ICD - Earnings call transcript Q1 2018 | Independence Contract Drilling, Inc.

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Operator

Good afternoon, and welcome to the Independence Contract Drilling Inc.

First Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. to President conference and like Choyce, to now Vice Executive Chief would turn over the Philip I Financial Officer. ahead. go Please

Philip Choyce

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

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

For during these release and it to to measures. our for public complete call. adjusted of loss, the full EBITDA to net the for refer SEC. of we release with adjusted read And opening file filings on that, encourage our we net reconciliation with the over definitions Please loss refer EBITDA Byron turn a and for to and you discussion of remarks. documents Ina non-GAAP earnings earnings measures the and our non-GAAP our Company’s addition, risks, to I'll

Byron Dunn

roles participants. pad-optimal ShaleDriller is to fully first Thank improving our XXXX rerated our afternoon, you, revenue and ICD record contracts trend you ICD's the thank rates. full Sequential generated joining of operations revenue fleet. to quarter, In day today. financials, and This robust first provide our day quarter continued market current the Phil. lows expect first questions I'll year. as rates and on day we expect improvement continue equipment It and in per reviewing on day is additional cyclical call not of throughout like by reported and from XX several a have began to for utilization take rig of $XX,XXX XXXX and us year-to-date. update Phil the from pad-optimal outlook start contracts provide on the for have backlog increased for rate will increased And Since over Good XX quarter we've unreasonable with to details we'll then day older improvement negotiated. re-contracted to we rates percentage a day. some rates XX%. I'd over per the signed million Today this. the $XX.X similar color next over downturn, rerate on point an have average new contract XX% of low day are contracts extensions as months.

we being per extended day four each increase $XX for the XX a However, our year, at day. current that XX%, that $XX,XXX current March months begins in case contract to and months rate day contracts are respected up over at itself before will four rate on backlog one before of contracts contract These average state expiration. an their expiration, rates day with the increase are signature extensions million

quarter rate to quarter, guidance. day three I of Over and in backlog to positioned will expiration quarter, decrease increases. per third operating realize is year. the In XXXX, and put the the throughout quarter. first contract contracts and were the in schedule to statistics cost improvement including the the the the with XXX ICD our with re-contracting the well to do post have effect line second continue of quarter, third during two revenue-per-day fourth cost metrics to expect four average rigs to pad-optimal ShaleDriller extremely the in day continue field-level remainder we’ve build during two and we in fleet enter the place to-be-executed

ICD’s day regarding initiatives and with from decrease will cash put of new to cost context improvement contract and the industry, include in taken utilization, levels, the pleased number have pre-downturn when favorable terms, shrunk renewals has rig that the the ICD’s this and come at growth. rest and in operating recruit staffing am supervision. per train required Unlike actually substantially. requirements in whose grown of driven compared improvement very crew as more crew our the place I of we been especially be have will rig to level contract fleet fleets of cost-sharing evident, field already Further by Some personnel allocations.

met continuing have this We customers. demands while satisfy unique the complex challenge increasingly to our of

to and to X% ICD at In the fact, men period, pad-optimal rig as - and the run in at as women downtime as an operations maintenance teams. during rig industry demand, in customer field year-to-date exceptional the our has a ramped has testament meet unscheduled our level working phase well fast-growing the

the I call, can fleet players pad-optimal trend is greater hours. top-tier A our to diagonal customers. example of In system on a is our continues the in ICD clients, exceptional principles the to demand deliver on than completed macro four As wellbore for environment, for expand slate successfully our single customer ShaleDriller’s complex as we deliver where and first this U.S. rigs manufacturing the in value XXX-foot on moving during pad good shales, design results quarter, land-drilling was more a of and programs. advanced this omnidirectional pad-drilling mentioned previous completely the growing only walk the add a

