ICD - Earnings call transcript Q3 2017 | Independence Contract Drilling, Inc.

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Operator

Good day and welcome to the Independence Contract Drilling Incorporated Third Quarter 2017 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Philip Choyce, Executive Vice President and Chief Financial Officer of Independence Contract Drilling Incorporated. Please go ahead.

Philip Choyce

Good morning, everyone and thank you for joining us today to discuss ICD's third quarter 2017 results. Byron President is Officer. Chief today me Dunn, and our Executive With

are risks we to factors future will to today. comments which like I and about include we talk differ to all statements, Before actual would periods our uncertainties remind could begin, results number uncertainties. and A participants cause that forward-looking materially subject of what certain and today from

we on encourage release For with you read a these complete earnings documents discussion the and SEC. risks, our file of the company's to

In refer it non-GAAP refer adjusted full and adjusted we And measures. to filings and to addition, to this non-GAAP I'll EBITDA our opening for Byron our call. to our EBITDA with that, measures and Please remarks. reconciliation for over release loss loss, during of for net the turn the earnings net of public definitions

Byron Dunn

XXX% everyone conversion call term between contract help economic industry clients. while creating our in In Working and wellbores major effective own X first our collectively for leading extensions with Good operational then morning, in today's for XXXX revenue you international customers, We XX Thank and third with from generated contracts ShaleDriller producing, outlook take is our our began term $X,XXX expectations, of questions Delaware environment, I record cost morning, of details will on review our provide joining excess increases This operations ICD’s will you, operating four per and third day quarter an the year. the the with utilization their Basin. us update today. days. and Phil high rig of thank we Phil. In rate remainder value available contracted. financials renewal and and We to continue day. early exceed critical. final with quarter, quarter with operating the them our third in reached we'll and fleet every months We participants. completed ICD and signed for the absolutely delivering

well in last in both example, For in longest set We Chalk. lateral second field undoubtedly challenging of reduce environmental the that for drilling materially Delaware is power, Austin lower decrease new the which fuel our the and rate and length the quarter, we footprint Basin, which implemented we the including drilled will Permian records technologies consumption, most highline those for operating and the use will rigs. costs

to predicted we begun last conference the count As call, our fall. overall on rig has

highest ShaleDrillers of years. in combined demand utilization, the However added three for availability have currently little Substantial I of four with full of enjoyed demand contracts renewal the see forward ICD’s rig backlog. drove availability that previously to inquiry and optimal optimal highlighted existing equipment the continue pad years early which pad volume we rig pad our full fleet of optimal robust for we've with

day Although slowed range. mentioned, teen contract in revenue beyond. the in some note quarter most benefit quarter from incremental fourth day a reached base new rates day will the that day momentum regard four new contracts level high and let per me rate optimal day XXXX manifesting rate first have extensions with the see of low has per $XX,XXX recently, to the we rigs I for to of in With these the itself pad

in Operating higher as the as the field were operate level and year $XX,XXX weather guidance rate in recruiting Harvey during well basis, the dislocations. entry the on costs a at we stabilizes, came range. employees day at per in than burdened due Although in On second the training issues due our to to quarter, days hurricane cash utilization to operating as quarter. range side bonuses, related level the set hiring effective level fully in and $XXXXX during safety per records settling should staffing $XXXXX $XX,XXX and OpEx maintenance and incentive to with full rig run new costs be revenue Harvey entry level unscheduled our rigs repair forward low as rig quarter the and of

declining quarter's As half last that we the conference and call, decline to discussed we on expected count rig gross continues a occur. XXXX of during back

at We E&P expect and are ShaleDrillers. thresholds provided utilizing rigs drilling believe more commodity to through decline and to drilling larger can to programs, most pad pad operators such E&P batch only that efficient rig development and the as complex count have players We shifting shallow drilling the at fastest gross using much optimal continue promised technologically be equipment. margin. Large that XXXX ICD pad drop obsolete efficient in the growth a pads, economically rigs profitability as drilling optimal and price

add realize operators obsolete. sub and the on well continue positioned that these the day of high in pad optimal rigs dropping provide. are value fleet high technologically In As rig fully well improving the fleet remains XXXX. based these pad XXXX, our ICD to day that expansion capture process grading committed, optimal rate optimal equipment be economic into margin positioned will With rates to environment, rigs

build XXXX. stand days purchases improvement XX% strategically build to term Until balance next a inventory re-rate. with elect At end, in critical through new first few that maintenance our sheet in out as capital two shape. be quarter we staggered backlog spares. associated capital $XX contracts and the million supporting implemented our second process contract XXXX our complete quarter only great have expenditures rigs, will quarter discrete at of is allows ICD’s ICD to of revenue a capture expiration all the XXXX to and We contracted day third of roll with throughout matrix a stood rate and

begin restart As steadily we down plan as time elect we paying to a debt our until program. result, such rig build to

