28 |  |  | $ | (0.44 | ) |  | $ | 0.25 |  |  | $ | (1.55 | )
DILUTED EPS: |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributed to common stockholders | $ | 61,452 |  |  | $ | (82,998 | ) |  | $ | 54,561 |  |  | $ | (292,720 | )
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock |  | 216,822 |  |  |  | 188,965 |  |  |  | 216,090 |  |  |  | 188,355 |
Add dilutive effect of potential common shares |  | 3,632 |  |  |  | — |  |  |  | 3,291 |  |  |  | — |
Weighted average number of diluted common shares outstanding |  | 220,454 |  |  |  | 188,965 |  |  |  | 219,381 |  |  |  | 188,355 |
Diluted net income (loss) per common share | $ | 0.28 |  |  | $ | (0.44 | ) |  | $ | 0.25 |  |  | $ | (1.55 | )
Potentially dilutive securities excluded as anti-dilutive |  | 3,359 |  |  |  | 9,334 |  |  |  | 3,359 |  |  |  | 9,334 |

14. Business Segments

At September 30, 2022, we had three reportable business segments: (i) contract drilling of oil and natural gas wells, (ii) pressure pumping services and (iii) directional drilling services. Each of these segments represents a distinct type of business and has a separate management team that reports to our chief operating decision maker. The results of operations in these segments are regularly reviewed by the chief operating decision maker for purposes of determining resource allocation and assessing performance.

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The following tables summarize selected financial information relating to our business segments (in thousands):

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | September 30, |
| 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 359,306 |  |  | $ | 158,154 |  |  | $ | 926,607 |  |  | $ | 434,080 |
Pressure pumping |  | 287,664 |  |  |  | 152,634 |  |  |  | 715,630 |  |  |  | 340,464 |
Directional drilling |  | 58,871 |  |  |  | 31,728 |  |  |  | 157,030 |  |  |  | 76,267 |
Other operations (1) |  | 32,078 |  |  |  | 20,744 |  |  |  | 86,337 |  |  |  | 53,561 |
Elimination of intercompany revenues - Contract drilling (2) |  | (3,262 | ) |  |  | (229 | ) |  |  | (9,337 | ) |  |  | (922 | )
Elimination of intercompany revenues - Other operations (2) |  | (7,154 | ) |  |  | (5,146 | ) |  |  | (17,151 | ) |  |  | (12,862 | )
Total revenues | $ | 727,503 |  |  | $ | 357,885 |  |  | $ | 1,859,116 |  |  | $ | 890,588 |
Income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 43,433 |  |  | $ | (51,830 | ) |  | $ | 61,989 |  |  | $ | (158,680 | )
Pressure pumping |  | 48,949 |  |  |  | (13,774 | ) |  |  | 75,461 |  |  |  | (77,434 | )
Directional drilling |  | 4,450 |  |  |  | (4,581 | ) |  |  | 10,266 |  |  |  | (14,614 | )
Other operations |  | 2,630 |  |  |  | (1,335 | ) |  |  | 6,671 |  |  |  | (9,178 | )
Corporate |  | (23,117 | ) |  |  | (18,489 | ) |  |  | (60,161 | ) |  |  | (57,040 | )
Interest income |  | 58 |  |  |  | 37 |  |  |  | 87 |  |  |  | 196 |
Interest expense |  | (10,975 | ) |  |  | (10,683 | ) |  |  | (32,198 | ) |  |  | (31,396 | )
Other |  | (1,774 | ) |  |  | 14 |  |  |  | (2,644 | ) |  |  | 840 |
Income (loss) before income taxes | $ | 63,654 |  |  | $ | (100,641 | ) |  | $ | 59,471 |  |  | $ | (347,306 | )
Depreciation, depletion, amortization and impairment: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 83,851 |  |  | $ | 97,160 |  |  | $ | 250,779 |  |  | $ | 297,426 |
Pressure pumping |  | 24,746 |  |  |  | 29,838 |  |  |  | 73,244 |  |  |  | 98,963 |
Directional drilling |  | 4,056 |  |  |  | 6,772 |  |  |  | 11,259 |  |  |  | 19,863 |
Other operations |  | 8,212 |  |  |  | 5,866 |  |  |  | 21,412 |  |  |  | 17,309 |
Corporate |  | 1,285 |  |  |  | 1,429 |  |  |  | 3,947 |  |  |  | 4,423 |
Total depreciation, depletion, amortization and impairment | $ | 122,150 |  |  | $ | 141,065 |  |  | $ | 360,641 |  |  | $ | 437,984 |
Capital expenditures: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 67,564 |  |  | $ | 21,239 |  |  | $ | 169,439 |  |  | $ | 56,708 |
Pressure pumping |  | 46,653 |  |  |  | 6,468 |  |  |  | 114,669 |  |  |  | 19,457 |
Directional drilling |  | 5,110 |  |  |  | 3,290 |  |  |  | 12,112 |  |  |  | 4,613 |
Other operations |  | 6,466 |  |  |  | 2,833 |  |  |  | 19,857 |  |  |  | 9,006 |
Corporate |  | 562 |  |  |  | 434 |  |  |  | 1,476 |  |  |  | 1,053 |
Total capital expenditures | $ | 126,355 |  |  | $ | 34,264 |  |  | $ | 317,553 |  |  | $ | 90,837 |

| September 30, 2022 |  |  | December 31, 2021 |
Identifiable assets: |  |  |  |  |
Contract drilling | $ | 2,199,904 |  |  | $ | 2,169,501 |
Pressure pumping |  | 529,088 |  |  |  | 458,202 |
Directional drilling |  | 116,963 |  |  |  | 87,285 |
Other operations |  | 99,104 |  |  |  | 85,932 |
Corporate (3) |  | 96,940 |  |  |  | 156,928 |
Total assets | $ | 3,041,999 |  |  | $ | 2,957,848 |

(1)
Other operations includes our oilfield rentals business, drilling equipment service business, the electrical controls and automation business and the oil and natural gas working interests.

(2)
I ntercompany revenues consist of revenues from contract drilling for services provided to our other operations, and revenues from other operations for services provided to contract drilling, pressure pumping and within other operations. These revenues are generally based on estimated external selling prices and are eliminated during consolidation.

(3)
Corporate assets primarily include cash on hand and certain property and equipment.

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15. Fair Values of Financial Instruments

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items. These fair value estimates are considered Level 1 fair value estimates in the fair value hierarchy of fair value accounting.

