ICD - Earnings call transcript Q2 2019 | Independence Contract Drilling, Inc.

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Operator

Good day, and welcome to the Independence Contract Drilling Second Quarter 2019 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. Please go ahead.

Philip Choyce

Good morning, everyone, and thank you for joining us today to discuss ICD's Second Quarter 2019 Results. Anthony President is Officer. Chief today me Gallegos, 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 in 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 non-GAAP refer adjusted full and adjusted we measures. filings and to addition, to the non-GAAP EBITDA our our call. to our EBITDA measures and Please reconciliation for release loss loss, during of for net the our earnings net of public definitions

that, for it with I'll Anthony remarks. to over opening turn And

Anthony Gallegos

you, on second details, here you, and call. Philip the follow for at our today call have some and us I structure ICD. while strategic the thank provide providing We'll initiatives of underway joining our with for we for quarter thoughts this results, the typical overall market financial Philip, Thank everyone, some

particular large challenged in inefficiencies rig ICD's customer As limited and recontract XX. the we to customer played count things first elected quarter quarter and by budget in our second response transitory reductions. conference his Well, count visibility, our rig during contracted one from disproportionately how More specifically, rigs as day quarter to we that's operations out. half exactly was in discussed cut impacted that work cost be released choppy we per expect downtime to call, on that by to

back recontracting rigs. rig renewing unexpectedly which of more in quarter, other the Probably in more delay probability cancel saw we we successful our the customers had than quarter half opportunities, several contracted fleet well. we as Later were and customers expected. we the impacted during drilling you addition, originally or than high utilization some know, further pare back In their

fact, and conditions new higher or relatively during contracts quarter, day the signed In our guidance. our than market actually in we with per up the held considering dayrates revenue XX original extension well coming

cost our quarter average cost to well costs over in cost with due be you in operating per specifics our but our we originally As into to Philip days per as call, higher idle first we absorb remarks, his we go recontract to drove day transitioning aware fewer third we discussed through sequentially should reduction higher costs than the quarter rigs to trickle forecasted. inefficiencies days as prepared the we Also, to idle in customers, be between expect these greater as that extra and will do associated the operating rigs. day crews. the expected continue

in increase Visibility have resolute into remains them their plans drilling remained they of Many spending efforts completion forward to not budgeted. from what and cloudy. customers' originally

In toward case. From XXXX the the hear therefore, that believe front-end we've half budgets E&P what were and seen year, addition, is the year. the I we this first of loaded biased

which deteriorate count we could ICD, in but least, rig U.S. trough, For second count be a we the contracted good bottomed utilization. many, do ones rig months year, rig saw is when the our during June on believe overall the in that expect news not Like And our rig of this would ICD slightly the inflection May land declines end count quarter. we operating to contracted industry, of the our and downward call of we and the our at count to out further. for rig the remainder further there were although in missed at

discussions we it improve the through based to the remainder upon seeing actually fact, current In now, year it of customers. continue we're expect and increase will with

geographic constant fleet our During between Haynesville the Permian and the remained relatively this plays. first of year, distribution half

I'm pleased there third expect a in and the re-entered rig However, to Ford we with successfully during second operating the we there now, quarter. during Eagle quarter, reposition the that more down

are have operating rigs fleet the all planned operating status remaining rigs our from AC until not the SCRs AC to removed operating XXX today been as and reactivated complete. be conversions are Series of pad-optimal All their will

relating let second but rigs rigs, fleet activation now year. additional upgrade of projects to walk and through include that pad-optimal and additional have the stacked and XXX quarter, into two disclosed rigs of to you been active I'll of the progression, and idle end which pleased undergoing These have discussions our budgeted conversion Series count we're Philip between status. the of the re-contracted marketed end the rig rigs details since in I'm previously we reintroduction discussions our of the and the

we increase nearing to regarding we're setback CapEx completion contracts capabilities are of to highest hook load active and with to customers industry. be potential very We upgrades have this dayrates in XXX, made its which discussions among the our and in the rig that justify modest ICD investment, technical the in at

