ICD - Earnings call transcript Q2 2018 | Independence Contract Drilling, Inc.

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Operator

Good day, and welcome to the Independence Contract Drilling Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. I would now like to turn the conference over to Phil Choyce, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Philip Choyce

Good morning, everyone, and thank you for joining us today to discuss ICD's second quarter 2018 results. a our is Executive and today Officer. me Byron President Dunn, Chief With

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

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

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

Byron Dunn

and initiatives Philip. from guidance, realization of full and record of the year-end, field call exceeding color for I you third timing take discussed XX%. review our rates day sequential improvement of ICD quarter the full ICD's everyone, provide Well, we details pad-optimal second efficiency margin day on This on call, and of drove In we'll and Sidewinder. ShaleDriller will on quarter, financials, and and quarter acquisition thank day our provide revenue the second then utilization first us morning, participants. current morning, continued second provide thank questions per generated and fleet. quarter our expect cost Philip Improving level you, the through today. environment, the we quarter anticipated will you quarter, update Good of joining utilization on rates

per $XX,XXX persist. day our improved to day. cost will day, to These burdened per to improved level day at has rig per cost level field structure the rig per cost operating and changes our cash has fully Our $XX,XXX

year-on-year rate continued quarter at the our we Current the During a $XX,XXX increase provided robust rates in day recovery for with to first pad-optimal pad-optimal as average call, new to a fixtures day basis, fleet-wide day in continued $XX,XXX average and range. line with guidance for as our are the rates quarter, rigs on positive on incrementals. well per rigs day sequential term

Some Market rigs and supply. are pad-optimal improving conditions additional this. exceeding color experienced market rigs on crews pad-optimal demand our with for with target solid in for

began we new at contracts week, have the this we Just rate term downturn highest signed in a received since day XXXX. the

an day longer million, term average we low pro of pro a million cylinders. all March and XX, lock term and hitting At capital rate reported we June We to the going as we improve to in forma in special requires currently backlog $XXX of XX, Today, are approximately further or reason where $XX,XXX day negotiating rate contract backlog with expect forma ICD, the up reported rates shorter U.S. tenure of are longer of end the we of rate we XXXX, rates tenure is to At continue on average day contracts land through today's into per per and balance fundamentals. only rigs at one see XXXX, pad-optimal year, confident $XX,XXX of $XX with fleet drilling higher XXXX a no ICD Operationally, day. for of range combination payback XXXX, investment situations, day return. in in arrangements a and when in day. term exceeding day

the The costs in And we Our line in been although the week, ahead cost rig's below, rig Street construction have final of estimates worst, or commenced schedule. operations budgetary XXth total provided drilling come last cost with not booked, ShaleDriller should earlier. at

we U.S. away only pad basin, that both existing and in continue our cost growing pads Many With much players Permian mentioned demand drilling pretty our customers. optimize can bend and incremental me be the say These can fleet land their and by And customers rigs the are profiles criticized in optimal for more of their deliver. were downturn, clients, with down, executed for flows the are demand take regard take infrastructure they design their in during complex to as significant our are to spend in executed this seeing to manufacturing these away our we what to now issues, drilling rigs top-tier conference wellbore eliminate economically years ShaleDriller have equipment, larger new and clients, largest see rigs. the grow partnered call, for of I pad-optimal curve continues where by ever programs production shales, let programs. demand exceeds for but among pad cash successively Many recent pad-optimal large of from pad-drilling every investments. on Permian in target accelerate As companies pad optimal and most on many operations cases returns through capital these efficiently the the and by expansion invested market have bottlenecks.

on customers Our any and pipeline day To on CapEx. the rigs have varying structure cycle, by term active stages in their new portfolio, don't we take bridges with of acreage development position. our extent, of where away in period of issues. take rig issues not bottlenecks the Therefore, case, capacity higher And is contract count rates. a off direct period, do depending see having the large, we are and still contract smaller at required, recontracting any away conjectured their the see incremental during drilling rolling effect they cap

for take So it that us. forward not be issue and an issue for away I indication will ICD, been an see has Permian no