The estimated fair value of our outstanding debt balances as of September 30, 2022 and December 31, 2021 is set forth below (in thousands):

| September 30, 2022 |  |  | December 31, 2021 |
| Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
| Value |  |  | Value |  |  | Value |  |  | Value |
3.95% Senior Notes | $ | 509,505 |  |  | $ | 415,466 |  |  | $ | 509,505 |  |  | $ | 511,652 |
5.15% Senior Notes |  | 349,250 |  |  |  | 288,241 |  |  |  | 349,250 |  |  |  | 359,142 |
Total debt | $ | 858,755 |  |  | $ | 703,707 |  |  | $ | 858,755 |  |  | $ | 870,794 |

The fair values of the 3.95% Senior Notes and the 5.15% Senior Notes at September 30, 2022 and December 31, 2021 are based on quoted market prices, which are considered Level 1 fair value estimates in the fair value hierarchy of fair value accounting. The fair values of the 3.95% Senior Notes implied an 8.30% market rate of interest at September 30, 2022 and a 3.87% market rate of interest at December 31, 2021, based on their quoted market prices. The fair values of the 5.15% Senior Notes implied an 8.46% market rate of interest at September 30, 2022 and a 4.72% market rate of interest at December 31, 2021, based on their quoted market prices.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) and other public filings, press releases and presentations by us contain “forward-looking statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, as amended. As used in this Report, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its operations through its wholly-owned subsidiaries and has no employees or independent business operations. These “forward-looking statements” involve risk and uncertainty. These forward-looking statements include, without limitation, statements relating to: liquidity; revenue, cost and margin expectations and backlog; financing of operations; oil and natural gas prices; rig counts and frac spreads; source and sufficiency of funds required for building new equipment, upgrading existing equipment and acquisitions (if opportunities arise); demand and pricing for our services; competition; equipment availability; government regulation; legal proceedings; debt service obligations; impact of inflation; and other matters. Our forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as “anticipate,” “believe,” “budgeted,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “project,” “pursue,” “should,” “strategy,” “target,” or “will,” or the negative thereof and other words and expressions of similar meaning. The forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.

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 have been correct. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from actual future results expressed or implied by the forward-looking statements. These risks and uncertainties relate to:

•
adverse oil and natural gas industry conditions, including as a result of economic repercussions from the COVID-19 pandemic;
•
global economic conditions;
•
volatility in customer spending and in oil and natural gas prices that could adversely affect demand for our services and their associated effect on rates;
•
excess availability of land drilling rigs, pressure pumping and directional drilling equipment, including as a result of reactivation, improvement or construction;
•
competition and demand for our services;
•
the impact of the ongoing conflict in Ukraine;
•
strength and financial resources of competitors;
•
utilization, margins and planned capital expenditures;
•
liabilities from operational risks for which we do not have and receive full indemnification or insurance;
•
operating hazards attendant to the oil and natural gas business;
•
failure by customers to pay or satisfy their contractual obligations (particularly with respect to fixed-term contracts);
•
the ability to realize backlog;
•
specialization of methods, equipment and services and new technologies, including the ability to develop and obtain satisfactory returns from new technology;
•
the ability to retain management and field personnel;
•
loss of key customers;
•
inflationary pressure on labor and supplies;
•
shortages, delays in delivery, and interruptions in supply, of equipment and materials;
•
cybersecurity events;
•
synergies, costs and financial and operating impacts of acquisitions;
•
potential adverse reactions or changes to business or employee relationships resulting from the acquisition;

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•
the failure to realize expected synergies and other benefits from the acquisition in the timeframe expected or at all;
•
difficulty in building and deploying new equipment;
•
governmental regulation;
•
climate legislation, regulation and other related risks;
•
environmental, social and governance practices, including the perception thereof;
•
environmental risks and ability to satisfy future environmental costs;
•
technology-related disputes;
•
legal proceedings and actions by governmental or other regulatory agencies;
•
the ability to effectively identify and enter new markets;
•
weather;
•
operating costs;
•
expansion and development trends of the oil and natural gas industry;
•
ability to obtain insurance coverage on commercially reasonable terms;
•
financial flexibility;
•
adverse credit and equity market conditions;
•
availability of capital and the ability to repay indebtedness when due;
•
stock price volatility;
•
compliance with covenants under our debt agreements; and
•
other financial, operational and legal risks and uncertainties detailed from time to time in our filings with the SEC.

We caution that the foregoing list of factors is not exhaustive. Additional information concerning these and other risk factors is contained elsewhere in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2021 and may be contained in our future filings with the SEC. You are cautioned not to place undue reliance on any of our forward-looking statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to update publicly or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise. In the event that we update any forward-looking statement, no inference should be made that we will make additional updates with respect to that statement, related matters or any other forward-looking statements. All subsequent written and oral forward-looking statements concerning us or other matters and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In November 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements. The final rule became effective on February 10, 2021 and must be applied in a registrant’s first fiscal year ending on or after August 9, 2021. Under the amendments to Item 303 of Regulation S-K contained in SEC Release No. 33-10890, we have the option, in discussing any material changes in our results of operations with respect to either the most recent quarter for which a statement of comprehensive income (loss) is provided and the corresponding quarter for the preceding fiscal year or, in the alternative, the most recent quarter for which a statement of comprehensive income is provided and the immediately preceding sequential quarter. We have elected the latter alternative, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison.

Management Overview and Recent Developments in Market Conditions — We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment.

Our contract drilling business operates in the continental United States and internationally in Colombia and, from time to time, we pursue contract drilling opportunities in other select markets. Our pressure pumping business operates primarily in Texas and the Appalachian region. We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States, and we provide services that improve the statistical accuracy of directional and horizontal wellbores. We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico.

Reduced demand for crude oil and refined products related to the COVID-19 pandemic led to a significant reduction in crude oil prices and demand for drilling and completion services in 2020 and early 2021. However, market fundamentals are now strong, as demand has increased for drilling and completions equipment and services in 2022, and industry supply remains constrained. We expect the strong demand for our services to continue. The current demand for equipment and services and strong pricing environment remain dependent on macro conditions, including commodity prices, geopolitical environment, response to the COVID-19 pandemic (including any resurgences and/or lockdowns in the United States and abroad) and continued focus by exploration and production companies and service companies on capital discipline. Oil prices averaged $93.18 per barrel in the third quarter of 2022, as compared to $108.72 per barrel in the second quarter of 2022.

Due to improving activity levels, supply chain disruptions and increasing tightness in the overall labor market, we continue to see general oilfield cost inflation across our segments, including increases in the cost of labor, services and supplies. Supply chain disruptions and the increasing challenge of attracting and retaining employees are increasing the complexity of reactivating equipment.

Pricing for all our services has increased in 2022 due in part to the limited supply of readily available, high-quality drilling and completion equipment.

Our average active rig count in the United States for the third quarter of 2022 was 128 rigs. This was an increase from our average active rig count for the second quarter of 2022 of 121. Based on contracts in place in the United States as of October 25, 2022, we expect an average of 81 rigs operating under term contracts during the fourth quarter of 2022 and an average of 56 rigs operating under term contracts during the four quarters ending September 30, 2023.

Our average active spread count was 12 spreads in the third quarter, consistent with the second quarter of 2022. We calculated average active spreads as the average number of spreads that were crewed and actively marketed during the period. We expect to end the fourth quarter with 12 active pressure pumping spreads.

We have increased our 2022 capital expenditures forecast to approximately $425 million.