that available as but more justification fleet to that can make able can to we we we're quarter the in our time, call, provided and similar racking rigs is to modest CapEx. would first upgrades are discussed opportunities we hook executed None very in the want planned easily point organic out, which contracts just on be I with and out this And like load have these I upon secure. economic several the at point

quarter year. four the we Series of of addition, end SCR commenced completion is XXX first conversions, In to AC pad-optimal which the of for scheduled this the have third at

to execution Just has this four employing ready, not and October, be equipment coalescing year-end, that affect technology upon AC respect budgeted ICD that with I in we for incremental incremental the the been our these regard, strategy NOVOS my remaining the In so a are significant. for conversions not suitable lead-time costs spend CapEx year we've last towards which rigs continue converted to drilling would is to meaning good a contract before very long will optimization until make reminder we rigs the conversions been progress has These want goal. to secured. ordered things that NOVOS note

other to quarter simply I would and now third like for some good XXX emphasize opportunities our that scale. wanted have market CapEx us includes we available operating to Either greater to part. very rig, or without weren't that significant many pre-merger, the ICD able which which series requirements fourth quarter did a available rig pursue opportunities for high-grade can rig ICD's reactivations to customer customer not customer on the are due late we post-merger a pre-merger now specification

between investments. In market and the pay type generally idle customers X-year we're against contract three we would Day rigs successful dayrates. our pumps been and and words, other shorter market and revenue Current require gens the than during even offerings which rigs them second quarter. per we pumps though in bifurcated improving, rigs two from rigs tenders for Xth where have third are extension lower are in the Moving competitors. and to like, is those and and getting have contract dayrates rate are the several contracts additions pump, company a to signed gens with for with negotiating we when open and like, and on competing day Xth between

we With benefits the merger quarter, significant third As achieved. of fully are we seeing promised, synergies post-merger are full initiatives which merger our rolled and was now as we costs in implementing have and the integration into ICD's complete behind we those now us, as engaged strategy.

free not opportunities in commodity previously to even actively upon previously we the we prices available to flow in grading the earnings cash and opportunities customer currently high act the are the of Sidewinder range-bound today. investment As combination, and assets organic we us which grow embedded are upon generating poised will fiscal discipline acquired to cash and mentioned, see ICD pre-merger, world I strategic flow in allow like executing

we this weaker current now flow begin vein, integration conditions. to In we cash like our our pleased taking generating program today, makes asset of from stock of Directors value base of market possible repurchase opportunities, the details market will but light makes today executing this we world, generation which of his flow significant in a that cash free that free us. regarding In customer combination, Even program it prepared all see of Board strategic flow. valuations in Philip realizing free forward, $XX the million. few up remarks, stock I'm capability, a sense discuss into this moving a the in in evaluate strategic of cash account including sense post-merger authorized has to lot expect to of and are uses an given base, program where repurchase within awful market that

interest shareholder we a on about prepared that hope remarks. my returns I'd you're ICD like comp on to manifested We I do. we're close aligned particular how executive with everything previously in talked focus with focused emphasis ROIC. seeing out that

operations to committed high returns delivering generating while achieving shareholder are levels customer satisfaction. We of efficient safe, industry-leading and

toward Our be investment market is we right future. very decisions making a footing, as believe fleet, improve a on objectives, conditions financial the company our and capable will in we're the the young operates which achieving strong and I navigate accelerating rig pathway when

to turn back With call over I'll Philip. the that,

Philip Choyce

you, Thank Anthony.

