Patterson Uti Energy Inc Q3 FY2025 Earnings Call

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson-UTI Third Quarter 2025 Earnings Conference Call. I will now turn the call over to Michael Sabella, Vice President of Investor Relations. Please go ahead.

Thank you, Rebecca. Good morning, and welcome to Patterson-UTI's earnings conference call to discuss our third quarter 2025 results. With me today are Andy Hendricks, President and Chief Executive Officer; and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations or predictions for the future are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward-looking statements. Statements made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures are included on our website at patenergy.com and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson-UTI's Chief Executive Officer.

Thank you, Mike, and welcome to our third quarter earnings conference call. The performance of Patterson-UTI has continued to demonstrate resilience this year. Our teams have done a great job executing in a challenging environment and staying focused on optimizing our business in areas we can control. We are continuing to see success as we enhance our commercial strategies through additional service and product line integration and performance-based agreements, while at the same time lowering our cost structure, which is helping us to lessen the impact from moderating industry activity this year. Headlines over the past 6 months have highlighted cautionary signals, including oil supply growth from OPEC+, shifting demand patterns as trade policies evolve, and overall global macroeconomic uncertainty. However, the U.S. shale picture today is more constructive than many expected just a few months ago. Oil prices have fallen but, overall, have remained more resilient than many predicted, with long-term global demand growth continuing, and anticipated supply additions slower to translate into physical barrels than headlines have suggested. At Patterson-UTI, while the business environment this year has brought unique challenges, we are adapting with the market both commercially and structurally, and we continue to generate healthy levels of free cash flow while still investing to expand our technology edge. Our efforts today center on driving improvements in our outlook for profitability and cash generation against a steady market backdrop. Each of our businesses is stepping up to this challenge. In the U.S., oil production does not yet fully reflect the activity reductions from the past 6 months. We believe current industry activity is already below levels needed to hold U.S. production flat. Any further activity reductions from current levels would likely result in additional pressure on future U.S. output, which could negatively impact global oil supply in 2026. On the natural gas side, the outlook moving into 2026 appears favorable. Physical demand growth from LNG is now starting to come online, and our customers are beginning to make plans to satisfy the expected multiyear growth in demand, likely requiring higher drilling and completion activity compared to current levels. Even as U.S. shale drilling and completions activity has moderated through 2025, our teams have delivered results that are significantly more resilient relative to prior periods of activity moderation. Our customers are sophisticated and are demanding innovative technologies from both our drilling and completions businesses, which is widening the performance delta among service providers. The increasing reliance on differentiated technologies puts Patterson-UTI in a strong position given the high quality of our operations. We expect this relative margin resiliency to continue as customers rely more on high-end service providers. Operationally, our teams are functioning at a high level in a competitive market. Our drilling team has seen activity stabilize, and our rig count today is slightly above where we were at the end of the third quarter. Our completion activity continues today at a similar level relative to where we exited September, and we expect completion activity will remain steady for most of the quarter, although typical seasonality is likely to impact the segment during the holidays. As the market steadies, we see opportunities in both our drilling and completions businesses to invest in technologies that are in high demand and short supply, with our expectation that any incremental investments will earn strong returns. As we prepare our 2026 budget, we are working with technology-focused customers on opportunities to deploy new technologies in both drilling and completions, and expanding our competitive edge should widen the advantage we believe we have over much of the industry. Approaching 2026, while we are not ready to give specific guidance for what we expect next year to look like, we are comfortable saying that we do expect lower capital expenditures compared to 2025. Even on lower CapEx next year, we expect to fully maintain the high demand portion of our fleet as well as invest in new technologies across our businesses while still generating meaningful free cash flow for our investors. We remain committed to returning at least 50% of our annual free cash flow to shareholders through a combination of dividends and share repurchases. Moving to capital allocation, we are operating with significant flexibility, with the expectation for continued solid free cash flow and a strong balance sheet, giving us optionality for 2026 and beyond. Our leverage remains low, with net debt to EBITDA of just over 1x. We closed the quarter with $187 million in cash and an undrawn $500 million revolver. The fourth quarter should deliver our strongest free cash flow quarter of the year, which should strengthen our capital flexibility as we head into 2026. We will continue to deploy capital only towards opportunities we believe will deliver high long-term returns, including the option to further accelerate our share repurchase program. Our U.S. contract drilling business saw activity stabilize as we exited the third quarter, and we expect this stability to continue through the rest of 2025. Recent revenue per day for drilling rigs remains in the low to mid-30s range. Our directional drilling business is performing exceptionally well, benefiting from strong service quality, new technology deliveries, and further integrated offerings with both our drilling rigs and our drill bits. Today, we are focused on driving further