Recent Developments in Financial Matters and Merger and Acquisition Activity — On October 1, 2021, we completed the acquisition of Pioneer Energy Services Corp. (“Pioneer”) by acquiring 100% of its equity interests. Total consideration for the acquisition included the issuance of approximately 26.3 million shares of our common stock and payment of $30 million cash, which based on the closing price of our common stock of $9.44 on October 1, 2021, valued the transaction at approximately $278 million.

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Pioneer provided land-based contract drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia. Through the Pioneer acquisition, we acquired Pioneer’s 100% pad-capable drilling rig fleet consisting of 17 AC-powered rigs in the United States and eight SCR rigs in Colombia and production services assets consisting of 123 well servicing rigs and 72 wireline services units.

On December 31, 2021, we completed the sale of the acquired well servicing rig business and wireline business, to Clearwell Dynamics, LLC. The sale price was $43.0 million in cash consideration, subject to customary purchase price adjustments at closing for cash and working capital. The results of operations of these businesses were presented as a discontinued operation during the fourth quarter of 2021.

On December 30, 2021, we repaid the final $50 million of borrowings under the 2019 Term Loan Agreement (“Term Loan Agreement”), and as a result had no remaining borrowings under the Term Loan Agreement as of December 31, 2021.

Impact on our Business from Oil and Natural Gas Prices and Other Factors — Our revenues, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and upon our customers’ ability to access capital to fund their operating and capital expenditures. During periods of improved oil and natural gas prices, the capital spending budgets of oil and natural gas operators tend to expand, which generally results in increased demand for our services. Conversely, in periods when oil and natural gas prices are relatively low or when our customers have a reduced ability to access capital, the demand for our services generally weakens, and we experience downward pressure on pricing for our services. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services. We may also be impacted by delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies.

The North American oil and natural gas services industry is cyclical and at times experiences downturns in demand. During these periods, there has been substantially more oil and natural gas service equipment available than necessary to meet demand. As a result, oil and natural gas service contractors have had difficulty sustaining profit margins and, at times, have incurred losses during the downturn periods. We cannot predict either the future level of demand for our oil and natural gas services or future conditions in the oil and natural gas service businesses.

In addition to the dependence on oil and natural gas prices and demand for our services, we are highly impacted by operational risks, competition, labor issues, weather, the availability, from time to time, of products used in our pressure pumping business, supplier delays and various other factors that could materially adversely affect our business, financial condition, cash flows and results of operations, including as a result of the COVID-19 pandemic. Please see Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

For the three months ended September 30, 2022 and June 30, 2022 and nine months ended September 30, 2022 and 2021, our operating revenues consisted of the following (dollars in thousands):

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | June 30, |  |  | September 30, |  |  | September 30, |
| 2022 |  |  | 2022 |  |  | 2022 |  |  | 2021 |
Contract drilling | $ | 356,044 |  |  |  | 48.9 | % |  | $ | 304,586 |  |  |  | 49.0 | % |  | $ | 917,270 |  |  |  | 49.3 | % |  | $ | 433,158 |  |  |  | 48.6 | %
Pressure pumping |  | 287,664 |  |  |  | 39.5 | % |  |  | 238,376 |  |  |  | 38.3 | % |  |  | 715,630 |  |  |  | 38.5 | % |  |  | 340,464 |  |  |  | 38.2 | %
Directional drilling |  | 58,871 |  |  |  | 8.1 | % |  |  | 54,825 |  |  |  | 8.8 | % |  |  | 157,030 |  |  |  | 8.4 | % |  |  | 76,267 |  |  |  | 8.6 | %
Other operations |  | 24,924 |  |  |  | 3.5 | % |  |  | 24,451 |  |  |  | 3.9 | % |  |  | 69,186 |  |  |  | 3.8 | % |  |  | 40,699 |  |  |  | 4.6 | %
| $ | 727,503 |  |  |  | 100.0 | % |  | $ | 622,238 |  |  |  | 100.0 | % |  | $ | 1,859,116 |  |  |  | 100.0 | % |  | $ | 890,588 |  |  |  | 100.0 | %

Contract Drilling

We have addressed our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays by improving the capabilities of our drilling fleet during the last several years. The U.S. land rig industry has in recent years referred to certain high specification rigs as “super-spec” rigs, which we consider to be at least a 1,500 horsepower, AC-powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. Due to evolving customer preferences, we refer to certain premium rigs as “Tier-1, super spec” rigs, which we consider as being a super-spec rig that also has a third mud pump and raised drawworks that allow for more clearance underneath the rig floor. As of September 30, 2022, our rig fleet included 172 super-spec rigs, of which 118 were Tier-1, super-spec rigs.

We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of September 30, 2022 was approximately $710

25

million. Approximately 32% of the total contract drilling backlog in the United States at September 30, 2022 is reasonably expected to remain at September 30, 2023. See Note 3 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.

Pressure Pumping

As of September 30, 2022, we had approximately 1.2 million horsepower in our pressure pumping fleet. We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Substantially all the revenue in the pressure pumping segment is from well stimulation services, such as hydraulic fracturing, for completion of new wells and remedial work on existing wells. We also provide cementing services through the pressure pumping segment.

Directional Drilling

We provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, measurement-while-drilling and supply and rental of downhole performance motors. We also provide services that improve the statistical accuracy of directional and horizontal wellbores.

Other Operations

Our oilfield rentals business, with a fleet of premium oilfield rental tools, along with the results of our ownership, as a non-operating working interest owner, in oil and gas assets located in Texas and New Mexico, provide the largest revenue contributions to our other operations. Other operations also includes the results of our electrical controls and automation business and the results of our drilling equipment service business.

Results of Operations

The following tables summarize results of operations by business segment for the three months ended September 30, 2022 and June 30, 2022:

|  | Three Months Ended |  |  |  |
|  | September 30, |  |  | June 30, |  |  |  |
Contract Drilling |  | 2022 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |
Revenues |  | $ | 356,044 |  |  | $ | 304,586 |  |  |  | 16.9 | %
Direct operating costs |  |  | 227,063 |  |  |  | 196,269 |  |  |  | 15.7 | %
Adjusted gross margin (1) |  |  | 128,981 |  |  |  | 108,317 |  |  |  | 19.1 | %
Selling, general and administrative |  |  | 1,703 |  |  |  | 1,694 |  |  |  | 0.5 | %
Depreciation, amortization and impairment |  |  | 83,851 |  |  |  | 84,905 |  |  |  | (1.2 | )%
Other operating income, net |  |  | (6 | ) |  |  | (2 | ) |  |  | 200.0 | %
Operating income |  | $ | 43,433 |  |  | $ | 21,720 |  |  |  | 100.0 | %
Operating days - U.S. (2) |  |  | 11,767 |  |  |  | 11,015 |  |  |  | 6.8 | %
Average revenue per operating day - U.S. |  | $ | 28.67 |  |  | $ | 25.90 |  |  |  | 10.7 | %
Average direct operating costs per operating day - U.S. |  | $ | 18.20 |  |  | $ | 16.50 |  |  |  | 10.3 | %
Average adjusted gross margin per operating day - U.S. (3) |  | $ | 10.47 |  |  | $ | 9.39 |  |  |  | 11.5 | %
Average rigs operating - U.S. (2) |  |  | 128 |  |  |  | 121 |  |  |  | 5.7 | %
Capital expenditures |  | $ | 67,564 |  |  | $ | 50,165 |  |  |  | 34.7 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)
Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.