the recalibrating share During associated quarter $X.XX the of half first million adjusted tax we and million the our $X.XX included of The accrual reported $X.X or net quarter, a $XX.X per $X.X an loss in million. of share overall charge adjusted EBITDA per year. with or tax

we're a to As full expect XXXX taxpayer today, we tax year federal approximate expense a $XXX,XXX. not reminder, and our

net additional this share. was loss Excluding tax expense, $X.XX per adjusted

of when With and per Rig items was pricing other effect of rigs. with was guidance our the published transition Cost costs contract expectations to quarter in to roles. crew first on days improved to updated improvements conference reduction arriving EBITDA. and contract asset compared income operating quarter to Merger respect $XX,XXX, below relating adjusted compared quarter, to came early in Sequential guidance costs the higher guidance excluded related the per day revenue. increase XX.X% the in impairment below our decrease the of to termination during net are and relate day terminations. we on and unfavorable for $XX,XXX the call early to related utilization pricing relating disposal slightly provided at mid-quarter excluding revenue operating

due primarily noncash guidance guidance. with consistent well in to levels interest accruals below of $XXX,XXX, sequential prior $X cash reduced expense as of expense and came reduced incentive expense as in merger Depreciation including compensation realization with activity our came driven synergies. million, SG&A compensation SG&A being by of in improvements

for months tax tax, first margin of the the As overall and we reported year first $XXX,XXX. the charge year the comprised additional during rate did net expense quarter is of an mentioned, with to associated year Louisiana to year we tax our tax annual we and the the to half be only the during six the Tax loss Net will for of expense record effective net estimated Texas the unadjusted the year. the of expense expect approximately for tax tax for application $XXX,XXX.

previously, our capital the tax Cash cash lease a discussed received on NOL in basis $X.X payments taxpayer expect not As net quarter. expenditures position million term. additions federal purposes I've assets, given be in of full and the we for during capital do tax disposals, near insurance we the and to acquired the Sidewinder were for step-up recoveries

recoveries XXXX unchanged. overall million, $XX of budget net and Our leases disposals, of remains capital

had balance the quarter. remaining availability of a March repaid XX, total under we hand on excluding of during of At June from reported revolver loan Moving capitalized At our we June leases we and outstanding liquidity accordion comprised to term our credit decrease on and of million. debt XX, all balances $XX revolving under net as cash our XX, line million, $XXX.X sheet.

six realizable XX% or under Our with backlog than original backlog are of contracts million, of terms less backlog representing years in work. rigs of XXXX. excluded $XX.X of this from operating XX.XX was four terms is months six months. And more rig with original this contracts of

discussed. with rigs rigs, Now we rigs our SCR quarter that Anthony operating to moving rig early few including the as from July reductions XX a on removed fleet, have We count in with guidance. exited two for operating continue

and However, AC quarter towards visibility, pretty forward rigs, the the third average fourth now by third third exit expect in we quarter fourth characterized been expect XX additional the quarter. in with to recontracting XX additional limited a market to operating successful and we XX but rigs rigs the with have line in operating. of Right reactivations even to good working XX end the quarter quarter exiting rigs about during and the toward a sight of

that approximately effect fleet move third rigs days; per quarter, days is transitioning year. that to and rigs SCR marketed to to during per we three And see $XX,XXX we marketed to cost quarter. mentioned, X,XXX $XX,XXX from fleet remaining As of following don't and AC the the associated expect lower are quarter: two are $XX,XXX there reflecting We our after removed as reactivate during during until revenue rigs day the this we our expect X,XXX our backdrop, sequentially second in approximate will termination to with to conversions complete, to expect quarter early be third $XX,XXX, day the crews expected still compensation; range inefficiencies but excluding the with than the between operating

second expense count million, fourth flat issues Tax expect quarter relating more thereafter. third quarter compensation. be and $XXX,XXX including costs quarter. in should the are approximate to transitory approximately expense the normalized $XXX,XXX. the do rig diminishing, to Given noncash of Depreciation be for we with our interest the to operating should stock-based should $X.X expense SG&A levels return

XXB-XX, merger bookended revolver to as program de cadence Anthony repurchase in to discussed as of expenses set our And contained maintain availability contained loan merger-related June so stock charge up repurchase the restrictions this the Rule the of authorized forth upon fixed integration they finally, our program. program and covenants has when agreements and million. certain Anthony will expect of volume require we company as based was the or always coverage be our certain $XX Directors conducting go minimis. ratios in The Board as press completed a to mentioned, release, And and in forward XX, be was

I turn to the that, over back with Anthony. And will call

Anthony Gallegos

I Phil. line Operator, and comments up have go Thanks, time. this let's the no open at questions. further ahead for

Operator

from [Operator Lynagh first The Instructions] question Connor is Morgan of Stanley.