improvement beyond relying simply on a recovery in industry activity. We are looking to expand our technology-driven commercial models by growing integration across our products and services through additional performance-based agreements, as we also work to lower our costs. Our drilling team is delivering strong operational performance for our customers by utilizing our Tier 1 APEX rigs and our suite of proprietary Cortex digital services, including adaptive auto driller and predictive models, which become platforms for future artificial intelligence to enhance the quality of the service we are delivering for all of our customers. Our customers are seeing the benefits of using a Patterson-UTI rig and our suite of digital solutions and complementary services and products. The digital and technology package remains a key factor to delivering differentiated solutions for our customers, and the investments we have made have helped margins hold above what our drilling business has achieved in previous periods of activity moderation. Our Completion Services segment demonstrated strong relative performance in Q3, with activity holding steady compared to the second quarter. Our commercial team did an outstanding job managing the frac calendar and aligning us with a high-quality customer base, while our operations team executed at an exceptionally high level. Pricing per horsepower hour in our frac business was steady compared to the second quarter, with lower sequential revenue mostly a function of fewer sales of low-margin sand and chemical products. We also started to see the benefits of cost reductions in the first half of the year. The completions market remains competitive, but our operational quality is proving to be a major differentiator. We recently set a record for continuous pumping for one of our customers in the Northeast, where we safely pumped 348 hours straight on a single fleet. This record highlights the capabilities of our digital performance center in Houston to implement new operating techniques with the support of our local field teams. Our new proprietary EOS completions platform is advancing our technology edge through three primary products: Vertex automation controls, Fleet Stream, and IntelliStim. This platform will allow us to further implement artificial intelligence and machine learning into the completions process. After successful deployment in the third quarter, we continue to deploy our Vertex automation controls across all company fleets, with projection for full deployment by year-end. This will allow us to implement closed-loop automation for all pump types to improve our operating efficiency and asset management while delivering optimized completion designs for our customers based on real-time surface measurements. Fleet Stream will provide data visualization and analytics, a platform to acquire and analyze reservoir measurements and streamline data workflows for our customers and provide a new revenue stream for our Completion Services segment. Finally, in combination with our drilling rigs and through modern machine learning, our IntelliStim reservoir technologies leverage artificial intelligence to provide real-time reservoir insights to better understand rock properties and optimize completion designs to maximize well performance. We see multiple ways to monetize our digital investments. We are already seeing the investments lower operating and capital costs through higher asset turns. Additionally, on the revenue side, we've signed two customers to commercial deals for 2026, specifically for our EOS platform. We believe there is significant revenue opportunity as well as a path to create closer and more integrated long-term relationships with our customers. Our Emerald fleet of 100% natural gas-powered equipment remains in high demand, and we continue to strategically invest in new technologies that are driving accretive returns for the business. We've recently taken delivery of our first commercial direct drive pumps, which will allow us to deliver 100% natural gas-powered solutions for our customers with significantly less capital deployed relative to electric frac fleets. The direct drive pumps are scheduled to begin long-term dedicated work in the fourth quarter. We believe recent advancements made in high horsepower direct drive natural gas engines have made this the most capital and cost-efficient solution for our business. Our Drilling Products business had another good quarter in North America, where our U.S. revenue per U.S. industry rig set another company record. Since we acquired Ulterra in 2023, we've seen a roughly 40% increase in U.S. revenue per U.S. industry rig, with more than a 10% increase in market share for our drill bit products on Patterson-UTI rigs. In Canada, we saw a strong recovery in revenue coming out of spring breakup even as total industry activity was slightly below expectations. International revenue declined, mainly due to drilling activity in Saudi Arabia slowing. Outside of Saudi Arabia, revenue was strong internationally, and we expect international revenue to increase in the fourth quarter. On the margin side, the quarter did see higher-than-normal bit repair expenses in July, which resulted in lower margins for the quarter, although margins recovered towards historical levels later in the quarter. Our fully integrated PTEN Digital Performance Center located in Houston is the backbone for the company. The digital center has been critical as we execute and optimize drilling and completion designs for our customers. The information that we provide both our team and our customers has improved the efficiency of our operations and brought us closer to our customers as we strive to provide differentiated service. While U.S. shale activity has moderated this year, we have not stood still. We are focused on finding ways to make our business more competitive, even as industry activity appears likely to remain in a tight range for the foreseeable future. We're using this relative stability to prepare for what we think the industry will look like over the next several years, commit capital to the right areas, and execute our strategy to maximize shareholder value. We will continue to target profitable technology investments that we believe will drive strong cash returns for our shareholders, and we intend to be a leader across all our business as shale evolves. I'll now turn it over to Andy Smith, who will review the financial results for the quarter.