Revenues increased primarily due to an increase in operating days and improved pricing. Average revenue per operating day increased primarily due to improved pricing.

Direct operating costs increased due to an increase in operating days as well as inflationary pressure on labor and supplies. Average direct operating costs per operating day increased primarily due to cost inflation.

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The increase in capital expenditures was primarily due to rig reactivations and upgrading of certain rig components.

|  | Three Months Ended |  |  |  |
|  | September 30, |  |  | June 30, |  |  |  |
Pressure Pumping |  | 2022 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 287,664 |  |  | $ | 238,376 |  |  |  | 20.7 | %
Direct operating costs |  |  | 211,704 |  |  |  | 191,455 |  |  |  | 10.6 | %
Adjusted gross margin (1) |  |  | 75,960 |  |  |  | 46,921 |  |  |  | 61.9 | %
Selling, general and administrative |  |  | 2,265 |  |  |  | 2,117 |  |  |  | 7.0 | %
Depreciation, amortization and impairment |  |  | 24,746 |  |  |  | 24,713 |  |  |  | 0.1 | %
Operating income |  | $ | 48,949 |  |  | $ | 20,091 |  |  |  | 143.6 | %
Average active spreads (2) |  |  | 12 |  |  |  | 11 |  |  |  | 9.1 | %
Fracturing jobs |  |  | 146 |  |  |  | 142 |  |  |  | 2.8 | %
Other jobs |  |  | 189 |  |  |  | 146 |  |  |  | 29.5 | %
Total jobs |  |  | 335 |  |  |  | 288 |  |  |  | 16.3 | %
Average revenue per fracturing job |  | $ | 1,933.07 |  |  | $ | 1,654.75 |  |  |  | 16.8 | %
Average revenue per other job |  | $ | 28.76 |  |  | $ | 23.30 |  |  |  | 23.4 | %
Average revenue per total job |  | $ | 858.70 |  |  | $ | 827.69 |  |  |  | 3.7 | %
Average direct operating costs per total job |  | $ | 631.95 |  |  | $ | 664.77 |  |  |  | (4.9 | )%
Average adjusted gross margin per total job (3) |  | $ | 226.75 |  |  | $ | 162.92 |  |  |  | 39.2 | %
Adjusted gross margin as a percentage of revenues (3) |  |  | 26.4 | % |  |  | 19.7 | % |  |  | 34.2 | %
Capital expenditures |  | $ | 46,653 |  |  | $ | 34,554 |  |  |  | 35.0 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)
Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.

Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppant and other materials). Direct operating costs are also impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the size of the jobs.

Revenues increased primarily due to improved pricing for our higher revenue fracturing jobs and continued improvement in asset utilization and efficiency. Direct operating costs increased primarily due to an increase in the number of higher cost fracturing jobs as well as inflationary pressure on labor and supplies.

Our average revenue per total job increased primarily as a result of improved pricing from our higher revenue fracturing jobs. This increase was partially offset by a higher volume of lower revenue other jobs. Average direct operating costs per total job decreased primarily as a result of a higher volume of lower cost other jobs, which was partially offset by inflationary pressure on labor and supplies.

The increase in capital expenditures was primarily due to the activation of our twelfth spread, equipment purchases and increased maintenance capital expenditures.

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|  | Three Months Ended |  |  |  |
|  | September 30, |  |  | June 30, |  |  |  |
Directional Drilling |  | 2022 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 58,871 |  |  | $ | 54,825 |  |  |  | 7.4 | %
Direct operating costs |  |  | 48,445 |  |  |  | 45,438 |  |  |  | 6.6 | %
Adjusted gross margin (1) |  |  | 10,426 |  |  |  | 9,387 |  |  |  | 11.1 | %
Selling, general and administrative |  |  | 1,920 |  |  |  | 1,500 |  |  |  | 28.0 | %
Depreciation, amortization and impairment |  |  | 4,056 |  |  |  | 3,859 |  |  |  | 5.1 | %
Operating income |  | $ | 4,450 |  |  | $ | 4,028 |  |  |  | 10.5 | %
Capital expenditures |  | $ | 5,110 |  |  | $ | 4,036 |  |  |  | 26.6 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Directional drilling revenue increased primarily due to improved pricing. We averaged 46 jobs per day for each of the periods.

Direct operating costs were higher by $3.0 million, or 6.6%, primarily due to labor and cost inflation.

|  | Three Months Ended |  |  |  |
|  | September 30, |  |  | June 30, |  |  |  |
Other Operations |  | 2022 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 24,924 |  |  | $ | 24,451 |  |  |  | 1.9 | %
Direct operating costs |  |  | 13,409 |  |  |  | 13,738 |  |  |  | (2.4 | )%
Adjusted gross margin (1) |  |  | 11,515 |  |  |  | 10,713 |  |  |  | 7.5 | %
Selling, general and administrative |  |  | 673 |  |  |  | 610 |  |  |  | 10.3 | %
Depreciation, depletion, amortization and impairment |  |  | 8,212 |  |  |  | 6,803 |  |  |  | 20.7 | %
Operating income |  | $ | 2,630 |  |  | $ | 3,300 |  |  |  | (20.3 | )%
Capital expenditures |  | $ | 6,466 |  |  | $ | 7,189 |  |  |  | (10.1 | )%

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Other operations revenue increased primarily due to a $2.3 million increase in the volume of services provided by our oilfield rentals business and improved pricing. The increase was partially offset by a $1.3 million decline in oil and natural gas revenues primarily as a result of lower crude oil market prices. The average WTI-Cushing price for the third quarter of 2022 was $93.18 per barrel as compared to $108.72 per barrel in the second quarter of 2022.

Depreciation, depletion, amortization and impairment increased primarily due to a $2.6 million impairment in our oil and natural gas business recorded in the third quarter of 2022 as compared to a $0.8 million impairment recorded in the second quarter of 2022.

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|  | Three Months Ended |  |  |  |
|  | September 30, |  |  | June 30, |  |  |  |
Corporate |  | 2022 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Selling, general and administrative |  | $ | 21,911 |  |  | $ | 20,158 |  |  |  | 8.7 | %
Merger and integration expenses |  | $ | 24 |  |  | $ | 182 |  |  |  | (86.8 | )%
Depreciation |  | $ | 1,285 |  |  | $ | 1,273 |  |  |  | 0.9 | %
Other operating (income) expenses, net |  |  |  |  |  |  |  |  |
Net gain on asset disposals |  | $ | (150 | ) |  | $ | (9,295 | ) |  |  | (98.4 | )%
Legal-related expenses and settlements |  |  | 15 |  |  |  | 64 |  |  |  | (76.6 | )%
Research and development |  |  | 250 |  |  |  | 247 |  |  |  | 1.2 | %
Other |  |  | (218 | ) |  |  | (252 | ) |  |  | (13.5 | )%
Other operating (income) expenses, net |  | $ | (103 | ) |  | $ | (9,236 | ) |  |  | (98.9 | )%
Interest income |  | $ | 58 |  |  | $ | 14 |  |  |  | 314.3 | %
Interest expense |  | $ | 10,975 |  |  | $ | 10,658 |  |  |  | 3.0 | %
Other expense |  | $ | (1,774 | ) |  | $ | (2,452 | ) |  |  | (27.7 | )%
Capital expenditures |  | $ | 562 |  |  | $ | 426 |  |  |  | 31.9 | %

Other operating (income) expenses, net includes net gains associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. The $9.3 million net gain on asset disposals in the second quarter of 2022 was primarily due to the release of a $11.5 million cumulative translation adjustment from accumulated other comprehensive income into net income (loss) in our condensed consolidated statements of operations upon substantially completing our exit from our Canadian operations.