$XX.X $XX by ABL we XXX debt of base the our in XX, supported easily are million. almost a against operations borrowing net At of Our commitment September million. had million of

the I demand for active invested we XXXX of with to two rigs already have rates to previously, continue drive noted complete pleased am grow tenures, improving mentioned I new financial quite position. day that with to and cost meet strong require Concluding, approximately which construction hopeful inquiries market and current mobilizations ICD’s and the I into our rigs those well fleet. the half and we our will discussions from As conditions ShaleDrillers. benchmarks am I build

have execution. utilization customers and are proper for Our full drilling rigs equipment term reached long effective contracted programs pad their with optimal requiring with

half our Our ABL forward-looking as remains and the strong. recent provides borrowing term market to two visibility conditions XXX have series liquidity ICD provided and contracts rigs the This availability strategically build improve. complete base with additional

for sustained with operators over optimal cost industry Phil. operator client class rigs type growth represented turn of with pad call to ICD’s structures, see And We that, continue to the by I'll list. leading steady the demand in

Philip Choyce

Thank you, net a Byron. third $X ICD the loss of or million quarter, In $X.XX share. reported per

days per the our $XXXX expired in days revenue the million. in or X% third original contracts included day pass-through per Approximately net release, second environment increase quarter $X.X quarter, during in as XX.X including $X.XX the quarter XX% to million, during guidance. XXXX Excluding non-cash revenue in in with current costs our legacy was operating quarter. came to charges loss under well contract day Based guidance in were of compared was re-rated the Harvey total a revenue the increases day revenue modest higher slight the revenue rate of impacts as the that reduction Hurricane our Average adjusted third quarter. summarized million X.X share. on our per press line revenue day. quarter This and sequential days in during rate of

subject the $XXXXX In that addition, an Cost came office claim. day buildings than our experienced corporate is per related higher our of guidance. water insurance in damage of

declined events, Gross including compensation to due increased also company's the level. $X below the vesting operating equity expenses, expenses of as higher incentive awards based professional and and million, the Non-cash at declined of compensation costs margin granted as $X.X well excluding was of per a originally compensation capitalized Cash debt a with performance interest line $XXX,XXX hire expense initiatives non-cash tax prior and and expense but all cost $XX.X SG&A lower our came of guidance sequentially had experienced expenses and repair at expense. completed maintenance SG&A related compensation unscheduled expense, discussed. XX% of construction expense. our the expenses of was day, safety were of Some rig excluding we public result Hurricane to due associated the as items new with in expense, we X% increased net Harvey retention initial XX, leases weather as offering. Depreciation guidance. rig time million result million. At fees sequentially September

of occurring facility. capital disposals, of Cash X.X of was under borrowing million, expenditures second million during $XXX.X the facility $X.X quarter, quarter in to net our under deliveries base of exceeding commitments million, Our the for related outlays the which the $XX were million XXXX. credit

of have maintenance as rigs, spare complete our two Moving only where investments, our will significant well forward, of until next we begin a items we comprised capital to already as capital discrete CapEx our be program capital few inventory. made completion

period cash fourth statement our payable to of that quarter an cash purchases through will CapEx million as for the flow flow For prior expect quarter, accounts are at outlays $X plus relating additional end. we million approximately that accrued $X.X

was rig September years Byron current and million rates four sale is approximately these the currently X% added capital the realized. XX% three multi-well proceeds contract million, term are at mentioned pads and that of activity. Of backlog, held our expected from offset XX.X $X.X sale when rig XX, extensions rigs years for have expenditures contracts as At We or rates. XXXX, These in that signed will recently of completed. drilling XXXX. during of backlog backlog be increased representing that are XXXX day $XX on assets realized rerated XXXX, to in began market XX% we this

is these year the average or of two With to quarter switch XXXX. other contracts remaining of and that our XXXX XXXX all switching day XXXX. during the backdrop, rates approximately to rate day were the $XX,XXX QX, $XX,XXX this lower and remainder at rate for our QX, day two of of backlog expect day per early first with for day We remainder $XX,XXX later approximately contracts per increases new to and half the XXXX end in per as

