Helmerich & Payne (HP) Q2 2026 Earnings Transcript

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Date

May 7, 2026 at 11:00 a.m. ET

Call participants

• President and CEO — Raymond John Adams
• Chief Financial Officer — J. Kevin Vann
• Incoming Chief Financial Officer — Todd Scruggs
• Executive Vice President, Western Hemisphere — Michael P. Lennox

Takeaways

• Revenue -- $932 million generated in the quarter across all segments.
• Adjusted EBITDA -- $178 million, falling between the low end and midpoint of guidance largely due to increased OpEx in International Solutions from Middle East conflict impacts.
• Net loss -- Loss of $0.59 per diluted share, including a $26 million noncash impairment; after adjusting for this, loss was $0.38 per share.
• North America Solutions (NAS) direct margin -- $215 million, with a per-day direct margin of $17,600 and stable dayrates; averaged 136 contracted rigs, slightly above expectations.
• International Solutions direct margin -- $11.5 million, affected by $3 million in reactivation costs reclassified to OpEx and $3.5 million in conflict-related costs, both discrete to the quarter.
• Offshore Solutions direct margin -- $27 million, exceeding the midpoint of guidance, with three active rigs and 30 management contracts.
• Cash and liquidity -- $199 million in cash and short-term investments; total liquidity of $1.15 billion including revolving credit facility.
• Term loan repayment -- Full term loan of $400 million repaid ahead of schedule using after-tax proceeds from Utica Square real estate divestiture, which exceeded the $100 million target.
• Rig activity in Saudi Arabia -- Spudded three of seven planned rig reactivations, with two more expected to commence imminently and full seven expected online by next quarter.
• Bahrain and Iraq suspensions -- Two rigs in Bahrain suspended for up to 90 days and one rig in Iraq suspended, contributing to international cost challenges.
• North America rig count outlook -- Third quarter anticipated range of 137 to 143 rigs, with full-year revised to 138 to 144 rigs, indicating a positive volume inflection.
• International rig count guidance -- Third quarter and full-year guidance between 58 to 68 rigs, reflecting region-specific disruption and ramp-ups in Argentina.
• Offshore outlook -- Anticipated 30 to 35 contracts/rigs in third quarter, with direct margin of $24 million to $28 million and full-year confidence in $100 million to $115 million range.
• CapEx guidance -- 2026 gross capital expenditure now expected near high end of $270 million to $310 million; third quarter spend projected at $100 million to $130 million.
• Free cash flow update -- Negative free cash flow in quarter due to timing between receivables and payables; $74 million generated excluding working capital changes.
• Dividend policy -- Management reaffirmed commitment and coverage of the base dividend through commodity cycles, supported by cash flow discipline.
• Contract mix shift -- Term contracts now comprise over 55% of NAS operating fleet, up from just over 50%, improving backlog quality.
• FlexRobotics progress -- Four additional deployments planned, with three or four systems to be operational within the year, driven by customer demand.
• BP offshore Caspian Sea contract -- Extended contract could generate well over $1 billion in revenue if all extension options are exercised.
• SG&A reduction -- Annualized savings of more than $50 million compared to pre-merger standalone run rate achieved through ongoing enterprise initiatives.

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Risks

• J. Kevin Vann stated that Middle East conflict generated "unexpected and elevated costs" impacting International Solutions direct margins by $3.5 million in the quarter, with $6 million of supply chain constraint costs anticipated for Q3 if current conditions persist.
• Suspension of rigs in Iraq and Bahrain and supply chain delays in the Middle East continuing to create margin volatility and risk around international results.
• Management projects lower free cash flow conversion for the year due to "higher than expected" cash taxes, capital expenditures, and working capital outflows linked to the Utica Square sale and ramp-up in activity.
• J. Kevin Vann noted, "With the past 60 days of disruption, the visibility is not as clear, but the target remains. In Q2, the combined impact from supply chain constraints, accounting reallocation of some reactivation spend to OpEx, and conflict-related costs was roughly $6.5 million. The cash profile did not materially change; it was primarily an accounting allocation between OpEx and CapEx due to the choices we made to move quickly and economically. For Q3, our guidance range is wide to reflect uncertainty. At the $22 million midpoint, we have roughly $6 million of additional supply-chain constraint costs embedded, assuming the Strait of Hormuz remains effectively closed through June. If conditions improve, there is upside; if they worsen or persist longer, reaching the $45 million run rate could slip by a quarter—from fiscal Q4 to fiscal Q1 next year. But we remain confident in achieving that run rate as the situation normalizes."

Summary

Helmerich & Payne (NYSE:HP) presented quarterly results shaped by heightened operational disruptions in the Middle East and sectoral shifts in the oil and gas market. New contract wins, accelerated technology deployments, and an overachievement in liquidity through portfolio optimization underscored strategic priorities. Active divestment and debt reduction, alongside robust contracting trends in North America and stabilizing Latin American operations, drove enhancements to the balance sheet and forward guidance.