XXX a much Y feet equipped and X not Y of be the the would longer then capable system in of system this XX skidding taking period move direction, time rig Our an would with customer have requirement. in head feet meeting X, walking to direction, to

implement to moving ICD on as extraordinary X-Y value these wellbore skidding is Additional line this economically near feasible are further pad our complex which and customers, not move to delivered customer operating operations, financial delivered rigs systems. extremely to ShaleDriller legacy on on manufacturing results our the to moving to full high power expecting plan on designs they well simultaneous other allows execute It walking pad-optimal is the our future. by customer system operations. our as to for pads in complex rigs upgraded they’re

economic contract are rates improving. of The full is wrapping the utilization. shortage has Day rigs a pad-optimal manifestation So tenures up, and of fleet begun. ICD’s

build equipment in are higher to who on contract our programing growth long-term backlog to the at mode mid-third with customers early with strategically have driller we a requiring continue quarter. complex and schedule rates, staggered XXth enter fleet manufacturing shale wellbore day We to pad-optimal

team that, demands leadership our field reducing the turn while the call increasing I'll With cost customers. across over of Phil. the board is meeting Our back to

Philip Choyce

for decrease revenue million you, million. of ICD pass-through well of the quarter, loss including revenue as an incentive the of came a impacted $X.X reported day of as X% sequential Thank and operating leasing prior higher the quarter. prior revenue line SG&A Depreciation during In payroll guidance. guidance. legal to typical expense. the million. first Average $XXX,XXX revenue in capitalized first represented non-cash in per increase our a had the expenses quarter Byron. a expense our with guidance share. expense tax fees. the of state day line quarter and of our compensation interest compared Based million minimis, shorter end quarter, compared Cash included record Cost $X.X $X.XX $XX,XXX de excluding $XX,XXX per prior Tax our net with in the quarter, of was on ICD end the quarter on days million, adjusted with XXXX, and million, taxes. guidance small SG&A result expenses of prior as deferred compensation taxes. and per benefit came fourth debt the including were accounting expense net sequentially of increased in quarter gross At to of by leases small we the expense year-end $X.X reported professional came was from or $XX.X seasonal of in line line Overall margin X,XXX with and came $X.X higher with associated the of day $XX.X

on facility million was under the exceeding our the base borrowing facility. credit Our million, $XXX commitments of $XX

deliveries drill Our million for awarded first capital the $XX we’ll has were outlays third Cash related steel spring a of backlog backlog XXXX. that capital $XX.X $X.X pump Byron at million which in XXXX stage, will million signature mentioned aggregate which fourth included $X.X quarter, at We to adding disposals, first recent and net are extensions day for At expenditures contract and dollars the quarter backlog. four quarter quarter-end deliveries. in Accounts additional tariff of was to of significantly slightly increase occurring to relating to the announcements million. pipe March ahead our XXXX, rate during million. the in be payable approximately rig. XX, $X.X of a average increased budget an

guidance. quarter Second

in of X,XXX between days our utilization, small $XX,XXX ideal during days X,XXX should between achieve full will improvements rate of per day improving and extensions. that day but continue to days to contract expect Byron realize the the contract per customers. transitioning number day range pending for not day, quarter. from for rigs Revenues we Revenue between range expect We third We rigs $XX,XXX again effective to until the quarter as mentioned kick rates extensions do under four benefits XXXX.

fully day. expect between cost per exclude expenses. $XX,XXX per-day day operating We per $XX,XXX These range and revenues to pass-through burdened and expectations

Byron. the $X.X at over all the will fully should quarter, non-cash. what that, for will be be is expense our $X.X tax quarter. million, approximate rig around during with into expense of expenses Depreciation on million beginning construction And $X approximate absorb which quarter. expect will expenses the third million, turn should in come during $XX,XXX about expense SG&A interest back $XX,XXX second delivery and We new schedule should to I the the call

Byron Dunn

Thanks, Phil. I have no other comments.

line is please? operator for open So, would you questions, the

Operator

from our And [Taylor Zurcher go question Please DCH]. comes Instructions] ahead. [Operator first with

Unidentified Analyst

guys. morning, good Hey,

you about be number past rig the field would get new there in just talked question just know that First it out us? CapEx out it to Could is like be sixteenth early the and sounds how I build. required you to much fifteen the mid-QX. remind in would