The following tables summarize results of operations by business segment for the nine months ended September 30, 2022, and September 30, 2021:

|  | Nine Months Ended |  |  |  |
|  | September 30, |  |  | September 30, |  |  |  |
Contract Drilling |  | 2022 |  |  | 2021 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 917,270 |  |  | $ | 433,158 |  |  |  | 111.8 | %
Direct operating costs |  |  | 600,038 |  |  |  | 291,049 |  |  |  | 106.2 | %
Adjusted gross margin (1) |  |  | 317,232 |  |  |  | 142,109 |  |  |  | 123.2 | %
Other operating (income) expenses, net |  |  | (4 | ) |  |  | 17 |  |  | NA |
Selling, general and administrative |  |  | 4,468 |  |  |  | 3,346 |  |  |  | 33.5 | %
Depreciation, amortization and impairment |  |  | 250,779 |  |  |  | 297,426 |  |  |  | (15.7 | )%
Operating income (loss) |  | $ | 61,989 |  |  | $ | (158,680 | ) |  | NA |
Operating days - U.S. (2) |  |  | 33,144 |  |  |  | 20,196 |  |  |  | 64.1 | %
Average revenue per operating day - U.S. |  | $ | 26.02 |  |  | $ | 21.45 |  |  |  | 21.3 | %
Average direct operating costs per operating day - U.S. |  | $ | 16.93 |  |  | $ | 14.40 |  |  |  | 17.6 | %
Average adjusted gross margin per operating day - U.S. (3) |  | $ | 9.08 |  |  | $ | 7.04 |  |  |  | 29.0 | %
Average rigs operating - U.S. (2) |  |  | 121 |  |  |  | 74 |  |  |  | 64.1 | %
Capital expenditures |  | $ | 169,439 |  |  | $ | 56,708 |  |  |  | 198.8 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)
Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.

Revenues increased primarily due to an increase in operating days and improved pricing. Average revenue per operating day increased primarily due to improved pricing.

Direct operating costs increased due to an increase in operating days, increased reactivation costs and inflationary pressure on labor and supplies. Average direct operating costs per operating day increased primarily due to a lower portion of our rigs being on standby, increased reactivation costs and inflationary cost pressure beginning in the second half of 2021. Rigs on standby have very little associated cost.

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Depreciation, amortization and impairment expense decreased primarily due to a lower depreciable asset base during the nine months ended September 30, 2022 as a result of a $220 million impairment charge taken in the fourth quarter of 2021. The impairment charge was related to the abandonment of 43 legacy non-super-spec rigs and equipment.

The increase in capital expenditures was primarily due to rig reactivations, higher maintenance capital expenditures and upgrading of certain rig components.

|  | Nine Months Ended |  |  |  |
|  | September 30, |  |  | September 30, |  |  |  |
Pressure Pumping |  | 2022 |  |  | 2021 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 715,630 |  |  | $ | 340,464 |  |  |  | 110.2 | %
Direct operating costs |  |  | 560,627 |  |  |  | 313,556 |  |  |  | 78.8 | %
Adjusted gross margin (1) |  |  | 155,003 |  |  |  | 26,908 |  |  |  | 476.0 | %
Selling, general and administrative |  |  | 6,298 |  |  |  | 5,379 |  |  |  | 17.1 | %
Depreciation, amortization and impairment |  |  | 73,244 |  |  |  | 98,963 |  |  |  | (26.0 | )%
Operating income (loss) |  | $ | 75,461 |  |  | $ | (77,434 | ) |  | NA |
Average active spreads (2) |  |  | 11 |  |  |  | 7 |  |  |  | 57.1 | %
Fracturing jobs |  |  | 416 |  |  |  | 292 |  |  |  | 42.5 | %
Other jobs |  |  | 512 |  |  |  | 591 |  |  |  | (13.4 | )%
Total jobs |  |  | 928 |  |  |  | 883 |  |  |  | 5.1 | %
Average revenue per fracturing job |  | $ | 1,689.21 |  |  | $ | 1,102.58 |  |  |  | 53.2 | %
Average revenue per other job |  | $ | 25.23 |  |  | $ | 31.32 |  |  |  | (19.5 | )%
Average revenue per total job |  | $ | 771.15 |  |  | $ | 385.58 |  |  |  | 100.0 | %
Average direct operating costs per total job |  | $ | 604.12 |  |  | $ | 355.10 |  |  |  | 70.1 | %
Average adjusted gross margin per total job (3) |  | $ | 167.03 |  |  | $ | 30.47 |  |  |  | 448.2 | %
Adjusted gross margin as a percentage of revenues (3) |  |  | 21.7 | % |  |  | 7.9 | % |  |  | 174.2 | %
Capital expenditures |  | $ | 114,669 |  |  | $ | 19,457 |  |  |  | 489.3 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)
Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.

Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppant and other materials). Direct operating costs are also impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the size of the jobs.

Revenues increased primarily due to an increase in the number of higher revenue fracturing jobs, improved pricing and continued improvement in asset utilization and efficiency. Direct operating costs increased primarily due to an increase in the number of higher cost fracturing jobs as well as inflationary pressure on labor and supplies.

Our average revenue per total job increased primarily as a result of a shift in the mix of total jobs toward higher revenue fracturing jobs. Average revenue per fracturing job increased primarily due to improved pricing. Average direct operating costs per total job increased primarily as a result of a shift toward higher cost fracturing jobs as well as inflationary pressure on labor and supplies.

Depreciation, amortization and impairment expense decreased due to a lower depreciable asset base during the nine months ended September 30, 2022, partially as a result of a $32.2 million impairment charge taken in the fourth quarter of 2021. This impairment charge was related to the abandonment of approximately 0.2 million horsepower within our pressure pumping fleet. Additionally, a portion of the decrease related to certain equipment that reached the end of its useful life during 2022. This decrease in 2022 outpaced incremental depreciation resulting from equipment additions in 2020 and 2021, when our capital expenditures were significantly lower.

The increase in capital expenditures was primarily due to costs associated with reactivating stacked equipment as well as upgrades and the increase in maintenance capital expenditures associated with a higher average number of active spreads.

