Superior Energy Services 10Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


	FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

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

For the Transition Period from to

Commission File No. 001-34037

SUPERIOR ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)



	Delaware		87-4613576
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	1001 Louisiana Street, Suite 2900 Houston, TX (Address of principal executive offices)		77002 (Zip Code)

Registrant’s telephone number, including area code: (713) 654-2200

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


Title of each class	Trading symbol	Name of each exchange on which registered
None	N/A	None

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

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

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


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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  No 

The number of shares of the registrant’s Class A common stock outstanding on May 1, 2024 was 20,174,135

TABLE OF CONTENTS




		Page
	Information Regarding Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	18
Item 6.	Exhibits	19

SIGNATURES		20

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (the “Form 10-Q”) and other documents filed by us with the Securities and Exchange Commission (the “SEC”) contain, and future oral or written statements or press releases by us may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “will,” “estimates,” and variations of such words and similar expressions identify forward-looking statements, although not all forward looking statements contain these identifying words. All statements, other than statements of historical fact, included in this Form 10-Q or other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management based on their experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:

•

the difficulty to predict our long-term liquidity requirements and the adequacy of our capital resources;

•

restrictive covenants in the Credit Facility (as defined within) could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests;

•

the conditions in the oil and gas industry;

•

U.S. and global market and economic conditions, including impacts relating to inflation, interest rates and supply chain disruptions;

•

the effects of public health threats, pandemics and epidemics, and the adverse impact thereof on our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand and industry demand generally, margins, utilization, cash position, taxes, the price of our securities, and our ability to access capital markets;

•

the ability of the members of Organization of Petroleum Exporting Countries (“OPEC+”) to agree on and to maintain crude oil price and production controls;

•

operating hazards or other risks, including the significant possibility of accidents resulting in personal injury or death, or property damage or other claims or events for which we may have limited or no insurance coverage or indemnification rights;

•

the possibility of not being fully indemnified against losses incurred due to catastrophic events;

•

cost and availability of insurance

•

claims, litigation or other proceedings that require cash payments or could impair financial condition;

•

credit risk associated with our customer base;

•

the effect of regulatory programs and environmental matters on our operations or prospects;

•

the impact that unfavorable or unusual weather conditions could have on our operations;

•

the potential inability to retain key employees and skilled workers;

•

political, legal, economic and other uncertainties (such as the war in Ukraine and conflict in Israel and broader geopolitical tensions in the Middle East and eastern Europe) associated with our international operations could materially restrict our operations or expose us to additional risks;

•

potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results;

•

changes in competitive and technological factors affecting our operations;

•

risks associated with the uncertainty of macroeconomic conditions worldwide (such as capital and credit markets conditions, inflation and interest rates);

•

risks to our operations and related infrastructure, or that of our business associates, from potential cyber-attacks;

•

counterparty risks associated with reliance on key suppliers;

•

challenges with estimating our potential liabilities related to our oil and natural gas property;

•

risks associated with potential changes of Bureau of Ocean Energy Management (“BOEM”) security and bonding requirements for offshore platforms;

•

the likelihood that the interests of our significant stockholders may conflict with the interests of our other stockholders;

•

the risks associated with owning our Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), for which there is no public market; and

•

the likelihood that our stockholders agreement may prevent certain transactions that could otherwise be beneficial to our stockholders.

These risks and other uncertainties related to our business are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). We undertake no obligation to update any of our forward-looking statements in this Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)


	March 31, 2024			December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	237,845		$	391,684
Accounts receivable, net		243,416			276,868
Inventory		69,095			74,995
Income taxes receivable		10,424			10,542
Prepaid expenses		20,562			18,614
Other current assets		7,194			7,922
Total current assets		588,536			780,625
Property, plant and equipment, net		308,280			294,960
Note receivable		70,214			69,005
Restricted cash		57,711			85,444
Deferred tax assets		61,130			67,241
Other assets, net		42,304			43,718
Total assets	$	1,128,175		$	1,340,993

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	42,949		$	38,214
Accrued expenses		95,431			103,782
Income taxes payable		24,596			20,220
Decommissioning liability		21,631			21,631
Total current liabilities		184,607			183,847
Decommissioning liability		150,733			148,652
Deferred tax liabilities		4,564			6,138
Other liabilities		40,744			41,445
Total liabilities		380,648			380,082