Thanks, Andy. Total reported revenue for the quarter was $1.176 billion. We reported a net loss attributable to common shareholders of $36 million or $0.10 per share and an adjusted net loss of $21 million. Adjusted EBITDA for the quarter totaled $219 million. Other operating expenses for the quarter totaled $23 million, of which $20 million resulted from the accrual of expenses associated with personal injury-related claims for incidents that occurred several years ago, partially offset by a favorable contract dispute resolution. Our weighted average share count was 383 million shares during Q3, and we exited the quarter with 379 million shares outstanding. During the first three quarters of the year, we generated $146 million of adjusted free cash flow. As expected, during the third quarter, we saw working capital benefits and we expect working capital will be a tailwind again in the fourth quarter. We returned $64 million to shareholders, including an $0.08 per share dividend and $34 million for share repurchases. Over the two full years since we closed the NexTier merger and Ulterra acquisition through September 30, 2025, we have repurchased 44 million Patterson shares in the open market. We have reduced our share count by 9% since that time. This is in addition to reducing net debt, including leases by nearly $200 million, and paying a dividend that is currently an annualized 5% of our share price. In our Drilling Services segment, third quarter revenue was $380 million, and adjusted gross profit totaled $134 million. In U.S. contract drilling, we totaled 8,737 operating days for an average operating rig count of 95 rigs. Geographically, compared to the second quarter, activity was flat outside the Permian Basin, with Permian activity responsible for the sequential decline in our rig count. For the fourth quarter in Drilling Services, we expect an average rig count to be similar to the third quarter. We expect adjusted gross profit will be down approximately 5% from the third quarter. Revenue for third quarter in our Completion Services segment totaled $705 million, with an adjusted gross profit of $111 million. We saw flat activity on a pump hour basis compared to the second quarter, with margins benefiting from improved operating efficiency and some cost reductions that were initiated in the segment during the first half of 2025. We saw improved efficiency as several of our larger fleets that had gaps in the second quarter had more consistent schedules. Additionally, our power solutions natural gas fueling business saw growth as natural gas demand in the Permian continues to increase as customers look to take advantage of weak regional natural gas prices by using more of the commodity as fuel. Overall, completions revenue was lower on a decline in sales of low-margin sand and chemicals products. For the fourth quarter, we expect completion services adjusted gross profit to be approximately $85 million, with less seasonality compared to the fourth quarter last year. Third quarter Drilling Products revenue totaled $86 million with an adjusted gross profit of $36 million. Performance was strong in our U.S. and Canadian businesses, while international revenue was impacted by lower activity in Saudi Arabia, which is our largest international market. Margins were affected by higher bit repair expenses in July, although they returned closer to historical levels by the end of the quarter. For the fourth quarter, we expect Drilling Products adjusted gross profit to improve slightly, with relatively steady results in the U.S. and Canada and higher revenue and gross profit internationally. As a reminder, roughly 70% of the revenue in our Drilling Products segment is generated in the U.S., with around 10% in Canada and 20% internationally. Other revenue totaled $5 million for the quarter with $2 million in adjusted gross profit. We expect other adjusted gross profit in the fourth quarter to be steady compared to the third quarter. Reported selling, general and administrative expenses in the third quarter were $62 million. For Q4, we expect SG&A expenses will be relatively stable sequentially. On a consolidated basis for the third quarter, depreciation, depletion, amortization, and impairment expense totaled $226 million. For the fourth quarter, we expect it will be approximately $225 million. During Q3, total CapEx was $144 million, including $47 million in Drilling Services, $81 million in Completion Services, $13 million in Drilling Products, and $3 million in Other and Corporate. For the fourth quarter, we expect total CapEx of approximately $140 million. Our full 2025 CapEx is now expected to be less than $600 million, even before considering the benefit of $33 million in asset sales we have realized through the third quarter. Our updated capital expenditure budget is lower than previously expected. We closed Q3 with $187 million in cash on hand, and we did not have anything drawn on our $500 million revolving credit facility, and we do not have any senior note maturities until 2028. Through the first three quarters of 2025, we have returned $162 million to shareholders through dividends and share repurchases. Free cash flow is likely to remain strong in the fourth quarter, which is expected to be our highest free cash flow quarter of the year. Our Board has approved an $0.08 per share dividend for the fourth quarter of 2025, payable on December 15 to holders of record as of December 1. I'll now turn it back to Andy Hendricks for closing remarks.