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|  | Nine Months Ended |  |  |  |
|  | September 30, |  |  | September 30, |  |  |  |
Directional Drilling |  | 2022 |  |  | 2021 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 157,030 |  |  | $ | 76,267 |  |  |  | 105.9 | %
Direct operating costs |  |  | 130,837 |  |  |  | 67,367 |  |  |  | 94.2 | %
Adjusted gross margin (1) |  |  | 26,193 |  |  |  | 8,900 |  |  |  | 194.3 | %
Selling, general and administrative |  |  | 4,668 |  |  |  | 3,651 |  |  |  | 27.9 | %
Depreciation, amortization and impairment |  |  | 11,259 |  |  |  | 19,863 |  |  |  | (43.3 | )%
Operating income (loss) |  | $ | 10,266 |  |  | $ | (14,614 | ) |  | NA |
Capital expenditures |  | $ | 12,112 |  |  | $ | 4,613 |  |  |  | 162.6 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Directional drilling revenue increased primarily due to increased job activity and improved pricing. We averaged 45 jobs per day during the nine months ended September 30, 2022 as compared to 28 jobs per day during the nine months ended September 30, 2021.

Direct operating costs were higher by $63.5 million, or 94.2%, primarily due to increased job activity and cost inflation.

Depreciation, amortization and impairment expense decreased due to a lower depreciable asset base during the nine months ended September 30, 2022 as a result of the abandonment of an $11.4 million developed technology intangible asset during the fourth quarter of 2021. Amortization expense associated with the developed technology intangible decreased $8.5 million between the periods as a result of this abandonment.

Capital expenditures increased due to higher levels of activity requiring premium equipment to meet market demands.

|  | Nine Months Ended |  |  |  |
|  | September 30, |  |  | September 30, |  |  |  |
Other Operations |  | 2022 |  |  | 2021 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 69,186 |  |  | $ | 40,699 |  |  |  | 70.0 | %
Direct operating costs |  |  | 39,231 |  |  |  | 31,079 |  |  |  | 26.2 | %
Adjusted gross margin (1) |  |  | 29,955 |  |  |  | 9,620 |  |  |  | 211.4 | %
Selling, general and administrative |  |  | 1,872 |  |  |  | 1,489 |  |  |  | 25.7 | %
Depreciation, depletion, amortization and impairment |  |  | 21,412 |  |  |  | 17,309 |  |  |  | 23.7 | %
Operating income (loss) |  | $ | 6,671 |  |  | $ | (9,178 | ) |  | NA |
Capital expenditures |  | $ | 19,857 |  |  | $ | 9,006 |  |  |  | 120.5 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Other operations revenue increased primarily due to a $13.4 million increase in our oilfield rentals business revenues due to a higher volume of services and improved pricing as well as a $12.8 million increase in oil and natural gas revenues resulting from favorable crude oil market prices and higher production. Average WTI-Cushing prices for the nine months ended September 30, 2022 were $98.96 per barrel as compared to $65.05 per barrel in the nine months ended September 30, 2021.

Direct operating costs increased due to incremental production costs from our oil and natural gas assets as well as a higher volume of services provided by our oilfield rentals business and cost inflation.

Depreciation, depletion, amortization and impairment increased primarily due to a $3.7 million impairment in our oil and natural gas business during the nine months ended September 30, 2022.

The increase in capital expenditures was primarily related to incremental spending in our oilfield rentals and oil and natural gas businesses.

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|  | Nine Months Ended |  |  |  |
|  | September 30, |  |  | September 30, |  |  |  |
Corporate |  | 2022 |  |  | 2021 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Selling, general and administrative |  | $ | 64,706 |  |  | $ | 54,311 |  |  |  | 19.1 | %
Merger and integration expenses |  | $ | 2,069 |  |  | $ | 2,066 |  |  |  | 0.1 | %
Depreciation |  | $ | 3,947 |  |  | $ | 4,423 |  |  |  | (10.8 | )%
Other operating (income) expenses, net |  |  |  |  |  |  |  |  |
Net gain on asset disposals |  | $ | (10,558 | ) |  | $ | (5,595 | ) |  |  | 88.7 | %
Legal-related expenses and settlements |  |  | 197 |  |  |  | 714 |  |  |  | (72.4 | )%
Research and development |  |  | 742 |  |  |  | 1,121 |  |  |  | (33.8 | )%
Other |  |  | (942 | ) |  |  | — |  |  | NA |
Other operating (income) expenses, net |  | $ | (10,561 | ) |  | $ | (3,760 | ) |  |  | 180.9 | %
Interest income |  | $ | 87 |  |  | $ | 196 |  |  |  | (55.6 | )%
Interest expense |  | $ | 32,198 |  |  | $ | 31,396 |  |  |  | 2.6 | %
Other income (expense) |  | $ | (2,644 | ) |  | $ | 840 |  |  | NA |
Capital expenditures |  | $ | 1,476 |  |  | $ | 1,053 |  |  |  | 40.2 | %

Selling, general and administrative expense increased primarily due to increased personnel costs as a result of higher headcount, wage growth and changes in stock-based compensation.

Other operating (income) expenses, net includes net gains associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. The $10.6 million gain on asset disposals during the nine months ended September 30, 2022 was primarily due to the release of a $11.5 million cumulative translation adjustment from accumulated other comprehensive income into net income (loss) in our condensed consolidated statements of operations upon substantially completing our exit from our Canadian operations. The majority of the net gain on asset disposals during the nine months ended September 30, 2021 reflect gains on disposals of buildings and land.

The $3.5 million change in other income (expense) was primarily due to foreign currency adjustments related to our Colombian operations.

Income Taxes

Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.

Our effective income tax rate for the three months ended September 30, 2022 was 3.5%, compared with 7.5% for the three months ended June 30, 2022. The lower effective income tax rate for the three months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods.

Our effective income tax rate for the nine months ended September 30, 2022 was 8.3%, compared with 15.7% for the nine months ended September 30, 2021. The lower effective income tax rate for the nine months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods. For the period ended September 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded, resulting in a lower overall effective income tax rate.

We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of September 30, 2022, we had approximately $253 million in working capital, including $42.7 million of cash and cash equivalents, and $600 million available under our revolving credit facility.

We have an amended and restated credit agreement (the “Credit Agreement”), which is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million. As of September 30, 2022, we had no borrowings outstanding under our revolving credit facility. We had no letters of credit outstanding under the Credit Agreement at September 30, 2022 and, as a result, had available borrowing capacity of $600 million at that date. Of the revolving credit commitments, $50 million expires on March 27, 2024, and the remaining $550 million expires on March 27, 2025. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million. Additionally, we have the option, subject to certain conditions, to exercise one one-year extension of the maturity date.

Loans under the Credit Agreement bear interest by reference, at our election, to the LIBOR rate or base rate, as described in “Item 3” below. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant. The Credit Agreement also contains a financial covenant that requires our total debt to capitalization ratio, expressed as a percentage, not exceed 50%.

We also have a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum.