Stockholders’ equity:
Common stock $0.01 par value; 52,000 shares authorized; 20,174 shares and 20,151 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		202			202
Additional paid-in capital		910,527			911,388
Retained (deficit) earnings		(163,202	)		49,321
Total stockholders’ equity		747,527			960,911
Total liabilities and stockholders’ equity	$	1,128,175		$	1,340,993

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended
	March 31,
	2024			2023
Revenues:
Services	$	73,337		$	93,290
Rentals		81,090			85,610
Product sales		54,207			41,237
Total revenues		208,634			220,137
Cost of revenues:
Services		46,489			65,079
Rentals		31,603			29,048
Product sales		28,547			23,594
Total cost of revenues (exclusive of items shown separately below)		106,639			117,721
Depreciation, depletion, amortization and accretion:
Services		5,752			7,295
Rentals		6,359			6,694
Product sales		8,336			6,150
Total depreciation, depletion, amortization and accretion		20,447			20,139
General and administrative expenses		34,975			30,990
Restructuring and transaction expenses		-			1,983
Other gains, net		(1,082	)		(1,398	)
Income from operations		47,655			50,702
Other income (expense):
Interest income, net		6,840			5,439
Other expense, net		(1,813	)		(2,152	)
Income from continuing operations before income taxes		52,682			53,989
Income tax expense		(14,787	)		(24,065	)
Net income from continuing operations		37,895			29,924
Income from discontinued operations, net of tax		-			289
Net income	$	37,895		$	30,213

Income per share - basic and diluted:
Net income from continuing operations	$	1.88		$	1.49
Income from discontinued operations, net of tax		-			0.01
Net income	$	1.88		$	1.50

Weighted-average shares outstanding
Basic		20,162			20,107
Diluted		20,180			20,131

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

(in thousands)

(unaudited)


												Additional
	Common Stock											paid-in
	Class A					Class B						capital						Accumulated
	Shares			Amount		Shares			Amount			Class A			Class B			deficit			Total

Balances, December 31, 2022		19,999		$	200		80		$	1		$	902,486		$	5,896		$	(125,699	)	$	782,884
Net income		-			-		-			-			-			-			175,020			175,020
Stock-based compensation expense, net		-			-		-			-			-			4,123			-			4,123
Restricted stock units vested		-			-		91			1			-			(1	)		-			-
Share withheld and retired		-			-		(19	)		-			-			(1,116	)		-			(1,116	)
Shares placed in treasury		152			2		(152	)		(2	)		8,902			(8,902	)		-			-
Balances, December 31, 2023		20,151			202		-			-			911,388			-			49,321			960,911
Net income		-			-		-			-			-			-			37,895			37,895
Cash dividends ($12.38 per share)		-			-		-			-			-			-			(250,418	)		(250,418	)
Shares repurchased		(15	)		-								(961	)								(961	)
Restricted stock units vested		53			-		-			-			-			-			-			-
Shares withheld and retired		(15	)		-		-			-			(1,005	)		-			-			(1,005	)
Stock-based compensation expense, net		-			-		-			-			1,105			-			-			1,105
Balances, March 31, 2024		20,174		$	202		-		$	-		$	910,527		$	-		$	(163,202	)	$	747,527

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended
	March 31,
	2024			2023
Cash flows from operating activities:
Net income	$	37,895		$	30,213
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion, amortization and accretion		20,447			20,139
Deferred income taxes		4,538			15,677
Stock based compensation expense		1,105			1,052
Other gains, net		(1,083	)		(2,225	)
Other reconciling items, net		(1,755	)		(105	)
Changes in operating assets and liabilities		27,747			8,502
Net cash from operating activities		88,894			73,253
Cash flows from investing activities:
Payments for capital expenditures		(20,698	)		(18,086	)
Proceeds from sales of assets		2,616			11,569
Net cash from investing activities		(18,082	)		(6,517	)
Cash flows from financing activities:
Distributions to shareholders		(250,417	)		-
Repurchase of shares		(962	)		-
Tax withholdings for vested restricted stock units		(1,005	)		(1,116	)
Net cash from financing activities		(252,384	)		(1,116	)
Net change in cash, cash equivalents, and restricted cash		(181,572	)		65,620
Cash, cash equivalents, and restricted cash at beginning of period		477,128			339,107
Cash, cash equivalents, and restricted cash at end of period	$	295,556		$	404,727

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(unless noted otherwise, amounts in thousands, except share data)

(1) Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures are adequate such that the information presented is not misleading.