Thanks, Andy. I want to close the call with some comments on our company and the industry. I'm very pleased with our team's execution in the third quarter, where we are outperforming our competitors in many areas of our market. As well, we continue to make the necessary cost reductions to align the company with the projected levels of activity and maximize long-term free cash flow. This past year has been one of the most unique years since shale emerged as a major source of oil and gas over a decade ago. In many ways, the U.S. shale oil field services industry has outperformed each previous cycle. Our margins are holding up much better than is typical in periods of activity moderation. Equipment bifurcation and capital availability are leading to disciplined behavior across our industry. Customer consolidation is leading to a more constructive environment at the high end of the oilfield services market relative to the overall market. Our third quarter results reflected a stabilization of industry activity as we exited the period. Absent normal seasonality in our completions business, we expect activity to remain relatively steady through year-end. We fully recognize and acknowledge that the macro outlook is a driving force in investment decisions. Lower commodity prices have slowed overall activity in the U.S. over the past couple of years. However, our business has remained resilient, and we are focused on investing in technology, maximizing our long-term free cash flow, and returning cash to shareholders. We believe our strategy will create the most value for Patterson-UTI shareholders over the long term. There is much to be proud of with the way our teams are operating. But even as the outlook has stabilized, we are not content to simply wait for a market recovery. We intend to stay focused on our plan to maximize the value of our unique commercial model and technology offerings across drilling and completions. We see evidence customers are becoming increasingly receptive to more integration and performance-based pricing, as they, too, search for ways to improve their own returns. We are just at the beginning of realizing the benefits of that journey for the company. The goal for our business leaders is clear: we need to improve our position in the markets where we operate. We are confident that our teams are focused and up to the challenge, and we look forward to proving that over the next year. As we start to prepare for 2026, what we see right now is another year of strong free cash flow. Our balance sheet is in great shape, our liquidity is strong, and we are operating with an extreme degree of capital flexibility. Our focus on capital allocation should allow us plenty of opportunities to use our free cash flow to maximize the long-term value for our shareholders, including the potential acceleration of our share repurchase program. We are pleased with the quality of our operations, and we are confident we can make our business even better. With that, I'd like to hand the call back to Rebecca and open up for Q&A.

