Patterson-UTI expects Q4 drilling services adjusted gross profit of about $150M while keeping 2026 capex below $600M

• “The recovery in U.S. onshore activity gained momentum during the third quarter with activity levels increasing significantly compared to earlier in the year,” said William Hendricks (President, CEO & Director), adding that results were “supported by strong field-level execution and investments in technology and premium assets.”

• Hendricks said the company’s near-term posture remains disciplined despite a more constructive cycle: “We will remain disciplined in evaluating those opportunities with a focus on long-term returns and free cash flow per share rather than growth for its own sake.”

• On U.S. drilling, Hendricks quantified the day-rate move: “Average rates have increased from the low $30,000 per day range earlier this year to the mid-$30,000 per day range with leading-edge day rates well above the average,” and he said upgraded rigs were “securing day rates several thousand dollars above our company average.”

• On completions, Hendricks tied the setup to supply/demand and fuel economics: “We expect completion demand to move higher over the next several quarters as available industry horsepower likely declines through the accelerating retirement of older diesel assets,” while also stating, “By year-end, nearly 90% of our active horsepower will be powered at least in part by natural gas.”

• “Total reported revenue for the quarter was $,1.342 billion, a 9% increase compared to the second quarter,” said C. Smith (Executive VP & CFO). “We reported net income attributable to common shareholders of $28 million or $0.07 per share,” and noted a one-time item: “Net income included $18 million of pretax other operating income, primarily reflecting a $22 million gain on the sale of rigs and components for rigs to be used in Venezuela.”

Outlook

• “For the fourth quarter, we expect industry activity to remain relatively steady compared with third quarter levels,” Hendricks said, while adding a 2027 view: “As we move into 2027… we anticipate another step-up in demand.”

• Smith guided Drilling Services activity and profitability: “For the fourth quarter, we expect our Drilling Services rig count to average approximately 104 rigs and exit the quarter above that level. We expect segment adjusted gross profit of approximately $150 million.”

• Smith guided Completion Services profitability and pricing direction: “For the fourth quarter, we expect Completion Services adjusted gross profit of approximately $140 million. We expect higher pricing compared to the third quarter.”

• Smith flagged a Q4 headwind in Drilling Products: “For the fourth quarter, we expect Drilling Products adjusted gross profit to decline 5% to 10% compared to the third quarter, primarily reflecting lower anticipated drilling activity in the Middle East, particularly in Saudi Arabia.”

• Versus the prior quarter’s framing, management’s language shifted from broad momentum to explicit constraints: in Q2 Hendricks said, “That momentum carried into the third quarter,” while in Q3 Hendricks emphasized limits on incremental reactivations: “We have a limited number of low-cost rig reactivations remaining before seeing a material increase in our incremental capital and upgrade costs.”

Financial Results

• Smith reported Q3 profitability and cash return actions: “Adjusted EBITDA for the quarter totaled $264 million,” and “During the third quarter, we returned $62 million to shareholders through the repurchase of two million shares as well as a $0.10 per share dividend.”

• Segment detail included Drilling Services: “third quarter revenue was $417 million with adjusted gross profit of $149 million,” and U.S. contract drilling activity: “we recorded 9,249 operating days and averaged 101 operating rigs during the quarter.”

• Completion Services reflected pricing improvement but operational friction: “third quarter revenue was $808 million and adjusted gross profit was $133 million,” while Hendricks said results improved “despite elevated nonproductive time across several fleets as portions of the completion supply chain tightened late in the quarter.”

• Drilling Products was positioned as a standout quarter: “third quarter revenue was $110 million and adjusted gross profit was $51 million,” with Smith adding, “Results significantly exceeded our expectations.”

• Balance sheet and capital spending were framed as flexible: “We ended the third quarter with $339 million of cash on hand and no borrowings outstanding under our $500 million revolving credit facility,” Smith said, and “We expect 2026 capital expenditures, net of proceeds from asset sales to be less than $600 million.”