• CFO J. Kevin Vann confirmed that longer term, the company targets around a 40% free cash flow conversion rate. For the full year 2026, the company is probably in the 30% range, stepping up to 40% to 45% as it moves into 2027–2028.
• President and CEO Raymond John Adams said, "we are at the very early stages of a multiyear upcycle" for drilling activity, driven by energy security concerns and tight supply following geopolitical events.
• The BP Caspian Sea contract extension, if fully executed, would be a significant revenue contributor, representing a shift toward long-duration contracts within the offshore portfolio.
• Management estimated that "around 20" idle super spec rigs in North America could be reactivated at maintenance CapEx, offering competitive flexibility as activity ramps.
• Incoming CFO Todd Scruggs emphasized leverage reduction as the "number one goal" for free cash flow and indicated that any increase in shareholder returns beyond the base dividend is likely "more of a 2028 event."
• Michael P. Lennox highlighted the company's scale in the Permian Basin, confirming Helmerich & Payne operates "more rigs operating in the Permian Basin than anyone else has in the Lower 48."

Industry glossary

• Direct margin: The difference between revenue and direct operating costs at the segment or contract level, excluding indirect costs and overhead.
• Super spec rig: A high-specification land drilling rig capable of drilling extended long laterals and operating advanced automation or digital functionality.
• DUC inventory: Drilled but Uncompleted wells; inventory of wells that have been drilled but not yet completed for production.
• FlexRobotics: Helmerich & Payne proprietary drilling automation and robotics platform, enhancing drilling efficiency and safety through automation technology.

Full Conference Call Transcript

Raymond John Adams, our President and CEO, will be joined by J. Kevin Vann, Chief Financial Officer, Todd Scruggs, incoming CFO, and Michael P. Lennox, Executive Vice President of the Western Hemisphere. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under securities laws. Although management believes that expectations reflected in such forward-looking statements are reasonable, it can give no assurance that expectations will prove to be correct. Please refer to our filings with the SEC for a list of factors that may cause results to differ materially from those in the forward-looking statements made during this call.

Adjusted EBITDA, direct margin, adjusted EPS, and free cash flow are non-GAAP measures. The most directly comparable GAAP measures and reconciliations are included in our earnings release and investor materials on our Investor Relations website. I also want to highlight that we have a presentation that supports the prepared remarks from the management team and can be found on the IR website. With that, I will turn the call over to Raymond. Thank you.

Raymond John Adams: Hello, everyone. Thank you for joining us. As always, we appreciate your interest in Helmerich & Payne, Inc. I will begin with an overview of our fiscal second quarter results. I will then discuss the broader macro environment, current dynamics in the rig market, and several key commercial developments, including a specific update on our NASS business segment. J. Kevin Vann will then walk through our financial results and provide guidance for the third quarter and full fiscal year. To wrap up, I will return to summarize key takeaways before we open the line for questions. Turning to slide four of the presentation, execution remains strong, leading to solid operational performance.

Adjusted EBITDA for the period was $178 million, which aligned with the lower end to midpoint of our implied guidance. This was primarily led by impacts of the conflict in the Middle East. Specifically, during the quarter, we were able to utilize our in-house engineering and aftermarket capabilities to reactivate rigs in Saudi Arabia, leveraging in-country equipment and circumventing supply chain constraints. This move enhances returns and importantly avoided delays for our customers; however, it did lead to more costs being classified as OpEx, which impacted our direct margins. While these dynamics are important, our top priority throughout the quarter was our people. I am pleased to report that our teams remained focused and safe.

We continue to closely monitor developments in the region and, despite a fluid environment, our team has done an exceptional job maintaining continuity of operations, supported by strong local leadership and the dedication of our people in the region. During the quarter, International Solutions delivered a direct margin of $11.5 million, aligning with the lower end of our guidance range. In addition to the incremental OpEx, the company experienced unplanned direct and indirect costs associated with the conflict in the Middle East, which Kevin will elaborate on shortly. Overall, operational activity remains stable. During the quarter, we experienced one rig suspension in Iraq.

Subsequently, we received notification of the suspension of our two rigs operating in Bahrain for a period of up to 90 days. Outside of this, we continued rig reactivations in Saudi, although at a slightly slower pace than originally planned. So far, we have been able to spud three out of seven rigs, with two more expected to commence drilling imminently, the sixth rig anticipated to be active later this quarter, and the seventh rig to follow next quarter. Even with these disruptions, the broader portfolio continues to perform as expected.

We remain confident in achieving the 58 to 68 annual rig guidance range we set out at the start of the year, with strong growth in Latin America offsetting some of the weakness in the Middle East. Turning now to North America Solutions, we averaged 136 rigs, slightly ahead of expectations. Our industry-leading technology and talented teams continue to deliver for our customers, generating average margins ahead of our peers. Due to significant shifts in the commodity market over the last two months, we are confident that last quarter will represent a trough for both our rig count and direct margins. As a result, we have revised our outlook for the second half of the year higher.

This improving outlook is already showing up in the pace of our technology adoption. FlexRobotics continues to perform ahead of expectations, with our first rig now operating its fifth pad, maintaining its high performance straight out of the gates for a super major customer in the Permian Basin. As a result, I am pleased to share that we plan to deploy FlexRobotics on an additional four rigs led by customer demand. This will be a phased deployment, with the first three or four systems expected to be operational this calendar year. Our Offshore Solutions segment also delivered another quarter of robust operational performance, coming in above the midpoint of our guidance range.