Connor Lynagh

points land here count. data through So we've you rig signing your and it contracts are strikes me earnings different season pricing some on guys rig gotten growing that and

moving on contracts qualify us. this months Is you at to is pricing ago? So relative signing, rigs How those I'm if the you wondering for affecting contracts pricing could were six higher-spec Or say, it not really months, is the three point? down?

Anthony Gallegos

No.

Anthony. Connor, I think it's --

tried you're competing pump third offerings do you customer. the a how a relative you're earn to also the negotiating much Does where are lay pump situation it's situation pump is I have more with people, have, for can marketing. the I for gens a it obviously open, what rig, simultaneously a a from some the with what X, offered fourth rollover in with of competitive other words, rig's third it's As your the to you're Can I or function -- In the a able idle, that market. we equipped. if really out it other run But against prepared remarks, other situation. -- other In equipment but it's say think in that that's or we situations to premium the example, the where not?

end between to third where that contracts that you're bookend the on would pump lower the and not between way a an spread on it a get pump the has is may have something we customer about may think probably marketing third day existing I a rigs $X,XXX it there's it. caught

up that the and beyond. operational it's performance given to on think at especially as company. more rate you'll I uncertainty the third reputation quarter. we've been on through we've And day look and contracts the the financials of offering quarter, our equipment look, price. signed the well, we the in quarter roll and average in since the the held I marketplace think the compete had the see not the of throughout second the It's end So necessarily that Certainly, reasonably

Connor Lynagh

helpful. That's

cost, in you as sight and rig above got you customer is for market -- you've is the if but this, you are and long the the contract it in there sight or low just upgrades, the have in missed that a I Or those? it's for. and they well have already I components upgrades lead-time already might regards demand? to Do planned -- apologize Just have and when

Anthony Gallegos

No. which little first, a XXX one out impressive just We've The going interest it those to pretty rig that's rigs. come is color legacy a of in in been Houston, rig. And Sidewinder generate here to here. was to both provide able

developments. capabilities, handful that rig investment August. diameter that come casing rig. in pumps it's it, a have in there. we're design niche intermediate engage the out -- And rig up requires it to pick-off point At them. come and right your here of at increase early had to rig big been is by negotiated pounds. required by options. three plays. those also high-density there and had the where out. other September pipe Just I order we've pursuing are All load is It It's there. with customers with out really That those sure contractually opportunities we've we've at and prequalified doesn't I incumbent going be the will its make the would a is opportunity fourth-gen. designed to us that than a on setting justify to opportunities situations, that maybe million running pad the X line upon we've strengths, its those lot of would in primarily And a out to to made day those in to expect capability, think rate capacity customer of that got should This MSAs latest. that feet in incremental casing that And development pad its that mentioned every I you going of is there capacity setback XX,XXX you're hook the we've a driven And for the X-inch drill increase done around in not prior out in lower a but the call, and

conversions the rigs of we that SCR had. other upgrades we that have underway the The AC are

And the there those that of today. your Amphion with way and We new cabin did the having you includes you on fleet about on X,XXX what's that driller's to same long and drawworks, iPhone. new VFD system important platform in is and new place the house, top. four It order you control would think October system. control then items last lead-time your a a year iOS NOVOS in it in have the Amphion bring by We the and allows horsepower the

the investment, capabilities. say, Connor, ago, that's not was would is that for in industry going a What that technology is we the six, made a there I those us willing pay to have and increased that. we've think customer what there until Now investment to a nominal the make But that last that's curiosity capabilities months we're to nine investment do value lot said is. I about of proposition and that

conviction with happened intense what's I in in is terms I recognition the there the think today. have with early year, prices good there capital, under marketplace our that's have think And the lot of that technology, focus out strong that this the being think more the are of a value there for customers a jumped is created. with used stewards very their adopters, guys I commodity

in a yes, we we're So are going And land I pleased classes with we're on two be good upgrades. able customers those both to in for think the of a way with what rigs. of those contract very discussions to of

Operator

The is of Ryan next from Riley [ph] question FBR. B.