will Fourth and extensions. quarter, rigs we XXXX per quarter the revenue XXX% some result, beginning sequential per margin lower continue sequential top day As to revenue revenue beginning with with benefits guidance. slightly per day in contract we as and and realize fourth fourth and expect higher. between $XX,XXX improvement more increasing day quarter improvement ranging expect we from rerate QX to XXXX the $XX,XXX and realize our to some generate between day QX at and rate day XXXX begin per of new line In days, in meaningful our our fleet utilization contracts and revenue a

burdened fall pass the expect These to costs move per of as repair normalized and expectations day quarter. compared expenses. exclude levels cost $XX,XXX rig We also day third operating through per per maintenance a fully experienced $XX,XXX to day and and to range and exclude revenues expenses our construction expenses to during back cost

quarter. day up $XXX,XXX approximate expect a turn of over $X,XXX approximate the be that, flat should per non-cash. I’ll sequentially Byron. per Rig to $X.X should third should $X,XXX million. back We during construction expense to fourth between call will expenses be and expected the $XXX,XXX tax Interest And burdened expense which and should $XXX,XXX be approximate be with expense approximately day. Depreciation SG&A fully $X.X with to million, with margin range the quarter. are

Byron Dunn

Phil. always let's the fine with questions. I company. ICD’s regard like operator, in support truly open the do. you, employees for and thank They And that that, closing, Well, for line the my work as guess to express make I'd

Operator

will of first The West question from Evercore James Instructions] [Operator come ISI.

James West

for you've so two those. the that have half are of new you builds about paid half Byron, got --

next rigs. [indiscernible] I you about but with seems see us go know almost we're go the mean, conversation forward remind been it's it those forward the we both in a two? talk with improving finalization about business new rate again, getting or You could those. I like those quarter you you of builds term, before guys plus on Can there

Byron Dunn

I so. think

in in. a get term terms we to quarters. good I need in go. last think to relative the where of day we're to are year If the be past, we've rates And they got the couple X-year ABL, two

get link I conversation those to with of out as and we'd -- of now. fast to that's just So date right the part have think the think don't I We can. up delivery as the we that that's out like

James West

rigs And what’s in field? when when timeline a you contract the from sign to would those be the

Byron Dunn

those. approve From four when I about ASC, the months it’s for

James West

Four months.

with that, of E&P, talked some partnership of a those still possibility -- those but about likeminded conversations we've on you say builds -- then are new could And Great. a Okay. additional previously ongoing? would top there a be talked be more

Byron Dunn

The is are. about Series. type talking XXX we're They different of substantially rig than

talking lowest levels and mass, pound vastly that's handling These are we capabilities, extended are a $XX pad drilling rigs, capabilities. about mega mud million the very with expanded So to associated million of XXXX a million horsepower probably proposition. the Wolfcamp in $XX walking

demand. rig now. So in a available is are There's doing of work, that of that type heavy right are they of There's handful that like nothing rigs suboptimal. out there some but it

this to we're around its make of begin construction financial everybody conversations equipment. would those type the sense and So having terms equipment, unavailability demand involved for surround of that for that

Operator

Hallead RBC. from come The ahead. next question with go Please Kurt will

Kurt Hallead

to and some clarify means exactly? kind relative there that term Byron, a Can just you that then opportunities to maybe to you for referenced get referenced you your ABL. of just what clarification, little are

Byron Dunn

don’t why mitigate in we’re risk. balancing our contract because that, to our you order draw against Phil ABL take market backlog

Philip Choyce

we think them we or at to with were flows covenants to put when and or flows like and base and us see we we've flow want on to our see. to have easy contracts a forward-looking If for any lenders if tweak today to rigs need with they’d So back to what the we'd getting comfortable of cash two. to and of quarter about covenants really with have our of tweak build kind any conversation for they are then incremental cash it's lenders borrowing both associated looking go that’s our have company. cash that. plenty Obviously very something those debt looking we our a just forward got If two-year us want

Kurt Hallead

the deals, Now kind with in of contract? associated the these pricing two context would of be what year two-year

Byron Dunn

low having the XXs. the high conversations range from The we're teens to

in and There's right of bits with it's lot the conversations multiple in given. line adders and price there, there's multiple there's for oil-based points. pieces So a there's also mud, we've guidance but

is market I is doing we're pushing think the there. what there and

Operator

Our be from Rice. ahead. next Please with question will go Johnson Daniel Burke

Daniel Burke

like? electrified Hey guys Byron, could it earlier. you on doing what regard misunderstood with sounded Maybe or grid power, are power using elaborate you I to your

Byron Dunn

harmonics. is doing is rigs power. setting so can high line there we're line power the typically What And high dirty, on up they issue run there's we're is

you don't So when genset. it. to Take it your we back have to And rectify you AC. do run that

it's it's good for good basis and So the not operating running on for cost us we're an operator because the gensets.