This was driven by the achievement of several performance-related bonuses during the quarter. We also announced an extension of a contract with BP in the Caspian Sea, which could achieve well over $1 billion of revenues if all extensions are exercised. Alongside strong execution, we have remained focused on enhancing our balance sheet with a major milestone on the portfolio optimization front. We were pleased to announce in April the closing of the sale of our real estate property in Tulsa. The after-tax proceeds exceeded our divestment target of $100 million and allowed us to retire the remainder of the term loan balance ahead of schedule and drive leverage lower towards our one-turn target.

Stepping back from the quarter and looking at the broader macro environment on slide five, the Middle East conflict has exposed the fragility of the energy complex and we believe has fundamentally changed the outlook for oil and gas within a matter of months. The effective closure of the Strait of Hormuz has had a seismic impact on energy flows, with over 12 to 14 million barrels per day of crude and condensate supply impacted, and more than 20% of the world’s LNG flows. As Wood Mackenzie puts it, this is the most serious energy supply shock ever.

In some respects, we have been surprised by the relatively sanguine response by markets and governments to the potential severity of this shock and see significant dislocation with physical markets. What has not changed is our belief that the world will require significantly more energy than it consumes today, driven by expanding populations and growing prosperity in emerging markets, along with rising power needs from AI advancements in many developed nations. At the same time, the potential bifurcation of supply and energy security concerns caused by this shock support the view that we may now need even more energy supply.

This dynamic strengthens our view that demand for oil and gas will persist and grow for many years to come and, therefore, increases the need for our global drilling solutions and will likely bring forward activities sooner than we anticipated. Looking at the rest of the year, we have quickly moved from fears of oversupply and a soft OFS market to one that is tightening quickly, particularly in the Lower 48. Initial actions from operators have focused on accelerating the drawdown of DUC inventories. However, as I will elaborate on shortly, we anticipate this trend will be temporary.

Regarding rig reactivations, we have received several inquiries and firm commitments, with most pickup so far originating from private and smaller independent operators. In line with this, the near-term outlook for North America is improving, and we now anticipate a higher full-year rig count than we previously guided. The uptick in Middle East activity that was underway prior to the conflict is now less well defined. We continue to remain optimistic that more rigs could go back to work this year, with several conversations being initiated after the start of the conflict; however, the situation remains dynamic, with a wide variance of possible outcomes. Offshore is another area that could benefit.

Deepwater is already showing signs of strength and with elevated commodity prices, we could see several projects fast-tracked, particularly in basins unaffected by the conflict. Overall, we believe that seismic change to oil and gas fundamentals in the past two months has significantly strengthened the tailwinds that will support our business both in the Western and Eastern hemispheres over the next several years. Turning to slide six, on the commercial front we saw strong momentum during the second fiscal quarter and advanced several important initiatives that enhance our competitive position and lay the groundwork for long-term growth.

This progress was evident in North America Solutions, where we strengthened our backlog through multiple contract extensions from key customers and new rig pickups from small private and independent operators. As a result, we now have over 55% of our operating fleet on term versus spot contracts, up from just over 50% in the prior quarter. As I mentioned earlier, we plan to deploy an additional four FlexRobotics systems. This is a great example of our technology leadership in onshore drilling solutions and a testament to the dedication of our engineering and R&D teams.

We have received several inbounds from a variety of customers and are excited by the potential to deploy FlexRobotics at scale across our super spec rig fleet. Beyond traditional oil and gas, we are also seeing encouraging traction in new energy applications. Interest in geothermal continues to build, providing a promising tailwind expanding the reach of our portfolio. That momentum is playing out across international markets as well. Our Latin America portfolio saw meaningful commercial progress, with activity continuing to build across the region. In Argentina, operations in the Vaca Muerta accelerated, driven by both the host NOC and domestic independents.

We currently have nine rigs operating in the Vaca Muerta today, and see a path to being 100% utilized with all 12 rigs in-country active. Meanwhile, discussions in Venezuela remain active and represent a compelling medium-term opportunity as the environment continues to evolve. In the Middle East, commercial momentum continued, highlighted by a six-year contract extension covering five rigs in Oman, underscoring the strength of our operational performance and customer relationships. Reactivations in Saudi Arabia continue to progress, with the potential for additional rigs to return to work later this year as activity builds.

Elsewhere internationally, activity in Australia accelerated, with a strong pipeline of work emerging as development gains pace in both the Beetaloo Basin and Surat Trough in Queensland. Lastly, in our Offshore Solutions segment, as previously mentioned, we secured a major win with a long-term contract renewal from BP in the Caspian Sea. The renewal carries a firm five-year term with three additional one-year extension options. We also continue to progress several prospects, including potential multiyear contract renewals, which would further strengthen the resilience of our offshore portfolio. Given the elevated performance in North America Solutions to our near- and medium-term outlook, I want to spend a bit more time here.