As used herein, “we,” “us,” “our” and similar terms refer to Superior Energy Services, Inc. and its consolidated subsidiaries, unless otherwise specifically stated.

These financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in our Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of March 31, 2024, our results of operations and cash flows for the three months ended March 31, 2024 and 2023. The balance sheet as of December 31, 2023, was derived from our audited annual financial statements.

(2) Revenue and Accounts Receivable

Disaggregation of Revenue

The following table presents our revenues by segment disaggregated by geography:


	For the Three Months Ended
	March 31,
	2024		2023
U.S. land
Rentals	$	39,006	$	45,133
Well Services		7,466		6,355
Total U.S. land		46,472		51,488

U.S. offshore
Rentals		37,251		35,670
Well Services		28,872		16,321
Total U.S. offshore		66,123		51,991

International
Rentals		31,834		28,018
Well Services		64,205		88,640
Total International		96,039		116,658
Total Revenues	$	208,634	$	220,137

The following table presents our revenues by segment disaggregated by type:


	For the Three Months Ended
	March 31,
	2024		2023
Services
Rentals	$	20,650	$	17,145
Well Services		52,687		76,145
Total Services		73,337		93,290

Rentals
Rentals		76,073		82,075
Well Services		5,017		3,535
Total Rentals		81,090		85,610

Product Sales
Rentals		11,368		9,601
Well Services		42,839		31,636
Total Product Sales		54,207		41,237
Total Revenues	$	208,634	$	220,137

Accounts Receivable, net

Our allowance for credit losses as of March 31, 2024 and December 31, 2023 was approximately $6.0 million and $6.3 million, respectively.

(3) Inventory

The components of inventory are as follows:


	March 31, 2024		December 31, 2023
Finished goods	$	36,046	$	41,082
Raw materials		8,489		10,379
Work-in-process		8,804		8,025
Supplies and consumables		15,756		15,509
Total	$	69,095	$	74,995

Finished goods inventory includes component parts awaiting assembly of approximately $21.7 million and $25.0 million as of March 31, 2024 and December 31, 2023, respectively.

(4) Decommissioning Liability

The following table summarizes our net decommissioning liability:


	March 31, 2024			December 31, 2023
Wells	$	97,633		$	96,603
Platform		74,731			73,680
Total decommissioning liability		172,364			170,283
Note receivable		(70,214	)		(69,005	)
Total decommissioning liability, net of note receivable	$	102,150		$	101,278

Accretion expense for the three months ended March 31, 2024 and 2023 was $2.5 million and $2.3 million, respectively.

(5) Note Receivable

Our note receivable consists of a commitment from the seller of our oil and gas property for costs associated with abandonment. Pursuant to an agreement with the seller, we will invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of the seller's obligation to us is $108.4 million and is recorded at its present value, which totaled $70.2 million as of March 31, 2024.

The discount on the note receivable is currently based on an effective interest rate of 7.2% and is amortized to interest income over the expected timing of the completion of the decommissioning activities, which are expected to be completed during the second quarter of 2030. Interest is paid in kind and is compounded into the carrying amount of the note.

Non-cash interest income related to the note receivable for the three months ended March 31, 2024 and 2023 was $1.2 million and $1.0 million, respectively and is included in other reconciling items, net in the Condensed Consolidated Statements of Cash Flows.

(6) Property, Plant and Equipment, Net

A summary of property, plant and equipment, net is as follows:


	March 31, 2024			December 31, 2023
Machinery and equipment	$	441,839		$	422,071
Buildings, improvements and leasehold improvements		66,432			66,746
Vehicles		8,045			8,106
Furniture and fixtures		22,857			22,746
Construction-in-progress		15,551			8,195
Land		26,644			25,654
Oil and gas producing assets		29,323			28,984
Total		610,691			582,502
Accumulated depreciation and depletion		(302,411	)		(287,542	)
Property, plant and equipment, net	$	308,280		$	294,960

A summary of depreciation and depletion expense associated with our property, plant and equipment is as follows:


	For the Three Months Ended
	March 31,
	2024		2023
Depreciation	$	16,134	$	16,979
Depletion		1,572		585
Total depreciation and depletion	$	17,706	$	17,564

(7) Debt

In December 2023, we entered into an Amended and Restated Credit Agreement providing for up to a $140.0 million asset based secured revolving Credit Facility (the “Credit Facility”), which includes a sub-facility for financial letters of credit in an amount up to $40.0 million. The issuance of letters of credit will reduce availability under the Credit Facility dollar-for-dollar.