continue hours, was by from across XXX pad, X.X of lease the versus this the high mast feet legacy during cost saved XX filed to our walked by lay a customer. have by a production to to anticipate our lower the from we move of when this from pad Tuesday. flow, pad early rigs good and deliver With all completable fourth and lateral point, ICD quarter, manifested well, value proxy extraordinary ICD acquisition pad-optimal to As in add rates, not that pad, deliver in would to day financial we second will on utilization the at our regard ability customers. wellbores, didn't accelerate times, customers. XXX% we hours. And customer to results period during and exceptional preliminary display A we XX to close to example on industry-leading ICD's Because rig, and down, and but to profile Sidewinder, cash been at rigs well spread also still quarter eliminated of this acquisition complex incurred costs, fixed our our a exceptional the year. extremely traditional move our long pads which quality and ShaleDriller on crews

to ICD's a leadership manufacturing pad-optimal secular by are driven across and improving, contract field pad Day move large fleet is meeting The up, utilization, programs. while team the shortage is of reducing customers. our demands of tenors a our increasing costs full wrapping So wellbore rates continues. rates the board,

a and average the backlog, Sidewinder customer pad-optimal turn with capital acquisition liquidity, now weighted in rates growth this a construct and to its We And continue and operational staggered And along to contract cost and tenures, mode. provided of all Philip. of fleet are base. lower back at complementary back day call capital by we're I'll higher scale, strategically over market the

Philip Choyce

second operating $XX,XXX to Thank In ICD million. Overall, end guidance, of days $X.X you, the came the million, $X.XX other revenue recently reported revenue related from quarter announced guidance. loss of net second directly quarter, reported the low sequentially. X,XXX or day the combination. with in pass-through in rig of at SG&A over included ICD on margin of our of XX% quarter, of and professional gross realization day Byron. revenue on fees of level. $X.X day adjusted increased the in per Sidewinder $XX,XXX the per the Based revenue million expenses benefited an $X,XXX $XX.X record and per costs $XXX,XXX end of of efficiency came initiatives Average full per of higher line our share. including Cost

Excluding and minimis. quarter. flat of the these our excluding expense of in capitalized line tax with million, costs, noncash with SG&A net compensation we end, leases expense, came and $XX.X At $XXX,XXX first quarter was de were expense $X.X guidance, including expenses interest debt, Depreciation prior million. expense, sequentially had

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

quarter This quarter our does base operation which ShaleDriller include to end. subsequent rig, borrowing end commenced XXth not

for slightly capital third be to with connection additions. additional pro during rig for Of is was realized just approximately increased the as we At and XX, this XXXX, mud pumps activity. has backlog, XXXX the our purchased June we years of XXXX. XXXX $XXX contract to $X.X Our budget XX.X in pump forma XX% expected signed, backlog representing during contract remainder million, million,

contracts current the As day rerate expect environment, day lower to rates rate revenue continue see to to improvement. per day we

between will the transitioning day rigs extensions. Revenue full rates and as contract Third between small should benefits expect customers. we quarter continue range our for X,XXX should achieve we $XX,XXX under effective and from $XX,XXX per of utilization during improving between days with per number day, again days X,XXX idle guidance; a realize days quarter. rigs to range day Revenue

cost $XX,XXX day We day. expect per burdened to range operating between per $XX,XXX fully and

per should in day Sidewinder the million; Yard the during approximate the SG&A, approximate in again Depreciation back XX% $X.X Sidewinder should margin de and would exclude third excluding be $X,XXX,XXX; expectations third to pass-through and transaction million the expect again quarter around call expenses expense Byron. Galayda approximate over $X.X we Galayda and $XX,XXX. revenues be to to should result, be these to expenses and approximate the I $XXX,XXX minimis million to should approximately expenses increase XX% interest and expense a will And As that, in expenses, Yard quarter. to turn I'll And expect we per expenses, expense of transaction which with quarter expect and tax range. $XXX,XXX. noncash, sequentially day $X

Byron Dunn

point, please. no line this you open so at the Q&A, further have comments, I would Operator, Philip. Thanks, for

Operator

Morgan first Connor of Lynagh question Instructions] [Operator And today's from Stanley. comes

Connor Lynagh

So rolling $XX lead million, your competitors have reasonable believe them. upgrades, $XX on which times million rig you've out got I

design before So proposition? of of rig competitive how with long new that type is consider it a build ShaleDriller-type customers

Byron Dunn

we of We first convert. upgrade, So upgrades, all, that's in -- space lot you there. don't when there's of about a talk

replaced remember, XXX we If Series, with you back sub-substructure. the entire the

take So to equipment what we is, and capability. Series we full it convert over do XXX

would that's what we expect to Going do. forward,

fleet. I options some Sidewinder the we've there got think, in

So conversions, rather upgrades questionable have applicability.