Turning to the next slide, I will discuss the dynamics that highlight the opportunity we have in front of us. For some time, we have seen a gradual decline in the rig count and a softening of activity levels while production has remained stable. To hold production flat in the Lower 48, it is estimated that you need to bring around 15 thousand wells online each year. This is getting harder every day as decline rates accelerate and rock quality degrades. In some ways, the efficiency and accuracy we bring to drilling the wellbore has helped largely offset these factors. Service intensity continues to increase as wells are becoming more complex.

We are drilling faster and longer than ever before, and with our digital applications, automation, and FlexRobotics, we are driving greater consistency and truly getting closer to manufacturing mode at scale. As we enter this higher-priced environment, we anticipate activity picking up this year and continuing into 2027 and beyond. As I mentioned earlier, the first move by operators has been to draw down DUC inventory, but inventories are at historical lows, and with roughly 2 thousand locations remaining, it is likely they will be exhausted relatively quickly. With that, we anticipate a steady increase in drilling activity just to hold production flat.

If the call on the Lower 48 is to increase production, we could see an altogether more meaningful increase in the rig count. At the same time, spare capacity for super spec rigs is already very tight. With around 430 super spec rigs operating in the industry, utilization is currently above 80% and tightening fast. In a recent industry survey, it was estimated that around 65 idle rigs could be brought to work for between $1 to $4 million within a six-month period. From a Helmerich & Payne, Inc. perspective, we are uniquely positioned with unmatched scale in the Lower 48. Currently, we have 138 super spec rigs operating, accounting for over 30% of the market.

Additionally, around 60 super spec rigs are currently idle. Of these idle rigs, we estimate that around 20 could be reactivated at maintenance CapEx levels. We are confident in our capacity to meet customer demand during this anticipated wave of increased activity. We believe that we possess a greater number of super spec rigs available for deployment at a lower cost to reactivate than any other competitor, which positions us extremely well to increase our market share and maintain, if not enhance, our industry-leading margins. I will now turn the call over to J. Kevin Vann for the financial results.

J. Kevin Vann: Thanks, Raymond. I will start by reviewing our second quarter operating results and providing details on the performance of our segments. I will then spend some time walking through our capital allocation framework and conclude by outlining our guidance for the fiscal third quarter and full year before handing it back to Raymond. Let me start with highlights for the recently completed quarter on slide nine, where we delivered resilient financial performance in the face of a very dynamic situation in the Middle East. Alongside our continued operational performance, we were delighted to conclude the sale of Utica Square, with the after-tax proceeds exceeding our divestiture target of $100 million.

This in turn helped accelerate the full repayment of the remaining balance of our term loan well ahead of schedule. During the quarter, the company generated revenues of $932 million. We also generated $178 million of adjusted EBITDA, coming in between the low end and the midpoint of our implied guidance range. As Raymond mentioned, we prioritized speed and returns in the face of growing supply chain constraints in the Middle East, which resulted in the refurbishment of existing equipment. This decision led to the allocation of rig reactivation capital expenditures to operating expense. This had an approximately $3 million impact on International Solutions direct margins during the quarter.

On EPS, we reported a net loss of $0.59 per diluted share. These results were impacted by a noncash impairment charge of approximately $26 million. Absent those items, we generated a loss of $0.38 per share. Capital expenditures for the second quarter were $63 million, which continued to trend below anticipated spending levels. This was attributable to the reclassification of CapEx to OpEx in the Middle East, resequencing of capital expenditures from the second to the third and fourth quarters, and continued improvement in capital efficiency across the portfolio.

While free cash flow came in negative during the quarter, the variance was driven by a very rare, at least for us, timing lag between the collection of some receivables versus disbursements made on payables. This was largely related to a handful of large customers where payments were made in April and will therefore normalize during our third quarter. Excluding changes to working capital, free cash flow during the quarter was $74 million. Let me now break that down by segment, starting with North America Solutions on slide 10. We averaged 136 contracted rigs during the second quarter, slightly above the midpoint of our activity expectations.

Segment direct margin for North America Solutions was $215 million, which came in close to the midpoint of our guidance range. This was driven by the anticipated step-down in rig count and our total direct margin tapering slightly to $17.6 thousand per day. Dayrates remained relatively stable, while operating costs increased slightly as a result of reduced absorption of overheads from operating fewer rigs during the quarter. As Raymond pointed out earlier, we firmly believe that this will be the quarter where a trough occurred for both the rig count and direct margin. We exited the quarter at 137 rigs, and as of last week, 138 rigs were working.

We are also experiencing strong contracting trends with our operating fleet as customers look to extend the duration of contracts as the capacity to add new super spec rigs to the market remains extremely tight. Turning to International Solutions on slide 11, the segment ended the second quarter with 61 rigs working and generated approximately $11.5 million in direct margins, coming in around the low end of the guidance range. Again, this was largely the result of the decision to allocate rig reactivation expenditure to OpEx as we navigated supply chain constraints in the Middle East and impacted direct margin during the quarter by approximately $3 million.

Regarding the unexpected and elevated costs caused by the ensuing conflict in the Middle East, we estimate that the impact on direct margins in the quarter was approximately $3.5 million. This includes costs related to the crisis management response, supply chain cost inflation, slower-than-anticipated start of drilling activities from reactivated rigs, and the suspension of a rig in Iraq. At this stage, we see most of the cost impacts incurred being discrete to the quarter, particularly regarding the elevated OpEx. We expect continued cost inflation pressures as supply chains remain constrained. At the midpoint of our guidance range, we anticipate an approximate $6 million impact to the third quarter results, assuming the Strait of Hormuz remains effectively closed.