As of March 31, 2024, our borrowing base, as defined in the Credit Agreement, was approximately $120.9 million, and we had $36.7 million in letters of credit outstanding which reduced the borrowing availability to $84.2 million. At March 31, 2024, we had no outstanding borrowings under the Credit Facility and were in compliance with all required covenants.

(8) Fair Value Measurements

The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis:


	March 31, 2024		December 31, 2023
Non-qualified deferred compensation assets and liabilities
Other assets, net	$	15,592	$	17,079
Accrued expenses		1,680		1,797
Other liabilities		14,397		15,589

Our non-qualified deferred compensation plans investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent a Level 2 in the fair value hierarchy.

The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities.

(9) Other Expense, Net

A summary of other expense, net is as follows:


	For the Three Months Ended
	March 31,
	2024			2023
Foreign currency losses	$	(1,674	)	$	(1,833	)
Other, net		(139	)		(319	)
Other expense, net	$	(1,813	)	$	(2,152	)

Gains and losses on foreign currencies are primarily related to our operations in Argentina and Brazil.

(10) Segment Information

Summarized financial information for our segments is as follows:


For the Three Months Ended March 31, 2024				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	108,091		$	100,543		$	-		$	208,634
Cost of revenues (exclusive of items shown separately below)		37,766			68,873			-			106,639
Depreciation, depletion, amortization and accretion		11,810			8,131			506			20,447
General and administrative expenses		7,192			11,327			16,456			34,975
Restructuring expenses		-			-			-			-
Other (gains) and losses, net		112			(1,180	)		(14	)		(1,082	)
Income (loss) from operations	$	51,211		$	13,392		$	(16,948	)	$	47,655

For the Three Months Ended March 31, 2023				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	108,821		$	111,316		$	-		$	220,137
Cost of revenues (exclusive of items shown separately below)		36,468			81,253			-			117,721
Depreciation, depletion, amortization and accretion		12,168			7,077			894			20,139
General and administrative expenses		7,202			11,499			12,289			30,990
Restructuring expenses		-			-			1,983			1,983
Other gains, net		(31	)		(1,367	)		-			(1,398	)
Income (loss) from operations	$	53,014		$	12,854		$	(15,166	)	$	50,702

Identifiable Assets


			Well		Corporate		Consolidated
	Rentals		Services		and Other		Total
March 31, 2024	$	490,441	$	473,605	$	164,129	$	1,128,175
December 31, 2023		553,706		597,438		189,849		1,340,993

(11) Stock-Based Compensation Plans

We have a Management Incentive Plan (“MIP”), which provides the issuance of up to 1,999,869 shares of our Class A common stock, par value $0.01 per share (the “Class A Common Stock”) for the grant of share-based and cash-based awards.

As of December 31, 2023, we had 121,831 unvested awards granted under the MIP. During the three months ended March 31, 2024, 53,422 awards vested. Stock-based compensation expense totaled $1.1 million for both the three months ended March 31, 2024 and 2023. The unamortized grant date fair value of unvested awards as of March 31, 2024 was $2.9 million.

(12) Equity and Earnings per Share

Dividend

In the first quarter of 2024, we paid a special cash dividend of $12.38 per share on our outstanding Class A Common Stock totaling $250.4 million, which includes dividend equivalent payments to holders of unvested RSUs of $0.7 million.

Share Repurchases

In the first quarter of 2024, we purchased 14,673 shares of our Class A Common Stock totaling approximately $1.0 million from a former Board member. Upon repurchase, the repurchased shares were canceled.

Earnings per Share

The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share:


	For the Three Months Ended
	March 31,
	2024		2023
Weighted-average shares outstanding - basic		20,162		20,107
Potentially dilutive stock awards and units		18		24
Weighted-average shares outstanding - diluted		20,180		20,131

(13) Income Taxes

The effective tax rate for the three months ended March 31, 2024 and 2023 was 28.1% and 44.6%, respectively. The effective tax rate for both periods was impacted by non-deductible items and foreign tax rates that differ from the U.S. federal statutory rate of 21.0%. Additionally, the effective tax rate for the three months ended March 31, 2024 was impacted by current year foreign tax credits.