Our outstanding debt at September 30, 2022 was $859 million and consisted of $510 million of 3.95% Senior Notes due 2028 (the “2028 Notes”) and $349 million of 5.15% Senior Notes due 2029 (the “2029 Notes”). We were in compliance with all covenants at September 30, 2022.

For a full description of the Credit Agreement, the Reimbursement Agreement, the 2028 Notes and the 2029 Notes, please see Note 8 of Notes to unaudited condensed consolidated financial statements.

We had $65.0 million of outstanding letters of credit at September 30, 2022, which was comprised of $65.0 million outstanding under the Reimbursement Agreement and no amounts outstanding under the Credit Agreement. We maintain these letters of credit primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of September 30, 2022, no amounts had been drawn under the letters of credit.

Cash Requirements

We believe our current liquidity, together with cash expected to be generated from operations, should provide us with sufficient ability to fund our current plans to maintain and make improvements to our existing equipment, service our debt and pay cash dividends for at least the next 12 months.

If we pursue opportunities for growth that require capital, we believe we would be able to satisfy these needs through a combination of working capital, cash flows from operating activities, borrowing capacity under our revolving credit facility or additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all.

A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on our current outlook for activity, we have increased our 2022 capital expenditures forecast to approximately $425 million.

The majority of these expenditures are expected to be used for normal, recurring items necessary to support our business.

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During the nine months ended September 30, 2022, our sources of cash flow included:

•
$263 million from operating activities, and
•
$20.3 million in proceeds from the disposal of property and equipment.

During the nine months ended September 30, 2022, we used $25.9 million to pay dividends on our common stock and $320 million:

•
to make capital expenditures for the betterment and refurbishment of drilling and pressure pumping equipment and, to a much lesser extent, equipment for our other businesses,
•
to acquire and procure equipment to support our contract drilling, pressure pumping, directional drilling, oilfield rentals and manufacturing operations, and
•
to fund investments in oil and natural gas properties on a non-operating working interest basis.

We paid cash dividends during the nine months ended September 30, 2022 as follows:

| Per Share |  |  | Total |
|  |  |  | (in thousands) |
Paid on March 17, 2022 | $ | 0.04 |  |  | $ | 8,611 |
Paid on June 16, 2022 |  | 0.04 |  |  |  | 8,652 |
Paid on September 15, 2022 |  | 0.04 |  |  |  | 8,673 |
| $ | 0.12 |  |  | $ | 25,936 |

On October 26, 2022, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on December 15, 2022 to holders of record as of December 1, 2022. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend in order to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.

We may, at any time and from time to time, seek to retire or purchase our outstanding debt for cash through open-market purchases, privately negotiated transactions, redemptions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

In September 2013, our Board of Directors approved a stock buyback program. In July 2019, our Board of Directors increased the amount authorized to be repurchased under the program to up to $250 million of our common stock. All purchases executed to date have been through open market transactions. Purchases under the program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the program. As of September 30, 2022, we had remaining authorization to purchase approximately $130 million of our outstanding common stock under the program. Shares of stock purchased under the program are held as treasury shares. On October 26, 2022, our Board of Directors approved another increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases.

Treasury stock acquisitions during the nine months ended September 30, 2022 were as follows (dollars in thousands):

| Shares |  |  | Cost |
Treasury shares at beginning of period |  | 84,128,995 |  |  | $ | 1,372,641 |
Acquisitions pursuant to long-term incentive plan (1) |  | 1,372,101 |  |  |  | 23,237 |
Other |  | 3,027 |  |  |  | 28 |
Treasury shares at end of period |  | 85,504,123 |  |  | $ | 1,395,906 |

(1)
We withheld 1,372,101 shares during the nine months ended September 30, 2022 with respect to exercise price and employees’ tax withholding obligations upon the exercise of stock options and employees’ tax withholding obligations upon the settlement of performance unit awards and the vesting of restricted stock units. These shares were acquired at fair market value. These acquisitions were made pursuant to the terms of the Patterson-UTI Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”) and the Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), and not pursuant to the stock buyback program.

34

As of September 30, 2022, we had unrecognized compensation costs of $30.1 million and $12.7 million related to our unvested restricted stock units and our unvested Performance Units, respectively. The weighted-average remaining vesting periods for these awards were 1.65 years and 1.45 years, respectively as of September 30, 2022. See Note 11 of Notes to unaudited condensed consolidated financial statements for additional discussion regarding our stock-based compensation.

Commitments — As of September 30, 2022, we had commitments to purchase major equipment totaling approximately $109 million for our drilling, pressure pumping, directional drilling and oilfield rentals businesses. Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of September 30, 2022, the remaining minimum obligation under these agreements was approximately $16.1 million.

See Note 9 of Notes to unaudited condensed consolidated financial statements for additional information on our current commitments and contingencies as of September 30, 2022.

Operating lease liabilities totaled $26.0 million at September 30, 2022. There have been no material changes to our operating lease liabilities since December 31, 2021.

Trading and Investing — We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits and money market accounts.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is not defined by accounting principles generally accepted in the United States of America (“GAAP”). We define Adjusted EBITDA as net income (loss) plus net interest expense, income tax expense (benefit) and depreciation, depletion, amortization and impairment expense. We present Adjusted EBITDA because we believe it provides to both management and investors additional information with respect to the performance of our fundamental business activities and a comparison of the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be construed as an alternative to the GAAP measure of net income (loss). Our computations of Adjusted EBITDA may not be the same as similarly titled measures of other companies. Set forth below is a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income (loss).

| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | June 30, |  |  | September 30, |
| 2022 |  |  | 2022 |  |  | 2022 |  |  | 2021 |
| (in thousands) |
Net income (loss) | $ | 61,452 |  |  | $ | 21,886 |  |  | $ | 54,561 |  |  | $ | (292,720 | )
Income tax expense (benefit) |  | 2,202 |  |  |  | 1,780 |  |  |  | 4,910 |  |  |  | (54,586 | )
Net interest expense |  | 10,917 |  |  |  | 10,644 |  |  |  | 32,111 |  |  |  | 31,200 |
Depreciation, depletion, amortization and impairment |  | 122,150 |  |  |  | 121,553 |  |  |  | 360,641 |  |  |  | 437,984 |
Adjusted EBITDA | $ | 196,721 |  |  | $ | 155,863 |  |  | $ | 452,223 |  |  | $ | 121,878 |

35

Adjusted Gross Margin

We define “Adjusted gross margin” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). Adjusted gross margin is included as a supplemental disclosure because it is a useful indicator of our operating performance.