This is also inclusive of the impact of the rigs suspended in Iraq and Bahrain. Lastly, with our Offshore Solutions segment on slide 12, we generated a direct margin of approximately $27 million during the quarter, which came in ahead of the midpoint of our guidance range. We had three active rigs and 30 management contracts in operation during the quarter. We were excited to announce the extension of our contract with BP in the Caspian Sea, and it is a great example of the types of projects we undertake in Offshore Solutions.

The long duration of these contracts is a testament to the strong relationships and performance we have delivered for these operators on a consistent basis for many years. As with our International Solutions business, we are starting to layer in elements of performance contracts to offshore. This has already started to help enhance the direct margin profile, and we continue to innovate in contracting structures to create win-win solutions for our customers. We are excited about this business, and the consistent and stable results that it delivers. It requires minimal capital, generates steady cash flow, and provides good diversification from the more cyclical and capital-dependent nature of our onshore portfolio.

Turning to slide 13, an update on our capital allocation framework. Our focus remains unchanged, with the top priority being continued deleveraging and maintaining our investment-grade status. In a relatively short time, we have made great progress reducing our post-acquisition leverage and are very pleased to have achieved our near-term goal of paying off our term loan—$400 million—ahead of schedule. Our focus now shifts to our $350 million bond due at the end of 2027. In anticipation of that repayment, we plan to build cash as well as continue to pay our base dividend. With the combination of lower debt and the anticipated expansion of EBITDA, we are confident in achieving our one-turn leverage target.

At the end of the fiscal second quarter, we had cash and short-term investments of approximately $199 million. Including the availability under our revolving credit facility, our total liquidity is approximately $1.15 billion. We will balance our near-term deleveraging goals with potential investment opportunities that may arise as drilling activity increases. Our disciplined approach will ensure capital is directed to the highest return opportunities. At the same time, we are making steady progress on several enterprise initiatives. We have reduced our SG&A expenses by more than $50 million compared to pre-merger standalone run rates and will continue to identify opportunities to further streamline our cost structure and harmonize processes and systems across our Western and Eastern Hemisphere operations.

These ongoing efforts will support the long-term cost-conscious culture at Helmerich & Payne, Inc. While we have completed the heavy lifting on portfolio optimization with the closing of the Utica Square transaction, we will continue to seek to monetize noncore and underutilized assets. Lastly, on shareholder returns, a key element is the dividend. We view the base dividend as a core commitment to shareholders, and we remain confident in its sustainability. The dividend is well covered by cash flow, and our capital allocation decisions are structured to support it across commodity cycles. Now, guidance for the third quarter and full year on slide 14.

Looking ahead to fiscal 2026, for North America Solutions we expect our margins and operated rig count to show solid growth as we start to see activity ramp in the Lower 48. As a result, we expect direct margins in our third quarter to range between $230 million to $240 million based on an anticipated rig count between 137 to 143 rigs in the third quarter. Given the strength of the pickup in activity, we are also raising our full-year rig count range to 138 to 144 rigs and see a positive inflection in margin rates. As we have said, we see our second fiscal quarter as a trough for the NAS market and see continued momentum into 2027.

For International, we anticipate the rig count to average between 58 to 68 rigs in the third quarter and full year, which includes the remaining rigs being reactivated in Saudi Arabia and more rigs being activated in Argentina. This will be partially offset by rig suspensions in Iraq and Bahrain due to the Middle East conflict and the end of near-term geothermal drilling programs in Europe. We expect International Solutions to generate a direct margin between $12 to $32 million. As Raymond mentioned, we expect to have six of the seven rigs reactivated in Saudi Arabia by the end of the quarter. We also expect continued improvement in FlexRig margins and growth in Latin America.

The wider guidance range for International Solutions reflects the broad range of possible outcomes in the Middle East. At the midpoint, we are anticipating an approximate $6 million impact on direct margins due to supply chain constraints and cost inflation if the Strait of Hormuz is to remain effectively closed for the duration of the quarter. For Offshore, we anticipate an average of 30 to 35 management contracts and operating rigs. We expect the direct margin in the fiscal third quarter to range between $24 million and $28 million.

As we progress through the remainder of the year, we anticipate the margin rate to step back up and remain confident in the $100 million to $115 million direct margin full-year guidance we shared previously. Given the anticipated ramp-up in activity in NAS, the deployment of additional FlexRobotics systems, and reactivations in Argentina, we now expect our 2026 gross capital expenditures budget to align more closely with the high end of the range of between $270 to $310 million. In line with this, and delayed second quarter capital expenditure, we expect third quarter spending levels to be in the region of $100 million to $130 million.

It is important to note that our capital guidance does not include spending in relation to additional reactivations beyond what has been announced. We are also only including spending on the four FlexRobotics packages that will begin deployment this year. As a result of the Utica Square sale, we now expect cash taxes to come in higher than previously anticipated and will now range between $125 to $150 million. With cash taxes, capital expenditures, and working capital outflows all running higher than expected, our free cash flow conversion for the year will trend lower but still represents a significant improvement from the prior year.