Unidentified Analyst

for in How if follow-up CapEx is completion those two of remaining scheduled complete those? two any, upgrades much, quarter. on third rig the to the to Just

Philip Choyce

will probably here, probably the million. the through of quarter. A will payments be $X flow quarter, already will $X third but for of flow both third about for actual equipment million lot is It budgeted all It's the through. them

Unidentified Analyst

turning rigs... Got to you. And SCR three the

Philip Choyce

thinking X, that million. it's it's -- for there had -- that's SCR because, was and we Ryan, about as the items in ordered is lead-time actually than sorry, less there well. those grades, I that included long probably the $X other I'm for I

Unidentified Analyst

those now to Okay. timeline decommissioned, when And a be completed? conversions with the rough are you three provide SCR that for you expect rigs can

Anthony Gallegos

Yes.

speak. the at we underway we believe, is rig of and out That as fourth the will one First quarter. beginning be running,

third the of come the one is out second The conversion by and start-up in end it would of that our the the year. here quarter, expectation will stage that

On now XXXX out We're we for fourth the a third button get right as more I'm what going is there one, the well. optimistic. hold like. looks on until and visibility on that bit then to Look, one a little there press

with read to than value I is to going NOVOS for go the by will being disciplined, for that's demand ability I really coming control what there believe summarize, that four a like discussions It's being to better to all on market's think the based year. spend there next in -- the first customers early on nothing the be system, the driven encouraged demand capability just calendar. We're to upgraded a get managing rigs their marketplace back and resolute full-on this total. look -- want I creates. first our with those in customers. the the But quarter. more nothing year. very But the the That's in little very

year. The back of first done this one in part second be and the will one the

and going before third more little fourth to a on the next to here certainty The just where right market to one, be year going is the hold proceed. we bit we're get

Unidentified Analyst

Mind if in. I helpful. that's sneak another could one Great,

high-grading drilling before on service M&A your rigs provide some unrelated, company opportunities what You of that for you ICD it in in as you quarter? divest discussion you're one we terms weren't in the its earlier commentary could can additional color but the on remarks, the seeing touched some And provide second then possible on saw prepared just merger?

Anthony Gallegos

Yes.

time drill drama and pick These with by through the continued think are cycles. about rigs majors, the example. you for and spent a the is, if road talking one I October, benefits what the time downturn. the the to we And They year, going the it's to and to the I last mean that become merger during on of required effort things out the there. that's underappreciated went over up and have -- guys that high-grade of the through super about year typically we are of On opportunities, prequalified think that's lot Philip in that last a the

ago. to. whipsaw be over have very You're And on not them I drilling companies. They to contractors the not the And that today by to XX-rig work only that contracts going and or talk that's That company to some in that comfortable than other to have opportunity offer And they a point of that discussion some have a when commodity. a the able be company XX-rig happening able X you that They're necessarily. was be other with with which what's reactions trying to based the you're to customers those with it's that's of a owned rig, a from when a they different equipment referring period, minimize M&A you better know we or to think, period. to a On with. the XX-month They five think is want much ultimately, two commonality number and ICD want number discussion them Ryan? can arrive a I up four They I of for to year the to they we're at were XX-month example, contractors to or a use offer rigs position -- or contractors. have. side, have maybe the you're over make, want company a rolled more in

some on I it's to the think I not and are that a the legacy to needed might I've lot some in so situation to but drivers not a be owner dozen in some of where cash, about sure. a missed needed They that reputation. are I But speak, he on the boat, them who heard I'm it don't today. think buyer able where style for have rig of the rigs, know There it rumors, all there like are type information particular is have older working, do I where is that. to were rigs a going who was technology with things position contractor was. good fleet. say

So know to where go. that I they're can't I exactly trying say

be to can realize successfully, that Sidewinder the do that last integration there that the we've successful speaking, over proven six nine needs vehicle believe in Certainly, do synergy opportunities ICD look, that and full can are there. is we operation, in we with to consolidation any generally that. the believe more impact can We be that But benefits to integrate without a of to months, of negative the the to that we having we great business. ICD further able that

So a in open we further I don't to a We'd to on and to where hopefully, like gun were and consolidation. -- have these We on and evolve remain But place, a be to we opportunistic to our can here just be company, years. participate love wait also further opportunities able consolidation. we transact as head. at feel the them over coming quarters

Unidentified Analyst

in that is certainly QX how We just cheap divestiture the think reinforces certainly your stock price right now.