Daniel Burke

magnitude Can opportunity you of across talk the about the fleet?

Byron Dunn

Two right now.

we'll see stages, early and us. So two where they but take

Daniel Burke

couple just maybe then And the CapEx a side. on

over And about you projects. little versus a us the sort crossed the CapEx at in with that guys year, maintenance current completion that one a as rate overlay am second in I looking experiencing CapEx about rig where before quarter just terms level can then or you of are on figures. First, practically little the of of you we maybe run CapEx CapEx XXXX or creep bit base getting this think are accrued attempting just potential update if thinking the of a the

Philip Choyce

probably that - We couple our quarter brought million was than third CapEx. a a guidance in pieces the equipment about a for half probably the of on higher year and what we're

from the in Moving the will the do we Maintenance year that CapEx to equipment two pump between with in a a top next cattage, pieces took quarter, million. that and be We've drive, XX would add will fourth that of fleet some $X may a incremental a for next there onto above there's be would third fourth need million. we perspective. quarter got - about pay year need CapEx a be we forward or in million rig deliveries CapEx a buy, we and quarter $X couple

Daniel Burke

contemplating I your is put mouth, before conversions the that words comfortably not to in right… so mean million then, sub-XX the still

Byron Dunn

Yes, yes.

new. Our relatively fleet is

that on we've You cetera. can costs for year top et use facility kind per cetera, of a And $XXX,XXX then CapEx. maintenance rig of got et some per

in are non-build our requirements cash low. environment So quite a

Operator

The ahead. will Please go of question Iberia from MacKenzie next be Robert Capital.

Robert MacKenzie

about into the rig. you month, gotten the you three likelihood month? a in Series two a how I of you’ve here over to for reported feel Do further and prospects up closer signing XXX something terms of the past dig Byron, wanted little conversations the month, think

Byron Dunn

have point because I thought So one at we careful I And to be occurred a done we deal. had didn't. some things then

it we're So is have not we've conversations. ones exist And multiple been because to market push And can. slowing close to but us that slowing required. doesn't as not report, to the anything are down, I extraordinarily I think, we as degree it's be to we anyone this but a that coming is purposely nothing continue going down, the great to hard and equipment

predict would So the at because I’m the done in some if have that breaks, I'd wrong. trying to dam little uncomfortable point I it past been

Robert MacKenzie

us role also talk to and fleet. how you the and on Can current design that both play your rig data on new may about bigger analytics

Byron Dunn

things already two capture think one we that. is there, about to there's and So data do

So and of of of the and specific. very through the systems that it and toward it’s more capture I on cost prevalent. the capture used, the we become an think environment available into that’s data amount have structures more to where integration But used, rigs we're that's data gravitating enormous we historical will client not and that drilling an curves computer clients

that to [indiscernible] type there up of And do drilling, in speeding The go day be wouldn't the conversation providers eliminate they which included terms second it. particularly adder, And active of a the we're are systems in or two lot would that in base of quarter decision reduction have onto wanted a of so associated and risk switch with like to additional answer if day a reduction. rate, cost system the so drillers be systems rig that a that go. an is a with there per way That’s cost make going that client about next us we directional we're we'll and cost because and equipment. in things that

Operator

be Curran Instructions] go from with Thomas Markets. [Operator next question The will Capital Please FBR ahead.

Thomas Curran

new comes when basins would side in having. just preference you’re order new new or both two the those customer you rank also side, one have to your And each agnostic for that. on or of a strategically order conversations you existing you a then are you next builds Bryon, the descending over deploy into. on favoring which two an ideally could for us On build do it customer

Byron Dunn

the We have for customers. and no we're can that in there. the you the in the particular seeing We've is equipment Ford. the we MidCon get additional favoring a customers, Permian. Every I inquiries existing concentrated of hands get on the new in while that operated once we Eagle demand tell for inquiries But up now be builds the and these to would one the extent build, equipment expect I would majority on I right vast that everything that they those basins new expect to that Haynesville. of in. would going I is be show based would this And new Permian be know are -

Thomas Curran

critical technologies more critical or you then add-on, power any there, the any for a been is one of basin, if that of And once kind analytics, for it there new certain you. mass number directional basin we've a is these hit given for make considerations drilling aspect mass by the power, using big of the easier lines rigs across technologies all certain more affordable, will level and where in or a discussing technically an of data of running there