The effective tax rate for the three months ended March 31, 2023 was unfavorably impacted by the identification of an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $7.6 million during the three months ended March 31, 2023 with a corresponding decrease to deferred tax assets to correct this immaterial misstatement. Management has determined that this misstatement was not material to any of its previously issued financial statements.

The Organization for Economic Co-operation and Development reached agreement on Pillar Two Model Rules (“Pillar Two”) to implement a minimum 15.0% tax rate on certain multinational companies. Participating countries are in various stages of proposing and enacting tax laws to implement the Pillar Two framework. We determined these rules did not have a material impact on our taxes for the three months ended March 31, 2024 and will continue to evaluate the impact of these proposals and legislative changes as new guidance emerges.

We had approximately $77.6 million in gross US foreign tax credit deferred tax assets with a valuation allowance of $50.0 million against them as of December 31, 2023. We continue to evaluate the realizability of our U.S. foreign tax credit carryforwards and may have additional valuation allowance releases in future periods if we achieve positive cumulative income results of appropriate character and timing that provide sufficient positive evidence to do so.

We had unrecognized tax benefits of $4.2 million as of March 31, 2024 and $4.1 million as of December 31, 2023, all of which would impact our effective tax rate if recognized. It is reasonably possible that $1.0 million of unrecognized tax benefits could be settled in the next twelve-month period due to the conclusion of tax audits or due to the expiration of statute of limitations. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.

(14) Contingencies

Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows.

As previously reported in the Form 10-K and Form 10-Q for the quarter ended March 31, 2023, we are currently involved in legal proceedings with the Washington State Department of Revenue in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. The matter was appealed to the Washington State Board of Tax Appeals, which affirmed the assessment on May 22, 2023. On June 20, 2023, we appealed this decision to Whatcom County Superior Court where it is currently pending review. In order to appeal the assessment to Whatcom County Superior Court, we paid the full $27.1 million assessment on May 31, 2023.

(15) Supplemental Cash Flow Information

The table below is a reconciliation of cash, cash equivalents and restricted cash as of the beginning and the end of the periods presented:


	For the Three Months Ended
	March 31,
	2024		2023
Cash and cash equivalents	$	391,684	$	258,999
Restricted cash-non-current		85,444		80,108
Cash, cash equivalents, and restricted cash, beginning of period	$	477,128	$	339,107

Cash and cash equivalents	$	237,845	$	324,128
Restricted cash-non-current		57,711		80,599
Cash, cash equivalents, and restricted cash, end of period	$	295,556	$	404,727

Accrued capital expenditures totaled $18.0 million and $13.8 million as of March 31, 2024 and 2023, respectively.

Additionally, during the three months ended March 31, 2023, gains recognized on the disposition of assets classified as discontinued operations totaled $0.8 million, and proceeds from these dispositions totaled $8.7 million.

Changes in operating accounts on cash flows from operating activities are as follows (in thousands):


	For the Three Months Ended
	March 31,
	2024			2023
Accounts receivable, net	$	33,771		$	20,793
Inventory		5,900			(7,655	)
Prepaid expenses and other current assets		(1,220	)		(2,521	)
Accounts payable		(8,388	)		1,963
Accrued expenses		(8,821	)		(8,045	)
Income taxes		4,494			2,641
Other, net		2,011			1,326
Changes in operating assets and liabilities	$	27,747		$	8,502

(16) New Accounting Pronouncements

There were no material changes in recently issued or adopted accounting standards from those disclosed in our Form 10-K.

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

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. In addition, the following discussion and analysis and information contains forward-looking statements about our business, operations and financial performance based on our current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including, but not limited to, those identified below and any discussed in the sections titled “Risk Factors” and under the heading “Information Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Executive Summary

General

We are a global oilfield products and services company with a portfolio of premier rental and well services brands providing customers with robust inventory, responsive delivery, engineered solutions, and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations and corporate citizenship; and committed to free cash flow generation and value creation.

Our portfolio of companies operates in two segments, Rentals and Well Services, to provide highly specialized solutions to the upstream oil and gas industry.

We drive true value to our business units by providing enterprise-wide support, financial discipline, capital strength, and strategic focus. Our experienced, knowledgeable leadership within those businesses has excellent latitude to execute their business strategy, determine pricing, allocate inventory, and develop new products and technology. All with a focus on safety, operational excellence, competitive positioning, and financial performance that entrenches our relationships with our customers and elevates our customers’ satisfaction.

