HP Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Adjusted EBITDA: $178 million, at the lower end of guidance due to increased operational costs related to the Middle East conflict.

Revenue: $932 million for the quarter.

Net Loss: $0.59 per diluted share, impacted by a noncash impairment charge of $26 million; adjusted loss was $0.38 per share.

Capital Expenditures: $63 million, lower than expected due to reclassification of expenses and improved capital efficiency.

Free Cash Flow: Negative during the quarter, primarily due to timing issues with receivables; however, excluding working capital changes, free cash flow was $74 million.

2Strategic Updates and Business Highlights

Operational Performance: Strong execution despite challenges; successful rig reactivations in Saudi Arabia, with 3 out of 7 rigs now operational.

International Solutions: Direct margin of $11.5 million, impacted by increased operational costs due to the Middle East conflict.

North America Solutions: Averaged 136 rigs, with direct margins of $215 million, slightly above expectations; strong technology adoption with FlexRobotics systems planned for deployment on additional rigs.

Offshore Solutions: Direct margin of $27 million, above guidance, with a significant contract extension with BP in the Caspian Sea.

Balance Sheet Improvement: Sale of real estate property generated over $100 million, allowing for early repayment of term loan and improved leverage.

3Forward Guidance and Outlook

North America Solutions: Anticipated rig count increase to 138-144 rigs for the full year, with direct margins expected to rise to $230-$240 million in Q3.

International Solutions: Rig count guidance of 58-68 for Q3, with potential for improved margins as operations stabilize post-conflict.

Offshore Solutions: Expected direct margin of $24-$28 million in Q3, with confidence in achieving $100-$115 million for the full year.

Long-term Outlook: Optimistic about a multiyear upcycle in the oilfield services sector, driven by tightening supply and increased demand.

4Bad News, Challenges, or Points of Concern

Middle East Conflict: Ongoing geopolitical tensions have led to increased operational costs and rig suspensions, notably in Iraq and Bahrain, impacting margins.

Operational Costs: Increased costs due to supply chain constraints and reclassification of capital expenditures to operational expenses.

Market Uncertainty: Fluid situation in the Middle East creates challenges in forecasting and operational stability.

Free Cash Flow Concerns: Anticipated lower free cash flow conversion due to higher capital expenditures and taxes, with a target of 30% for the year.

5Notable Q&A Insights

Recovery in North America Solutions: Management expressed confidence in a recovery, citing a robust position in the market and expected sequential increases in rig count and margins.

International Operations: Discussions highlighted the fluidity of the situation in the Middle East, with management maintaining a long-term commitment to the region despite short-term challenges.

FlexRobotics Technology: Management discussed the successful deployment and performance of FlexRobotics systems, indicating potential for scalability across their fleet.

Debt Management: Emphasis on deleveraging and maintaining investment-grade status, with a focus on repaying the $350 million bond due in 2027 before considering increased shareholder returns. Overall, HP's Q2 2026 results reflected a resilient operational performance amid significant geopolitical challenges, with a cautiously optimistic outlook for the remainder of the fiscal year.