Byron Dunn

so. I don't think

rig a it's on decision. it rig off. And or can by switch we think I

provide some what turned variable a off. want on again that’s it's be the And once up capture we software so drive we rig particular program. something can And they again already to or and and for specifically drilling data frequency additional with use. vendor the the That's associated decide clients, on to that

that any decision. don't So I aspect mass there's to think critical

Thomas Curran

on idea Assuming steadily last you debt give builds taking you of forward and until of us a sequence be move that of don't of what zero? would like the with to down one terms you amount me, your Philip, quarterly debt. basis it the an you'd all either from to then of in pay expect paying Can And new down

Philip Choyce

to about We're it operating think year, zero, Oh our tax going a when not is our cash flows, taking income you next be low, CapEx increasing. flow payer. cash is our free all

drawdown So got later year. you sometime don't I then for year accelerate. in specific has I But what that's have pretty next debt, be next to day now, to if to where above rats zero. a it improving think going getting number we we're don't be XXXX. steady go we've would It

of So I those a specific don’t down year that next assuming but don't we're we rigs. next have a timeline, pay debt to amount substantial two going build

Byron Dunn

XXXX I would think if that didn’t the that’s we build accurate. extinguish debt. rigs, And in we our sometime

Philip Choyce

to down the XXXX. by pay We’d of end zero

Thomas Curran

get, and And the based that's was for scenario pay I what to would there when of you expect even if downs. Thanks it's answers trying on guys. just pace the hypothetical to get

Operator

Holt. [Operator Instructions] Pickering Tudor, Zurcher question from & with will The be Taylor ahead. go Please next

Taylor Zurcher

Just one me. a from housekeeping

contract So months, four quarters. share could rollover looks let's next for contract just six these schedule what say you pro like forma the the of couple over renewals,

Philip Choyce

much booked pretty first the quarter. up We're through

in quarter and then first second think the backlog third year the have in quarter the in rigs next of XX.X X.X I year. quarter, we in X.X next

Taylor Zurcher

on And like margin to breath color it least the XXs the seems curious from average at the wider. or then low rates. the high because just least day on appreciate seems be spot rate getting at I I'm to teens

low of a I to how in more sign more versus a and is, the day XX,XXX [ph] of sort is bit mix a rolls guess as that term this all just at probably three, different so of and but maybe one of issue, customer And XXs. or a the a you question, a off my puts issue, question an that unfair issue quarter is curious rig takes geographic something

Byron Dunn

itself. So the is market reestablished

last over think six, or wasn't so. we really a During were the hoc that There and seven the market. conversations discussed I there ad quarters downturn,

to they'll next are And they'll quarters go are of and structure in and happened half efficient a reestablished to we'll get capabilities pretty last there rig And who has people a on working What's there now year. us. pad who time There that there things to rigs these talking you an But market for current aren't is the type work lot contracted us back with prefer sets a the is are quote up get market. them And some your isn't is and a bid client everybody out process. in that look aware improving is optimal itself. finding And existing a has But favor that this and our necessarily are what them. this that out any. day of of are through we There availability. two for rate rig. use course market typically as go with is what to and is right a go out. there people what what's So of dynamic negotiated people

is pretty I market think the efficient. So

are slowed I a out bit, four it's positive for environment pre-budget budgets to I'd the And equipment; I and XXXX. once time going in And expect people reformed. think day but has period. think I be look little go very a and rate it's think the done for in momentum that

Taylor Zurcher

that in renewals. of or sort rig the unless were typically that of from due go one earlier those elsewhere course? case sort renew would the four we you it assume than was the Are me early renewals be i.e. Last afraid to can, today if they that the customer I might noted

Byron Dunn

us client for renewals So And put relationship. expiration pleased us. a things, package very a of is them in good together. we is a and market with them to partnership done, with we is they couple We one have with lot and work get particular The contract things to worked tight. that very came before so a

not So correct equipment things and you're I produced that came want that going a that in are the testing finding the together but readily they situation, of people use number on to type available. of think market

Operator

turn Byron closing over question-and-answer concludes to would to the session. Dunn back like conference any I for This our remarks.

Byron Dunn

this hear thank being the time want all taking our call to morning. you I to for story the on

Looking in and Thank forward couple to February very XXXX see and again how personally laying and some over weeks about of much. you you of quarter talking with out. the with next fourth visiting we our you - you speaking

Operator

conference The not concluded. is today's for Thank presentation. you attending

now disconnect. may You

Independence Contract Drilling (ICDIQ) 31 Oct 172017 Q3 Earnings call transcript