Your first question comes from the line of Arun Jayaram with JPMorgan.

Andy, I wanted to talk a little bit about completion services. One of the narratives we've heard from your peers is pricing trends continue to moderate even at the higher end of the market yet. You highlighted how your trends on a horsepower basis were relatively flat. I was wondering if you could maybe elaborate on what you think is driving that differential performance.

Listen, I think our teams are just doing a great job out there executing in the field, especially with some of the high-end work we've done with large simul fracs and trimul fracs. We're burning significant amounts of natural gas. We're delivering that natural gas to location, maximizing the displacement of diesel in some cases or on full electric jobs or full Emerald jobs, providing significant amounts of natural gas and fuel savings. Everything we have to convert natural gas is out and working. We don't feel a lot of pressure to reduce pricing from where we're at. As you know, the industry discussed, there's been some big tenders over the last few months, and some of those are still in process. Overall, the industry is showing a lot of discipline from where we are right now as well.

Great. And maybe, Andy, you could talk a little bit about your fleet renewal programs as we think about 2026. You highlighted how you expect CapEx to be down at a corporate level. But talk to us about planned investments in Completion Services. It sounds like you're excited about the direct drive pumps. How should we think about fleet replacement for PTEN on a go-forward basis?

Yes, the 100% natural gas direct drive Emerald systems that we've just taken delivery of this quarter and just deploying. We're excited about what we believe is a better use of capital and trying to provide 100% natural gas services out in the field. We've been excited to have a number of those out working this quarter after shaking that technology down for the last two years. When it comes to 2026, we certainly haven't finalized the budget yet, but what you've seen us do over the last several years is invest at the high end without investing at the low end, just letting the lower end of the equipment move away through attrition. We've reduced the overall horsepower from 3.3 million at a peak down to 2.8 million just by letting that lower-tier equipment go. So I think there’s a chance we’ll make some similar decisions next year. We haven't finalized that yet, but we're not investing at the low end, which helps keep the market tight. If we see more demand next year for more 100% natural gas equipment, we'll continue to invest because we're getting good returns on that technology.

Your next question comes from the line of Scott Gruber with Citigroup.

Yes. Power is a hot topic and Patterson has expertise in running microgrids for drilling. So Andy, if we see the data center market pull more megawatts for on-site generation, do you think that opens an opportunity for Patterson to enter the power market within the oil field? How are you viewing that opportunity today?

We have significant technical expertise in power. Our electrical engineering division can engineer and manufacture microgrids. Right now, we produce around 500 megawatts of power across drilling and completions. We operate generators from 1.1 megawatt recips all the way up to 35-megawatt turbines. We have a lot of technical expertise. However, when we look at some of the opportunities as we move into larger power structures, the AI and data centers are demanding upwards of 200 megawatts for on-site generation. Our EcoCell product is designed for hazardous environment operations. We will continue to explore opportunities, but we want to ensure each investment aligns with providing immediate value for shareholders.

So the oilfield production power opportunity for Patterson is still kind of TBD. Is that the right way of saying it?

Yes, we have discussions with our customers and are open to providing power for them in their operations and production. If we find a reasonable market, we'll provide power for them, but we are very focused on delivering free cash flow.

Okay. And then I wanted to ask a question on the completion side. I know you guys have made strides in developing frac optimization software. Can you provide more color on this expanding offering? How many fleets are deploying optimization software today? And is this contributing to the improvement in segment performance despite the micro headwinds?