In summary, while there were a lot of items in the quarter regarding direct margins, CapEx/OpEx dynamics, and free cash flow generation, we successfully paid off our term loan, and our outlook for the back half of the year and beyond improved significantly. We are seeing a clear strengthening of tailwinds both in the Lower 48 as well as in our international portfolio and believe we are at the start of a multiyear upcycle for the OFS sector. On a positive note, I will now sign off as CFO for Helmerich & Payne, Inc. It has been an honor to play a small part in the evolution of this remarkable company.

I am excited to pass the baton to Todd Scruggs, someone who I have worked with throughout my career. With Raymond and Todd at the helm, you are in good hands, with a leadership team full of passion, energy, and dedication, ready to capture the significant opportunities that lie ahead as Helmerich & Payne, Inc. continues its journey as the world’s largest and most advanced onshore drilling solutions provider. I will now hand it back to Raymond for closing prepared remarks.

Raymond John Adams: Thank you, Kevin. It has been an honor working with you. The stability you provided during the KCA Deuttag transaction closure, as well as your substantial contributions to our financial function and balance sheet, have been invaluable. Everyone at Helmerich & Payne, Inc. sincerely appreciates your service and extends their best wishes for your retirement. Now, turning to slide 16, I would like to conclude by refocusing on the opportunity we have in front of us and the compelling investment thesis Helmerich & Payne, Inc. offers. We are unrivaled in our scale, technology leadership, and geographic diversity to capture rising drilling activity both in North America and international.

We have witnessed a fundamental change to the energy system over the past two months and believe we are at the very early stages of a multiyear upcycle in which Helmerich & Payne, Inc. is ideally positioned. At the same time, we continue on our journey of enterprise optimization, with several programs underway to streamline our portfolio cost structure and deliver on the full potential of the KCA Deuttag acquisition. Our near-term commitment remains on deleveraging our balance sheet, and we are confident in repaying our $350 million note ahead of schedule. Beyond that, we believe we will have the financial strength and flexibility to enhance our attractive shareholder return profile and further differentiate our portfolio.

Lastly, I am proud of the performance of the team during the quarter, particularly our team members working in the Middle East. Despite all of the disruption and elevated threat level, they have been able to maintain continuity of operations in all of our core operating countries. We believe this will only strengthen the relationships we have with customers in the region and is a testament to the commitment of our teams. While we may face some ongoing timing and market dynamics in the Middle East, our commitment is unwavering, and we believe that we will see strong growth from the region over time.

We also believe the Lower 48 is set to accelerate and, as a result, expect North America Solutions to exceed our original full-year guidance. I want to thank all the employees of Helmerich & Payne, Inc. for their efforts and look forward to what we can achieve together this year and beyond. That concludes our prepared remarks. We will now open the call for questions.

Operator: Thank you. At this time, if you would like to ask a question, please press star then one on your telephone keypad. You may withdraw your question at any time by pressing star then one again. Once again, to ask a question, please limit yourself to one question. We will pause for just a moment to allow everyone a chance to enter the queue. Your first question comes from the line of Arun Jayaram with JPMorgan. Your line is open.

Arun Jayaram: Good morning, Raymond and team. Raymond and Kevin, I was wondering if you could elaborate on how you see the recovery in NAS playing out over the balance of the year and into fiscal 2027. It appears that your guidance implies probably a rig count in the mid-140s. Perhaps you could also discuss margin progression.

Raymond John Adams: Good morning, Arun. Happy to start and then turn it over to other members of the team to add color. Our position in North America has been robust for roughly two decades. Reflecting back to 2021 and early 2022, when we believed we could grow share and margins through an outcome-oriented delivery and more customer-centric approaches, we remain firmly committed to that approach today and are proud of our foundation in North America. We had always anticipated the second fiscal quarter would be a trough for us this year, and that did manifest.

Even before the conflict started, we felt the market was firming up—coming out of calendar 2025 with crude in the $50s and the forward strip not as robust, that was changing as we entered February where the strip moved into the $60s and private E&P activity began to build. Post-conflict, that has changed even more. The rig count guide you referenced is largely driven by private E&P and independent operator pickups, and we have started to see a bit more movement from public operators as well. We have highlighted market dynamics in the U.S.

Lower 48: DUC inventories at historical lows, a very tight super spec market, and the continued need to bring about 15 thousand wells online annually to balance production. There is also a widely cited statistic that roughly 70% of current Lower 48 production is from wells drilled within the last two to three years. That backdrop requires what we do best. Super spec utilization remains tight—well over 80% for rigs inactive less than a year. Industry estimates suggest around 65 rigs could be brought back within six months at $1 to $4 million each. We estimate roughly 20 of our rigs could be brought back at maintenance CapEx levels.

I will let Michael provide operational context and our advantage in this growing market.