what to need specifically, know You you're about. talking

when looking a do. conversions talking aren't for who typically a at equipment specific going to typically, we're And that these specific with requirement has bill, customer upgrades we're characteristics. new fit builds, So a to

need we can Connor. we exactly granularity on think, make before what I good doing So additional and comparisons are people contrasts,

Connor Lynagh

point. fair Yes,

again, from, has been been I drillers you theme guess, common your the increases know, the of whether here; question other this managing costs your similar unrelated costs. you And much and of thoughts Sort love day higher fleet? have issues are labor experiencing quarter how on in pass-through, labor rate

Byron Dunn

higher experiencing at training cost related. we're entry Yes, level, the it's

labor haven't date. to to increases cost cost We date, seen broad labor any

But You applying know culture. preferred a We're that new We've we've corporate good may work. can to more people place we -- a -- got change. we're we here have than got handle. a equipment, have we

haven't that issue. we So seen

Philip Choyce

rig in Conner, for any our reduce we crews. downturn, pay the didn't of

adjustments, So as we really we any make haven't to magnitude. of to forward, date move had

provisions that -- they if cost. we did pass-through do to increase. did contracts us If have labor term Our allow

Operator

Our from comes Kurt next question from Hallead RBC.

Kurt Hallead

the process is merger the continuing here, I know with on Sidewinder. close Byron, So

then Just a expectation rate And either fleet between might between on you to long dynamics? what's margin on the just ICD complete market us the fleet entire it Sidewinder and cash be and the give how of process? wondering cash kind ICD what's that if difference day Sidewinder up or and quick to And margin a refresh get your ICD? when can

Byron Dunn

that to question and to spearheading is He Okay, I'm acquisition over you timing the he some turn process, can give update. Phil. going

Philip Choyce

roll to by and ours get same a -- cost. them their from first behave so pretty perspective, and the day From second rates year. similar and quarter market their as of all rigs day rigs next Yes, much rates, to ours, backlog similar to are of will going

little do Ours than go further same, a do. second the will a into little we more year next the they bit quarter

to a you've October we're in I think, expected So transaction, got from timing sometime. perspective, the close

better. where do five that to projects conversions ShaleDriller next with expect happen long XXX get Series we or have can rig that cash those returns to as SCR next as four four with conversion stay got are free one We year type generation. market conditions flow sometime and they great the we would think and You've year capital

Kurt Hallead

week, or to last discussions running at Any XX advanced count rigs think BP sounds that of XX now. I and with with BP indications BHP, the know I acquired increase two the one And potentially to It have right are U.S. rigs. like assets going shale least, BP? you by rig they're or

thoughts any on So that?

Byron Dunn

I BHP entered we've are Sidewinder working that are date. both very rig into those the can discussions, and to tell for regarded. -- rig you but I Independence And conclusions the no highly there

Operator

And next Zurcher of from Tudor, Holt. our question Pickering, comes Taylor

Taylor Zurcher

quickly. I one had a question your sort is AC of going pretty rigs and today. question supply endless there upgrades. just around that Connor's of follow-up can to like spec SCR intensive It have are an to Obviously, capital peers just pretty upgraded rig seems upgrades be lower

rate $XX,XXX going the rate over day, is spot to you upgradable the $XX,XXX higher $XX,XXX belief question so with to and SC is, beyond that drive class of capacity that or continue rigs half I a my mean, is hindering $XX,XXX do momentum it day AC as day potentially spec into super trend for in your idle and range, future the day view to to rates And growth rig XXXX? back day

Byron Dunn

what majority compete -- are equipment. sure Okay, upgrades of Again, all the upgrades and I'm spec, we with don't super that vast means. that not

control If look it general And gives over there's very buckets, fields, very and AC drilling And speed, you drilling top quality of the equipment drive, forth. the on. so pump drive, sidewinder we at pressures on define that's the field take can -- two by. pumps, you you so right wait parameters, mud fine that's high on rotational has the type is key and the One equipment, so bit, what configuration and and produces a wellbores. the

because there into walk -- large is, The what And it find second rig may pad going those line articulated. is the whether bucket it's flow the is you moves, fit or an unless is omni-directionally, can and not what the walk [indiscernible]. X-Y to walk whether big how X-Y, geometries, whether characteristics, have flanged you do, to it's you'll you can't you not have rig

it. about margin, motor when kind something use that you pressure pumps package, the legacy doing the whole at we think, of I you're you're top or old to, putting aren't drive, you're compete about And, clients upgrades, equipment have with we're So talking on, unless high that the the thing. talking to you're with don't talking going

see of that that issues market than on a moving, much think day competition granular we assumption is in a higher much may the troubled, And piece a it. don't has your what from rate the we rate I equipment a equipment implicit So more certainly but that's question. -- equipment. get have day from And, see or than upgraded we perspective, that

Operator

from comes The next question B. Reilly [ph] Ryan of FBR.