In if getting it two there? price get not term you Is for that sheet of you're it And balance a you preventing could you're a for that today decision a be finally, sixteenth, looking from the just it timing decision, before would decision? and that made quarter similarly terms what's making a or quite mix really out you then today? of or

Byron Dunn

to ready build at construction next to differences is out cost go and – be what million rig, going as It the in From would build addition ShaleDriller $XX it’s to in thinks will still hold And we're June. were return, what until what next going have we industry be some under what rig of a, the industry XXX, is if rate period we’ll of traditional off. pointed make word. we sure the dollars that. to we're unclear out in a really put three And needs, build of to the we needs XXX racking still another to a that and of call is pumps, a clearer, going additional there cycle we it mud There The wrong for The end match those standpoint, doing we're satisfy some four we're time. that out, what needs million. were there trying we to would the to -- newbuilds. becomes day what rate, engines, series, be want long If of capacity. which couple is ambiguity you is will it to

variables. So the made are we haven’t a those and decision yet,

Unidentified Analyst

Got it. Makes sense.

If is question cost. on the come down I going I heard think Second is number you slightly. QX correctly, to cost just

tight. through You pass to the of some QX. Permian about is should provided in cost Is consequently a and you dairy forward, and think how in the market in guidance guidance back realizing level realize you we any we payroll the half labor the are QX? that think, inflation the to rigs impact as about cost over there the I there of that And lot moving that year? in transitory, that cost in But embedded wage think

Byron Dunn

off. cost pass-through from two the weeks Permian And our Day separate that our a come in customers. vast was the wage no increase, cost. mind majority cost our the from is employees rate of of to rig any the and inter-contract level. don't There We – work there terms of Bear to inflation on in two our at that's area. inter-period, weeks employees is most extent

margins our not So impacted. would be

Unidentified Analyst

Understood. That's me. it from

Operator

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

Daniel Burke

Yeah. Good guys. morning,

Byron Dunn

Hey, Daniel.

Daniel Burke

field-level Hey. means what One arrangements rate there, I cost but to figure of that to more you favorable piece that stay day contract guess. escalations quantify? more to Byron material, customers. just decreases Can you to I with on is would more due cost Maybe imagine are alluded [Indiscernible]. potential

Byron Dunn

we that during contract like negotiations, that. may of is escalation you contract various you, embedded I'll over cycle and be about rate vastly the talk things The roles, I Yeah. is the -- get it a material. day one during in Phil take that When and to this day but and the turn done more happens when is quantify something contract it rate for

in decreased. of part we've what So cost that doing our been system is out those of so things successful the taking structure is

thing when rates, day include Another sometimes is, to report they people pass-throughs. remember

And – where $X,XXX include see that may so that high rates. in you'll see you’ll pass-throughs rate will be day a day a a XXs day

So we the avoid to report when we that Street. that

Our number is number. a peer

cost a currently time thing at with to supervisory day out structure improve of structure, taking and can how about supervisory fact we doing a same and there of is our a other field allocate the we're dollars we hard average I The looking hundred our in team. we’re continue is And think way do what costs. couple work at

you can if if Phil, So, see what you quantify? to

Philip Choyce

Daniel, addition rentals, sixth man we that compensated that older that. I'd we’re getting only the on rig contracts -- not that, some is the guess where do have I we add contracts have in of where on the for top weren't to we will Yeah, our thing

Our arrangements, overall contract fleet I of across cost-sharing hundred renewals consider normalized a several to our our to probably now it's dollars for compensate we back day are across more those get what when probably things. going a fleet. And

Daniel Burke

helpful. great. Okay, That's

you And versus I you. or day are of for over on then contracts XX% day be I rates. a a up couple to will thought me, to one comments say you Another had up just where -- heard excuse reconcile wanted prior. year-to-date. I rates XX% rates recontracted four referred your couple you

you can if those the maybe to? wondering two What was XX% comments. reconcile referring Just

Byron Dunn

as anything that want you don't without as Okay, think I disclose on help I I'll much conference can disclosing we to call. our

to year rate now into related low new the contracts XX% this signing at. right marginal the we the we're So versus came

of same improvement in downturn. was that's to. calculation, XX% point improvement. day The the The rate the to associated the just signed contracts the starting is were them a point where those number specific rolling and the related year-to-date from they where So XX% with but low and initially they're