Michael P. Lennox: Thanks, Raymond. It is an exciting period ahead for NAS at Helmerich & Payne, Inc. We have a structural advantage given our scale, in-house engineering, and maintenance and overhaul capabilities. Today, we operate over 30% of the industry fleet in the Lower 48 and have more rigs operating in the Permian Basin than anyone else has in the Lower 48. We work for all customer types and lead market share in each segment. As demand grows, we have 20-plus rigs available to reactivate at about $1 million each in maintenance CapEx. We conducted a study using third-party information in the Delaware Basin over the last three years.

When we bring rigs out, on the first well we are 4.6 days ahead of competitors, and by the tenth well, we are 5.3 days ahead—real value for customers. After that 20-plus tranche, costs rise for subsequent reactivations, but hopefully we get there as demand warrants. On pricing, we would expect improvement as rigs are brought out due to basic supply-demand dynamics. We are excited about FlexRobotics—four additional deployments are planned—along with growth in geothermal. Our scale, capacity, and technology put us in a great position as NAS demand grows.

J. Kevin Vann: To address the margin trajectory, if you look at our Q3 guidance and the full-year outlook, we see a sequential increase in rig count from Q2 actuals to Q3 guide and implied further increases into Q4, with tightening margins accompanying that as capacity tightens and different operator types pick up rigs. We feel good about the trajectory into the end of this year and into fiscal 2027.

Operator: Your next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Scott Gruber: Good morning, Raymond and team, and I appreciate all the color on the Middle East. Your 3Q guide for International includes about a $20 million spread. Can you provide more color on what drives the high end versus the low end? And for fiscal 4Q, assuming the three suspended rigs go back to work and you have at least six out of seven Saudi restarts, where could International gross profit rise to? Ultimately, when can we see the business get back to that $45 million level you have been targeting post restart?

Raymond John Adams: Good morning, Scott. It has been a very fluid situation in the Middle East over the last 60 days. First, I want to thank our employees in the region—their resilience, dedication, and strong customer focus have been exceptional. Our priority has been and remains our people and their safety. Our crisis management team has been highly effective throughout the conflict. We are proud to have maintained a high level of continuity of operations in the Middle East. I will turn it to Kevin for financial specifics and will add operational detail afterward.

J. Kevin Vann: Thanks, Raymond. Scott, we still firmly believe in the $45 million quarterly run-rate target. Prior to the conflict, we had a clear line of sight to reaching that by our fiscal fourth quarter. With the past 60 days of disruption, the visibility is not as clear, but the target remains. In Q2, the combined impact from supply chain constraints, accounting reallocation of some reactivation spend to OpEx, and conflict-related costs was roughly $6.5 million. The cash profile did not materially change; it was primarily an accounting allocation between OpEx and CapEx due to the choices we made to move quickly and economically. For Q3, our guidance range is wide to reflect uncertainty.

At the $22 million midpoint, we have roughly $6 million of additional supply-chain constraint costs embedded, assuming the Strait of Hormuz remains effectively closed through June. If conditions improve, there is upside; if they worsen or persist longer, reaching the $45 million run rate could slip by a quarter—from fiscal Q4 to fiscal Q1 next year. But we remain confident in achieving that run rate as the situation normalizes.

Raymond John Adams: On Saudi Arabia specifics, we had 17 rigs active prior to announcing seven reactivations. Today, we have 23 rigs we would classify as operating—20 rigs turning to the right, two rigs sitting over well center ready to go pending final checks, and another rig rigging up on its first location today. Despite the conflict, we have continued to progress reactivations, and the seventh rig is being worked in our yard now. Outside of Saudi, operations in Oman and Kuwait have been stable. The only suspensions we have seen are one rig in Iraq and two rigs in Bahrain on up to 90-day suspension.

We remain long-term oriented toward the region; the Middle East is core and critical to Helmerich & Payne, Inc.’s future. Near-term headwinds there are being offset by growth in North America and Latin America, demonstrating the strength of our global portfolio.

Operator: Your next question comes from the line of Derek John Podhaizer with Piper Sandler. Your line is open.

Derek John Podhaizer: On triangulating fiscal 3Q with the full year, how should we think about sequencing both NAS, which appears to have some upside, and International with the moving pieces behind it? Some help on sequencing would be great.

Raymond John Adams: Thanks, Derek. We see the year improving, with the second half more bullish and good tailwinds developing. We are well positioned to deliver strong EBITDA in the back half.

Todd Scruggs: Thanks, Derek. We expect sequential improvement through the year. Looking back at Q2, direct margins in our operating segments were largely in line with expectations aside from the Middle East impacts and our deliberate recommissioning cost treatment. In Q3 for International, we guide to a nice sequential improvement with a wider range to reflect macro uncertainty, but we continue progressing toward the $45 million quarterly run rate either by the end of this fiscal year or early next fiscal year. Offshore remains steady and consistent. NAS shows sequential increases in both margins and rig count.

Adding that up, we see fiscal Q3 consolidated direct margin broadly consistent with consensus around $215 million, followed by continued improvement into year-end as both International and NAS strengthen. Overall, we are excited about the trajectory and how EBITDA looks going forward. Q2 was the low point for fiscal 2026.

Operator: Your next question comes from the line of Saurabh Pant with Bank of America. Your line is open.