| Contract Drilling |  |  | Pressure Pumping |  |  | Directional Drilling |  |  | Other Operations |
| (in thousands) |
For the three months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 356,044 |  |  | $ | 287,664 |  |  | $ | 58,871 |  |  | $ | 24,924 |
Less direct operating costs |  | (227,063 | ) |  |  | (211,704 | ) |  |  | (48,445 | ) |  |  | (13,409 | )
Less depreciation, depletion, amortization and impairment |  | (83,851 | ) |  |  | (24,746 | ) |  |  | (4,056 | ) |  |  | (8,212 | )
GAAP gross margin |  | 45,130 |  |  |  | 51,214 |  |  |  | 6,370 |  |  |  | 3,303 |
Depreciation, depletion, amortization and impairment |  | 83,851 |  |  |  | 24,746 |  |  |  | 4,056 |  |  |  | 8,212 |
Adjusted gross margin | $ | 128,981 |  |  | $ | 75,960 |  |  | $ | 10,426 |  |  | $ | 11,515 |
For the three months ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 304,586 |  |  | $ | 238,376 |  |  | $ | 54,825 |  |  | $ | 24,451 |
Less direct operating costs |  | (196,269 | ) |  |  | (191,455 | ) |  |  | (45,438 | ) |  |  | (13,738 | )
Less depreciation, depletion, amortization and impairment |  | (84,905 | ) |  |  | (24,713 | ) |  |  | (3,859 | ) |  |  | (6,803 | )
GAAP gross margin |  | 23,412 |  |  |  | 22,208 |  |  |  | 5,528 |  |  |  | 3,910 |
Depreciation, depletion, amortization and impairment |  | 84,905 |  |  |  | 24,713 |  |  |  | 3,859 |  |  |  | 6,803 |
Adjusted gross margin | $ | 108,317 |  |  | $ | 46,921 |  |  | $ | 9,387 |  |  | $ | 10,713 |
For the nine months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 917,270 |  |  | $ | 715,630 |  |  | $ | 157,030 |  |  | $ | 69,186 |
Less direct operating costs |  | (600,038 | ) |  |  | (560,627 | ) |  |  | (130,837 | ) |  |  | (39,231 | )
Less depreciation, depletion, amortization and impairment |  | (250,779 | ) |  |  | (73,244 | ) |  |  | (11,259 | ) |  |  | (21,412 | )
GAAP gross margin |  | 66,453 |  |  |  | 81,759 |  |  |  | 14,934 |  |  |  | 8,543 |
Depreciation, depletion, amortization and impairment |  | 250,779 |  |  |  | 73,244 |  |  |  | 11,259 |  |  |  | 21,412 |
Adjusted gross margin | $ | 317,232 |  |  | $ | 155,003 |  |  | $ | 26,193 |  |  | $ | 29,955 |
For the nine months ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 433,158 |  |  | $ | 340,464 |  |  | $ | 76,267 |  |  | $ | 40,699 |
Less direct operating costs |  | (291,049 | ) |  |  | (313,556 | ) |  |  | (67,367 | ) |  |  | (31,079 | )
Less depreciation, depletion, amortization and impairment |  | (297,426 | ) |  |  | (98,963 | ) |  |  | (19,863 | ) |  |  | (17,309 | )
GAAP gross margin |  | (155,317 | ) |  |  | (72,055 | ) |  |  | (10,963 | ) |  |  | (7,689 | )
Depreciation, depletion, amortization and impairment |  | 297,426 |  |  |  | 98,963 |  |  |  | 19,863 |  |  |  | 17,309 |
Adjusted gross margin | $ | 142,109 |  |  | $ | 26,908 |  |  | $ | 8,900 |  |  | $ | 9,620 |

Critical Accounting Estimates

Our consolidated financial statements are impacted by certain estimates and assumptions made by management. A detailed discussion of our critical accounting estimates is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes in these critical accounting estimates.

Recently Issued Accounting Standards

See Note 1 of Notes to unaudited condensed consolidated financial statements for a discussion of the impact of recently issued accounting standards.

36

Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition

Our revenue, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and expectations about future prices. For many years, oil and natural gas prices and markets have been extremely volatile. Prices are affected by many factors beyond our control. Reduced demand for crude oil and refined products related to the COVID-19 pandemic led to a significant reduction in crude oil prices and demand for drilling and completion services in 2020 and early 2021. However, market fundamentals are now strong, as demand is increasing for drilling and completions equipment and services, and industry supply remains constrained. Oil prices averaged $93.18 per barrel in the third quarter of 2022, as compared to $108.72 per barrel in the second quarter of 2022.

We expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. Higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers’ expectations of future oil and natural gas prices, as well as our customers’ ability to access sources of capital to fund their operating and capital expenditures. A decline in demand for oil and natural gas, prolonged low oil or natural gas prices, expectations of decreases in oil and natural gas prices or a reduction in the ability of our customers to access capital would likely result in reduced capital expenditures by our customers and decreased demand for our services, which could have a material adverse effect on our operating results, financial condition and cash flows. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services.

I TEM 3. Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in our exposure to market risk

As of September 30, 2022, we would have had exposure to interest rate market risk associated with any borrowings that we had under the Credit Agreement and any amounts owed under the Reimbursement Agreement.

Loans under the Credit Agreement bear interest by reference, at our election, to the LIBOR rate or base rate. The applicable margin on LIBOR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based on our credit rating. As of September 30, 2022, applicable margin on LIBOR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. As of September 30, 2022, we had no borrowings outstanding under our revolving credit facility. The interest rate on borrowings outstanding under our revolving credit facility is variable and adjusts at each interest payment date based on our election of LIBOR or the base rate.

Under the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. We are obligated to pay Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum. As of September 30, 2022, no amounts had been disbursed under any letters of credit.

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items.

37

I TEM 4. Controls and Procedures

Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), designed to ensure that the information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control Over Financial Reporting —There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

PART II — OTHER INFORMATION

I TEM 1. Legal Proceedings

We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows and results of operations.

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ITEM 6. Ex hibits

The following exhibits are filed herewith or incorporated by reference, as indicated:

2.1 |  | Agreement and Plan of Merger, dated July 5, 2021, among Patterson-UTI Energy, Inc., Crescent Merger Sub Inc., Crescent Ranch Second Merger Sub LLC, and Pioneer Energy Services Corp. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on July 6, 2021).
2.2 |  | Amendment No. 1 to Agreement and Plan of Merger, dated September 13, 2021, among Patterson-UTI Energy, Inc., Crescent Merger Sub Inc., Crescent Ranch Second Merger Sub LLC, and Pioneer Energy Services Corp. (incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed on October 4, 2021).
3.1 |  | Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference).
3.2 |  | Certificate of Amendment to Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference).
3.3 |  | Certificate of Elimination with respect to Series A Participating Preferred Stock (filed October 27, 2011 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
3.4 |  | Certificate of Amendment to Restated Certificate of Incorporation, as amended (filed July 30, 2018 as Exhibit 3.4 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 and incorporated herein by reference).
3.5 |  | Fourth Amended and Restated Bylaws of Patterson-UTI Energy, Inc., effective February 6, 2019 (filed February 12, 2019 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
3.6 |  | Certificate of Designation of the Series A Junior Participating Preferred Stock of Patterson-UTI Energy, Inc., dated April 22, 2020 (filed April 23, 2020 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
31.1* |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2* |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* |  | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL* |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | The cover page from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL.

* filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PATTERSON-UTI ENERGY, INC.
By: |  | /s/ C. Andrew Smith
|  | C. Andrew Smith
|  | Executive Vice President and
|  | Chief Financial Officer
|  | (Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: October 31, 2022

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