Daniel Burke

And few contracted share but you it’s to it. quarter you've if pay just one could us it's maybe that able a past, rate Maybe But for or this the then you for it sort minimum, at to in because four a tough quarters one. Maybe Got pending the of Okay. you out, second Maybe in Phillip. last backlog. been this could is got whether a do now. what give contracts, QX, of available? that

Philip Choyce

going No, those signed we this on you let me you week. to kind based of be give expect week, give -- this guidance contracts that will be later – to four I’m the this

the backlog quarter. adjusted don’t million. the $XX really that backlog four would The – So affect second be contracts

quarter up fourth the rate You’re then first XX,XXX… there XX,XXX. contract going to the the third year starts of next have and about an also It’s day XX,XXX; over quarter, same in quarter average and and XX,XXX going in it to

Byron Dunn

up that gave be you that’ll status so we’ll some depends period and higher on rigs got should because five we’ve what Okay. or rules The four in materially the is backlog. that quo that during coming pull numbers re-contract that number than got also up. That we've – Phil

Daniel Burke

Right. you Byron. of this quarter? million last that days QX? what right, are Got said $XX Thanks, two Maybe get piece that. you the in is, rolls, Could the later uncommitted backlog simple for rig

Byron Dunn

uncommitted. Yes,

some one rig probably do rigs math to have a I – it's me probably and about Let here. It’s worth.

Daniel Burke

enough. Okay. That’s pretty close

what Okay. Thanks, That’s have Great. now. for guys. I

Philip Choyce

Thanks, Daniel.

Operator

question Curran B. FBR. Tom go Riley And comes our next with Please from ahead.

Tom Curran

guys. morning, Good

Daniel Burke

Tom. Hey,

Tom Curran

range the aspects specs to of of model expand or will the determine comes to what clarify the customers customers, What to? you specs able it with would that is to could decisive that wellbore you're with. going rig want they're specific with the that potential capabilities what you nature Byron, that discussing be rig the trying exactly to the which go do be of applied the is XXth when upon aspects with that for you’re what those technical and to it

Byron Dunn

Okay.

guess, that rig. back two, areas the the is I are capability discussion. there’s major – I’ve in of So said One

to and B wells, the longer inches additional it to talking X.X extremely in crosses And need. and like and you're deeper you to to back that when is inch, do extent laterals, into your are long. laterals ability pumps Wolfcamp and targeting mud you be you're about And pipe. many people It that issue return. you the laterals maintain flow then over – want there the keep to is, question X got to long that how able So the the doing is, want we're – turbulent you've rack

to in the have mud to think So to right bid got you to got it energy system, the if the you hydraulic phase. the horsepower down you've get bit, about

You're which additional motor, mud going hydraulic to horsepower. be requires turning

You all characteristics the home. get cuttings to got a to that the the to stuck. keep have up lists those two the Than way annual flow that you maintenance return drops, is throughout question. pump, the surface, And to you cool. And then don’t turbulent of all pump bit after three requires, pressure

Okay, when varies they size and you is do that, that really what the need too. question

time “Okay, occurred system.” So bolt you throughout You There just that on move thing, got changes several is so the so, not why the This it. upgrades [Indiscernible] engineering one change, so can’t other are every is items it's you some and difficult. and

fit we're isn't you that and So on. people for cases easy. make purpose. walk and some so talk with up really about what's this And going wind upgrading rigs rig It isn't

where newbuilds in. this come is So this -- why is

relates to need, do diameter kind pipe? between they the which capacity power so the do then the requirement. of of discussions are pipe vary operator, need? What's set-back What's And these how what requirement much they pump

issues. the So mix that's of

Tom Curran

you or ongoing per other in but do well they to wellbore looking ROP what the as enhancements. that find you you related And innovation of Thank evaluate some the days with discussion and helpful. starting they're envelope you next to expand what there. performance be customers of for illustrating part Wellbore performance on to are forward well, asking then wave placement only about not metrics? this Are for customers total and velocity. of Very Do such starting as or can them metrics going