Industry Trends

The oil and gas industry is both cyclical and seasonal. The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas. Changes in customer spending results in an increased or decreased demand for our services and products.

Our financial performance is significantly affected by rig count, which is an indicator of the level of spending by oil and gas companies. The following table summarizes rig counts in the U.S. land, U.S. offshore and International markets as well as prices of oil and natural gas.


	Three Months Ended
	March 31,		December 31,
	2024		2023		% Change
Worldwide Rig Count (1)
U.S.:
Land		602		601	0.2%
Offshore		21		21	0.0%
Total		623		622	0.2%
International (2)		965		958	0.7%
Worldwide Total		1,588		1,580	0.5%

Commodity Prices (average)
Crude Oil (West Texas Intermediate)	$	77.50	$	80.54	(3.8%)
Natural Gas (Henry Hub)	$	2.13	$	2.74	(22.3%)

(1)

Estimate of drilling activity as measure by the average active drilling rigs based on Baker Hughes Co. rig count information

(2)

Excludes Canadian rig count

Comparison of the Results of Operations for the Three Months Ended March 31, 2024 and December 31, 2023

We reported net income from continuing operations for the three months ended March 31, 2024 (the “Current Quarter”) of $37.9 million on revenue of $208.6 million. This compares to a net income from continuing operations for the three months ended December 31, 2023 (the “Prior Quarter”) of $44.6 million on revenues of $244.4 million.


	Three Months Ended						Change
	March 31,			December 31,
	2024			2023			$			%
Revenues
Rentals	$	108,091		$	117,816		$	(9,725	)	(8.3%)
Well Services		100,543			126,609			(26,066	)	(20.6%)
Total revenues		208,634			244,425			(35,791	)
Cost of revenues
Rentals		37,766			40,577			(2,811	)	(6.9%)
Well Services		68,873			85,230			(16,357	)	(19.2%)
Total cost of revenues (exclusive of items shown separately below)		106,639			125,807			(19,168	)
Depreciation, depletion, amortization and accretion		20,447			19,818			629		3.2%
General and administrative expenses		34,975			33,403			1,572		4.7%
Restructuring and transaction expenses		-			1,311			(1,311	)	(100.0%)
Other gains, net		(1,082	)		(1,125	)		43		(3.8%)
Income from operations		47,655			65,211			(17,556	)
Other income (expense):
Interest income, net		6,840			7,180			(340	)	(4.7%)
Loss on Blue Chip Swap Securities		-			(7,736	)		7,736		(100.0%)
Other expense, net		(1,813	)		(4,883	)		3,070		(62.9%)
Income from continuing operations before income taxes		52,682			59,772			(7,090	)
Income tax expense		(14,787	)		(15,126	)		339		(2.2%)
Net income from continuing operations		37,895			44,646			(6,751	)
Income from discontinued operations, net of tax		-			18			(18	)	(100.0%)
Net income	$	37,895		$	44,664		$	(6,769	)

Revenues and Cost of Revenues

Current Quarter revenues from our Rentals segment of $108.1 million decreased $9.7 million from the Prior Quarter. Cost of revenues decreased $2.8 million, or 6.9%, in the Current Quarter as compared to the Prior Quarter. Changes in revenues and cost of revenues are attributable to decreased revenue across all rental product service lines, which include our premium drill pipe, accommodations and bottom hole assemblies. Lower rental revenues were mainly attributable to a decline in in our U.S. offshore market operations. Additionally, decreased commodity prices contributed to a slightly decreased gross margin of 65.1% for the Current Quarter as compared to 65.6% in the Prior Quarter.

Revenues from our Well Services segment in the Current Quarter decreased $26.1 million, or 20.6%, from the Prior Quarter. Cost of revenues decreased $16.4 million, or 19.2%, in the Current Quarter as compared to the Prior Quarter. While well service revenue decreased across all product lines, the decrease in revenue and cost of revenue was primarily driven by declines in our completion services business unit in the U.S. offshore market. As a result of this and in combination with lower commodity prices, gross margin for the Current Quarter also decreased to 31.5% as compared to 32.7% for the Prior Quarter.

General and Administrative Expenses

General and administrative expenses for the Current Quarter increased $1.6 million, or 4.7%, as compared to the Prior Quarter. The increase is primarily related to an increase in employee related costs, which were impacted by annual compensation increases in the Current Quarter.