Q&A

• Scott Gruber, Citigroup Inc., Research Division: asked if rigs leaving the U.S. were reducing competition and enabling share gains; William Hendricks (President, CEO & Director): “we’re seeing increasing opportunities in both the U.S. and Other markets… it’s really going to boil down to where can we get the best return,” adding upgrades are being done “with the possibility that they could work outside the U.S. market as well.”

• James Rollyson, Raymond James & Associates, Inc., Research Division: pressed on magnitude of public-operator rig adds; Hendricks: “we still see the rig count moving higher,” and said the company was “in discussions and signing contracts for rig deployments towards the middle of next year.”

• Saurabh Pant, BofA Securities, Research Division: asked about remaining “low-cost rig reactivations” and completions tightness; Hendricks: “some of these rigs are net adds,” and on completions investment: “we need to get some recovery before it makes sense… and we don’t think we’re there yet.”

• Alexa Petrick, Goldman Sachs Group, Inc., Research Division: asked about high-spec rig economics and duration; Hendricks: “we’ve recently signed a three-year contract… with day rates over $45,000 a day.”

• Derek Podhaizer, Piper Sandler & Co., Research Division: asked where reactivation economics tighten; Smith: “we’ve got 8 to 10 that are relatively easy to upgrade,” and “beyond that… it’s much more expensive.”

• Edward Kim, Barclays Bank PLC, Research Division: asked whether Saudi completion constraints were causing Middle East drilling slowdown and if PTEN could send fleets; Hendricks: “we don’t have excess capacity in the U.S. to ship out.”

Sentiment Analysis

• Analysts’ tone was slightly positive but probing on supply constraints and duration, with repeated questions on “how many rigs” can return economically and whether completions pricing can rise before newbuild supply.

• Management tone was positive in prepared remarks and firm in Q&A, using constraint-based language such as Hendricks’ “we have a limited number of low-cost rig reactivations remaining” and Smith’s “until our returns return to where they need to be, I don’t think we intend to invest to grow the overall industry fleet.”

• Compared with Q2, management’s confidence remained high but became more explicit about discipline; in Q2 Hendricks said activity improvement “exceeded our expectations,” while in Q3 he stressed “deploying capital only where we see compelling returns.”

Quarter-over-quarter comparison

• Q3 shifted from Q2’s emphasis on accelerating activity and mid-quarter upside to a more granular discussion of bottlenecks (sand and trucking) and explicit limits on low-cost drilling reactivations.

• Q2 highlighted Colombia exit charges as a key earnings driver, with Smith reporting “a net loss… (-$0.05) per share” including Colombia-related noncash charges; Q3 reflected the wind-down continuing, as Smith expected “additional costs as we wind down our operations in Colombia.”

• Capital allocation messaging stayed consistent (free cash flow per share, dividends and buybacks), while Q3 added more acquisition-oriented optionality, with Hendricks saying the company could have “a lot of strategic opportunities” and would look for “quality products and management teams that fit within that product segment.”

Risks and Concerns

• Completion execution risk was tied to supply chain tightness: Hendricks cited “industry-wide sand constraints” and “trucking availability in the Permian,” though he said, “We believe both issues were temporary.”

• International uncertainty was a recurring theme: Smith said “the conflict in the Middle East… increased costs,” and guided that Middle East weakness could pressure Q4 Drilling Products.

• Capital intensity and lead times were positioned as industry constraints: Hendricks said direct drive system “lead times now exceed one year,” and Smith said higher-spec completions growth requires returns to improve before committing capital.

Final Takeaway

Management described Q3 as a stronger operating and cash-return quarter alongside a clearer tightening narrative: day rates moved into the “mid-$30,000 per day range,” completions pricing improved despite temporary logistics-driven downtime, Drilling Products posted a quarter that “significantly exceeded” expectations, and the company guided Q4 segment profitability while reiterating that incremental rigs and horsepower additions depend on pricing, contract terms, and return thresholds rather than activity growth alone.

Read the full Earnings Call Transcript

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