Yes, we are excited about the digital advancements in the completion side. We've rolled out the EOS platform, which includes several products at our digital center in Houston and in the field. One of those products is Vertex automation for the frac operations, which we've rolled out in the field and continue to deploy; it's going to be on all fleets by year's end. Our automation controlled software can adapt to various rig types and scenarios, allowing us to work across platforms. It's certainly a product we will charge for, and it's going to improve overall reliability of equipment, benefiting us and our customers.

Your next question comes from the line of Saurabh Pant with Bank of America.

Great. Good. Andy, maybe I'll start with a bigger picture question. As you talked about macro uncertainty, things seem to have stabilized a bit. How does this uncertainty manifest when you speak with customers? Are they wanting shorter-term contracts to give them more flexibility or maybe more frequent pricing reopeners?

Yes. Activity is stabilized, but the rig count has come down this year. However, pricing has held up pretty well. There is pressure but we are still in the low 30s on average. Customers are trying to maintain production, as the wells we drill have become more challenging. Even in a softer commodity environment, they are focused on production for shareholders. We receive requests to add more technology to meet their needs. It’s a competitive market, but we remain steady in our activity levels.

Understood. And I agree with your views on the activity levels, which appear to be below maintenance levels. Okay, makes sense. A follow-up, maybe for Andy Smith on the 2026 shareholder returns. At this stage, how should we think about share repurchases? It's good to see that you spent up a little this quarter versus last quarter, but maybe refresh us on the framework as we think about 2026.

It's a bit early to discuss 2026 plans. We are just beginning our budget cycle and will finalize plans as we move forward. We're focused on our performance and efficiency right now.

Your next question comes from the line of Ati Modak with Goldman Sachs.

Andy, you talked about the production impact of activity changes, but are there any cycle times or efficiencies across the value chain that could potentially impact your expectations?

What we are seeing, where activity is now, has the potential to negatively impact U.S. production. If oil stays in the upper 50s for a while, it could bring U.S. production down further, which would affect commodity prices. There is some self-correction in the market. The fundamentals are still good; we see long-term demand growth for oil over a multiyear period. However, we remain steady in our activity levels due to our customers wanting to deploy more technology and improve efficiencies in well drilling and completion.

Okay, so for '26, when you are guiding to steady activity levels, should we think about gas potentially driving upside? Or is that offsetting some softness in oil?

I think there’s upside in gas activity next year, but probably not in the first quarter. As we see more physical demand from LNG, we expect gas activity to address immediate physical needs and drive activity later in the year. That gives us upside even if oil holds steady next year.

Your next question comes from the line of Stephen Gengaro with Stifel.

When we think about RFP season, how are you thinking about pricing in the completion market next year? Any color around margins year-over-year would be helpful.

Most of us have gone through a lot of the tenders already, and projections for the fourth quarter have locked in some pricing. While there may be slight movement next year, we believe our converted natural gas today is sold out, and demand for equipment that utilizes natural gas remains strong. Overall, I don’t see pricing being a significant headwind.

Great. And how do you think about capital returns versus balance sheet strength? What signs do you look for in deciding whether to accelerate or continue returning capital in this lower activity environment?

As we look at capital allocation, we ensure we have top-of-market equipment across all lines of business. We evaluate the cadence of adding equipment and ensure we are rightsized for the opportunities available. We remain comfortable with our balance sheet leverage. We are focused on return to shareholders while also investing in the equipment and services that deliver performance. Pricing will follow performance.

I’m glad we committed to giving back 50% of our free cash flow to shareholders and we are on track for almost 60% this year. Decisions on capital allocation will vary based on project-by-project evaluations of new technology versus purchasing back shares, but our commitment to shareholders remains strong.

Your next question comes from the line of Derek Podhaizer with Piper Sandler.

Can we have an EcoCell update? You typically replace a diesel generator with a battery. Given the outlook for this technology, are there potential opportunities outside of oil and gas for EcoCell within your subsidiary Current Power?

There could be opportunities outside oil and gas. However, EcoCell is specifically designed for hazardous environments and drilling equipment. We are exploring the possibilities but focusing on strong free cash flow and immediate shareholder value.