Restructuring and transaction expenses

Restructuring and transaction expenses relate to charges recorded as part of our strategic efforts in the Prior Quarter to reconfigure our organization both operationally and financially. Restructuring and transaction expense decreased $1.3 million as compared to the Prior Quarter.

Loss on Blue Chip Swap Securities

During the Prior Quarter, we utilized an indirect foreign mechanism known as a Blue Chip Swap (“BCS”) to remit approximately $4.3 million U.S. dollars from Argentina through the purchase and sale of BCS securities. These transactions resulted in a net loss of $7.7 million during the Prior Quarter.

Other expense, net

Other expense, net primarily relate to re-measurement losses associated with our foreign currencies, which totaled $1.7 million and $4.6 million for the Current Quarter and Prior Quarter, respectively. Losses on foreign currencies during both periods were primarily related to our operations in Argentina and Brazil.

Income Taxes

The effective tax rate for the Current Quarter and Prior Quarter was 28.1% and 25.3%, respectively. The effective tax rate for both periods was impacted by non-deductible items and foreign tax rates that differ from the U.S. federal statutory rate of 21.0%. The Current Quarter was also impacted by current year foreign tax credits and the Prior Quarter was impacted by the BCS transactions.

Liquidity and Capital Resources

Our financial performance and cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.

Financial Condition and Liquidity

Our primary sources of liquidity have been cash and cash equivalents, cash generated from our operations and asset sales, and availability under our Credit Facility. As of March 31, 2024, we had cash, cash equivalents and restricted cash of $295.6 million. During the three months ended March 31, 2024 net cash provided by operating activities was $88.9 million, and we received $2.6 million in cash proceeds from the sale of assets. The primary uses of liquidity are to provide support for our operations and capital expenditures. Cash paid for capital expenditures during the three months ended March 31, 2024 totaled $20.7 million. Additionally, during the three months ended March 31, 2024, we paid a special cash dividend totaling $250.4 million to holders of our outstanding Class A Common Stock.

The energy industry faces growing negative sentiment in the market which may affect our ability to access capital on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in the U.S., but also affected the availability and pricing for most credit lines extended to participants in the energy industry. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.

Debt Instruments

Other Matters

Critical Accounting Policies and Estimates

There have been no changes to the critical accounting policies reported in the Form 10-K that affect our significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements included in this Form 10-Q. Please refer to the

section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks associated with foreign currency fluctuations and changes in commodity prices.

Foreign Currency Exchange Rates Risk

While we continue to be exposed to foreign currency exchange rates, we currently do not hold derivatives for trading purposes. When we believe it is prudent, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations.

Commodity Price Risk

Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices reduce the amount of oil and gas that can economically be produced.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, the disclosure controls and procedures provide reasonable assurance that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our CEO and CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures as of March 31, 2024 were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various legal actions incidental to our business. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings after considering available defenses and any insurance coverage or indemnification rights will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

As of March 31, 2024, there have been no material changes in risk factors previously disclosed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Purchases of Equity Securities by the Issuer and Affiliated Purchasers


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2024 - January 31, 2024		-	$	-		-	$	-
February 1, 2024 - February 28, 2024		14,673		65.52		-		-
March 1, 2024 - March 31, 2024		-		-		-		-
Total		14,673	$	65.52		-		-

(1) On February 15, 2024, we purchased 14,673 shares of our Class A Common Stock totaling approximately $1.0 million from Timothy J. Winfrey following his resignation from the Board in January 2024. Upon repurchase, the repurchased shares were canceled.

Item 6. Exhibits


Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on December 30, 2023 (File No. 001-34037)).
3.2	Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on December 20, 2023 (File No. 001-34037)).
10.1	First Amendment to Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.35 to Superior Energy Services, Inc.’s Annual Report on Form 10-K filed on March 8, 2024 (File No. 001-34037)).
10.2	Sixth Amendment to the Stockholders Agreement (incorporated by reference to Exhibit 10.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on March 20, 2024 (File No. 001-34037))
31.1*	Officer’s certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2*	Officer’s certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1*	Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code.
32.2*	Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code.
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

SIGNATURES

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

SUPERIOR ENERGY SERVICES, INC.

(Registrant)


Date:	May 1, 2024	By:	/s/ Brian K. Moore
			Brian K. Moore
			President and Chief Executive Officer
			(Principal Executive Officer)

		By:	/s/ James W. Spexarth
			James W. Spexarth
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

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Superior Energy Services 10-Q2024 Q1 Quarterly report

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