Byron Dunn

Well.

reservoir [Indiscernible] then that aren't in permeability to relates steps. degree the interconnected cores which take engineering a straight. that let's to but is So different issue

I take and to engineers What a something something we this a drilling per my prepared So that's that talked safety ENT low supposed with customer. industry unscheduled that maintenance, mud deliver heavily not chemistry, the anything bid Rig downtime. And I design. do can in statistics that to is the mud at. deliver, view the our of depends customer base and why And will look is what that is penetrated about haul selection, have reservoir can assembly bottom remarks.

we quickest So that them possible really is what the a talked for provide of is between rate safe with then the highest about the -- [Indiscernible] possible up wellbores, and piece can stays then them. penetration of uptime and equipment days, move which from move why I is which to the operates same

where for more conversation. agreement think alluding part a take sheet on and you're is have what or those that, issues you be but to of I that balance would We that's. So program don't partnership a XXX-well those attributes, XX- of

way to make probably be industry on engineering we decisions. so that's not that something and those would do able because to moving team you that petroleum think I petroleum is

Tom Curran

answers. appreciate Got it. I Dunn. it, helpful Very

Operator

your go Your Kurt line is Kurt, live. ahead. Hallead next RBC. Please question with is from

may with your proceed questions. Please? You

Kurt Hallead

Hey. be given if that What advantage, this plan of its labor tight we're there? oil potential what whatsoever? you you mean, do, out and if can so, are Byron, do to major is and better right what now you any I on. can – but positive the get way how manage And facing – XXXX. factor how is, ICD markets quite that saying, asking are limiting we'd it so as a notably think like maybe market for and a are done, not the curious we’ve facing getting to that are right? is challenges we’d And facing going into I like you “Well, you in sure is challenges pushback companies or rigs.” planning react you kind of And already look, we was

Byron Dunn

is no. Short sale. we've answer that is answer Longer are Yeah. for competitors got

have that We have financial competitors issues.

no entry-level which it's Where about in past have relative with shortage some and so issues is the needs. of mechanics, this the our in of there pure talked and the lack we're knowledge And in hydraulics, we typically been folks. incoming entry-level the to difficult, of we've people having had past, I’ve electronics,

some issues. train companies But that of abating the because So dynamics sale industry is of a financial of that even for it's longer and been companies period. have now

an issue I see horizon, Kurt. on anywhere as So the don't that

Kurt Hallead

question That’s might with And I you might great. morning, know. Great. of bargain Okay. been you lot I this didn't answered, me That’s a let a that good but things color. as have apologies. the ask probably

the contract look when might So the requirement three kind of conversation been your prospects that you one that years and years for for a the for newbuild. when assets two you and has at know there like now of rebooking, become in re-contracting then that rig upgrading I for lot of and is and look new industry rig then

evolving new contract? the the can as and how give contract for insight some expansion us So terms you to are

Byron Dunn

right way Well, a a are to market substantial And we’re I'm XX. lot just looked rates when XX we looks IPO-ed because day – the year dynamic were the I similar. the where not is market. in they This quite how three improving the see We'll think market now. today, it’s like back down company rate pushing on day but and that's are successfully very we of saying the --

contracts extend them to months year. did happy some that a three had we're with year for terms. on six one to So still very I work

one the contract of year rate really I began for year a important mentioned, we've sort day those client as we arguably, our target have but before past went this ours, terminations. of with. So very – increases partnered was there’s been And

take one and through look bit that. in improve and continue rates day to give we’d substantially So term next general, expect of this on and year for to year. year there's a little But

Kurt Hallead

awesome. Okay. Thanks. Great. That's

Operator

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

Byron Dunn

really. We speaking Nothing next with I investors on to for thank look forward you along some conference our analysts call. all folks you to we've with the want know your the We the on I thank call. got community. support.

Operator

The you now conference has concluded. attending for Thank today's presentation.

may disconnect. now You

Independence Contract Drilling (ICDIQ) 26 Apr 182018 Q1 Earnings call transcript