Unidentified Analyst

going on of the work rig it you provide to likelihood Could year? please update an XXth this and ShaleDriller

Byron Dunn

two closing be Right certainly that's focused the on new fourth is, of with broader fourth Sidewinder quarter going that Directors be the got we've transaction. if a new focused think, in And I answered for now, reason going the they synergies the the that of the not in the Sure, it's a that's we're close But will economics companies the much a be -- are the following question now acquisition. and goes achieving we integrating question to they're the opportunities after to and again, we're set cost there, I think on that's I builds, Board quarter. of to conversions think -- the discussed. transaction, and close

Unidentified Analyst

more rates want than And now. to in at day lock rates year you a rigs then, right -- don't you or mentioned that you for didn't

are what for Just term than kind rates in day lock rig a you year? for of a looking to wondering, more a

Byron Dunn

at is know answer by in a that aggressively last -- I say even What new for can went day margin the upward. if $X,XXX don't rates they moving And up question. I fixtures. can I the as quarter, are day probably

we long player, as rate got but spectrum a going So -- of the in continuing, to you've end well to term as increases. trend shorter we were tremendous momentum play want this is term day the that in we're

Operator

next [Operator Burke Johnson Rice. comes question from Instructions] Daniel of Today's

Daniel Burke

a Byron, contract be? are a to or what rates, spot a shorter-term to premium you longer seeing premium term term rates your at at would

Byron Dunn

anybody spot to talking not We're about rates.

-- So I spot now. a exactly don't rate, I one-off it know don't right is where

So all to back trying to of conversations, our And years, six mentioned, trending, we're deals. as year two contracts our are in I we're months, the one push years.

can for day class, because equipment those short-term we're available. I market isn't a there's on I'm there least, fielding, is at so rates, not equipment spot -- And there a but the comment no really sure

Daniel Burke

And a term pricing curve, implied durations the forward in terms of by discuss? and across do flat pretty the you

Byron Dunn

This we And in in $XX,XXX period, XXXX. feel. upward this a think we rapidly, I IPO-ed like a market pretty market the No, from market to X-month it's you sloping. remember, has that day; $XX,XXX if into a feels went lot a day we

Daniel Burke

step you're you increase around look hugest you And for or sense from customers class are set increase the fielding discussions no customer rigs, versus change? you opportunities, are larger more when or any now the back right rigs discernible shifting, you now of and or but sample smaller at of admittedly by seeing increase whether don't have then, incremental term

Byron Dunn

to No for, the our beyond at step we that before is everyone existing are discernible change, have for equipment. now, looking least additional customer us working working equipment, is Because right close at I additional provide least but base transaction. we the out of to limited ability we're to for people think, so asking are Sidewinder going

Daniel Burke

note -- in, mud you of the for terms And the or you number guys small of years, about then incremental Philip, may so in one threshold talk pumps that of be for ... investing last return investment, just example terms are in but one

Philip Choyce

looking years We're to typically that. like on one for something two

Operator

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

Byron Dunn

this likelihood, of in hosting as the the all President Chief and conference Well, think, is last ICD. Officer I Executive I'll be call

company. with folk sell time to I it's going on and so a growth ICD and the with participate work been of the And women to who and understand to company what are in the buy doing taken a who built also say ones it's work privilege we're out, the privilege to have the side, want the the and side on men this the truly been who of

will new Chief Anthony going it be Executive by sure a him Gallegos, call, I'm And supported great job. Officer, do to hosted you look the conference very supporting as he's much. me. Thanks to Next forward I

Operator

you sir. Today's you has thank thank And presentation. all we conference today's now attending for concluded. And

You disconnect wonderful may lines, your day. now a and have

Independence Contract Drilling (ICDIQ) 5 Aug 182018 Q2 Earnings call transcript