That is very helpful. I wanted to ask a question around drilling. You talked about Permian being a soft spot but pockets of strength in gas. Thinking about the rig count, how should we think about the required CapEx to reactivate sidelined rigs? What might that mean for future margin expansion?

Historically, when we reactivate a rig, it takes several million dollars to do so. The demand for technology with larger conversations may drive larger day rates. Each project will be evaluated accordingly, and if we add technology, we expect to be compensated well for it.

Your next question comes from the line of Keith MacKey with RBC.

Regarding your drilling services guide for Q4, you mentioned a 5% decline in adjusted gross profit, even with steady activity levels. Can you provide more detail on this decline?

Some decline in pricing has occurred. Activity has remained steady, but we've seen an overall decline in the industry rig count and our own rig count since the beginning of the year. A softening in the market is also impacting the profit margins. However, I expect steady activity levels going forward after Q4.

Got it. And Andy, just to follow up, as E&Ps look for longer wells, what types of things are your customers asking you for in terms of drilling technology and rigs?

We are seeing requests for structural upgrades regarding deeper wells in the Western Haynesville and longer laterals in the Delaware Basin. The casing loads are increasing, and structural capacity is moving up from 750,000 pounds to 1 million pounds. We're also seeing demand for automated solutions with artificial intelligence. These advancements will help improve reliability, equipment longevity, and benefits for the E&Ps.

Your next question comes from the line of Jim Rollyson with Raymond James.

You mentioned this cycle is different than typical cycles. Once we hit the bottom and gas rig count starts to recover, how do you envision the cycle unfolding?

This cycle has seen activity come down over two-and-a-half years. While we expect a similar reverse pattern, you could see quicker inflection on the gas side. We anticipate upside from where we are. We maintain a strong balance sheet, cash flexibility, continue to deploy technology, and expect positive market conditions in the future.

Regarding the digital suite in completions, could you share the revenue and profit opportunity if there is high customer adoption? How might this impact activity trends going forward?

It's still early days. We are building out our digital services infrastructure, and it could provide substantial revenue opportunities over time. There are multiple revenues we anticipate from our EOS platform, and successful rollout can enhance profitability.

Your final question comes from the line of Daniel Kutz with Morgan Stanley.

Can you provide an update on the nameplate Emerald fleet size? How many horsepower are you currently at?

We are currently around the 250,000 level for our Emerald fleet with several more Emerald 100% natural gas systems being delivered and deployed this quarter. We will provide an exact number after all deliveries.

Great. Can you provide a comparison of the Emerald electric fleet and the direct drive fleet with respect to build, maintenance, and operating costs?

The Emerald electric performs well, but the capital costs for turbines can be high due to power demands. We estimate a 25% to 30% reduction in capital costs for the 100% natural gas direct drive equipment compared to electric setups because it eliminates the need for expensive power-generating assets. While OpEx for natural gas engines may be higher, their overall operation costs can be lower relative to maintaining both electric systems and turbine generators.

Your next question comes from the line of Sean Mitchell with Daniel Energy Partners.

Can you provide any updates on the typical seasonal slowdown in completions? Have any fleets been idled or designated to return to customers in the first half of '26?

We haven’t idled any fleet per se. The best way to describe it is that quarter-on-quarter, we are still working the same amount of horsepower and pumping similar horsepower hours in the field. We are working to meet demand for simul-frac and trimul-frac jobs with our current assets. Market activity will carry on without deploying additional fleets in the near term.

In terms of improvement initiatives, how much is self-directed versus requested by customers?

It's a balance. Customers request some services, but many times, our engineers are motivated to innovate and suggest improvements, allowing us to enhance our offerings.

At this time, there are no further questions. I will now turn the call back over to Andy Hendricks for closing remarks.

I want to thank everyone who dialed in this morning. It was a really strong third quarter for us. I want to thank all the men and women at Patterson-UTI across all our segments for everything they're doing and all the great results they had in the third quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.