Saurabh Pant: Good morning, Raymond and Kevin. On efficiencies and technology adoption, how is Helmerich & Payne, Inc. working to continue to improve efficiency from here? Specifically on FlexRobotics, can you walk us through the cost-benefit for both Helmerich & Payne, Inc. and your customers? How big can this get—how many rigs could ultimately use FlexRobotics—and what commercial model will you use?

Raymond John Adams: Thank you. The U.S. Lower 48 efficiency journey has been incredible, and we will continue driving efficiencies. We do not expect the same rate of change as the last decade, but well complexity and lateral lengths continue to increase, requiring the right partners, rigs, and technology to complement programs. On digital, apps, automation, and robotics, we see significant opportunity. Our robotic offering for a Permian customer is delivering fantastic wells. I will let Michael provide details.

Michael P. Lennox: Thanks. On current operations, we have one robotic-enabled rig operating in the Permian Basin performing exceptionally. It is number two in the customer’s fleet. Our goal at startup was P50 performance; we are exceeding that. As a result, we announced four more deployments—so a total of five robotic rigs by early 2027. Timeline: the second system comes online this summer, two more in the fall, and the last one early 2027. As for scale, about a third of our fleet today runs Level 1 automation—HEX grips and slip lifters—primarily improving safety by removing people from the floor; that is 40-plus rigs. We believe robotics could ultimately reach a similar scale—about a third of the fleet over time.

In the nearer term, we see a path to double-digit rig counts. Commercially, for the first four packages, we have a large lump-sum component plus a dayrate over the term. The customer also preferred a performance-based structure with upside if we outperform. Benefits for Helmerich & Payne, Inc. include safety and operational consistency, enabling our people to plan, perform preventive maintenance, and reduce NPT, which supports higher uptime. For customers, beyond safety, it is about consistency, repeatability, and predictability—delivering P50 or better from well one and sustaining it as laterals get longer and wells more complex. We used to drill one-mile laterals in 30 days; now we drill four-mile laterals in about 10 days. Automation helps make that step-change sustainable.

Operator: Your next question comes from the line of Eddie Kim with Barclays. Your line is open.

Eddie Kim: Hi, good morning. On free cash flow for the full year, you mentioned conversion is now lower than previously anticipated due to higher CapEx, working capital headwinds, and higher taxes after the Tulsa sale. Is there a conversion range we should model for this year? And on uses of free cash flow, it sounds like the main priority is still debt paydown—specifically the bond maturing at the end of next year—so is it fair to assume any increase in shareholder returns above the base dividend is more of a 2028 event?

Todd Scruggs: Hi, Eddie. Big picture, we see overall free cash flow improving as we ramp through the year. We remain firmly committed to our one-times net debt to EBITDA target. As free cash flow increases, especially in Q4 and into 2027, we want to go to work on our next maturity in late 2027, while balancing growth investments we are optimistic about into late this year and early next year. Leverage reduction is the number one goal for free cash flow at this time. It is probably 2028 before we seriously consider incremental returns above the base dividend, which remains a core commitment.

J. Kevin Vann: I would add that we see attractive growth opportunities that will require capital and will be a draw on free cash flow over the next several quarters, even as EBITDA grows. Despite the near-term Middle East headwinds, we expect International to reach and then grow beyond the $45 million quarterly direct margin run rate after normalization. The growth we see in NAS will also contribute. On Q2 free cash flow, as I mentioned, there was a timing lag on some receivables that has cleared or is clearing in Q3. The Utica Square sale advanced deleveraging but adds $125 to $150 million of cash taxes this year. Longer term, we target around a 40% free cash flow conversion rate.

For the full year 2026, we are probably in the 30% range, stepping up to 40% to 45% as we move into 2027–2028.

Operator: The final question comes from Keith Mackey with RBC. Your line is open.

Keith Mackey: Thanks and good morning. Turning to Latin America, where do you fit competitively in terms of relative scale, spec, and customer scope? What demand trends underpin your comment about getting from nine to 12 rigs near term? And on Venezuela, you noted it is a medium-term opportunity—are there any active bids or other updates you can provide?

Michael P. Lennox: Thanks, Keith. Argentina has been great for us—we have been in-country about 30 years, and the current political environment is the best we have seen. We see long-term potential as growth and demand pick up. We are running nine rigs now and have line of sight to 12, which would be full utilization. We are in discussions with customers and will be traveling in the next few weeks to explore even more rigs in-country. Margins are strong—not too far off what we see domestically. Our fleet there consists of Flex 3s, which we are upgrading to run our full technology suite, which should support additional income. On Venezuela, we have been studying and exploring the opportunity.

We have seen some demand signals and will visit in the near term at a customer’s request. We have several inbounds and are exploring options; that is how we would frame it today.

Operator: I will now hand the call back over to Raymond John Adams for closing remarks.

Raymond John Adams: Thank you for your time this morning and for your interest in Helmerich & Payne, Inc. I also want to thank J. Kevin Vann. He has had an incredible impact on Helmerich & Payne, Inc. and a distinguished career across the energy value chain. We are grateful for his leadership and contributions. With that, we will close the call.

Operator: This concludes today’s program. Thank you for your participation. You may disconnect at any time.

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