Operator

Johnson The next Rice. Burke question of from Daniel is

Daniel Burke

talk little of terms you count you short the end just Anthony, the terms through a about rig your underpinning will this have, bit more -- contract up of the in Can elaborate that you of all in are coverage. visibility fairly year? trend conviction

Anthony Gallegos

at Daniel, knew when our XX the everybody we we months contract rollovers XXXX, to was and of had the in other aware, looked were funny Yes. about It's day. we ago, scheduled think Six, XXXX. we seven occur backlog in over I first talking that half

Of months at on seeing as that it or we time. thought upside, based were about what the course, seven was, ago, and we six

count. in changed that. WTI. was was of course, of not contracts many year, the discipline, in on in none what based how November new And customers we saw half the because in reducing wouldn't so what with of necessarily, and rig on the where negotiating going rigs year think based but had really over And the reaction rig maintaining I a were happen, for contracted with a their lot strict we the Of scheduled up it was to things put his quarter, discipline ICD out. second we the hiccup created significantly maintaining It that us play in we were I to customer to reduced many certainly we particular, knew really was particular, the the when roll and situation budgets say had of situation. that communicated one especially flat-footed and second had over. performance, quarter We of physical but -- back they part counts, simply in rollover the first like year base customer toward as had our last so challenges contracts in But this rolling us

quarter, speak. we contracts feel like quarter, signed the fact with the pathway we have better in certainly necessarily of not I we're regained of the of to the the in a chasing sight since third that that believe Obviously, And in end do footing we've having of negotiating we're that I our dayrates. as line couple even have more beyond. terms we a down and do market toward utilization, even clear by

how certainly optimistic XXXX. playing out, count we're why that's So into about over of the rig see we rolling and rest this ICD's year contracted

Philip Choyce

just that I'll are described. out incremental some rigs these just about here point upgraded Daniel, And rigs the we're of that Anthony talking

are market for opportunities the those significant. think I

So getting we're confident those about to rigs very work.

Daniel Burke

to optimization know you're ahead? also if being that was you head figuring means broader open strategy. I see or a Got pointed drill you're of in you other thought it the Anthony, sort I one about, in of, NOVOS? what talked seeing you're heard it. Is to you one. the direction you'll to that -- I going out to don't Maybe about talk path terms or that bring referring

Anthony Gallegos

We've the It's working quietly that, broader Daniel. this of a course on this year. been little over Yes. than

balance and there to before, is to build look, and and I necessarily need think think out what I is a try lot know we obvious I believe said about people out of it's that have we of. than do, sheet, I've our can that good don't a there off by this own. there that go is, a more don't efforts probably on we leverage

this So the to play ICD as are fleet, about you going think we space. in

They've Schlumberger. to it way fleet customers. the done the to another now. going rigs used the a be lot use are OMRON kind they to area. to that operate think of owned XX work this that's of Certainly, what in PRECISE value ourselves -- today to by We called is And is that we term for System. the bring our about position have

it's obviously, for our in know upon that there, and create technology we're that very going, So are ultimately, to us customers. use to things sure make we incumbent where value plugged that

very will I a out Not at ICD year this that than course, easily. the over down figure of there. that's will it's the it that we've all NOVOS, X we about where with solution point that to Amphion not NOVOS type try months I'm be have And more trigger of very the really optimistic certainly the to bear rigs least ready, talk operating couple have at a able more. on is even on drilling which last fleet not end today, and we'll by had technology just We'll the deployed believe PRECISE. here on conversions we pull other coming, but will rig. to the where the will one. our And it system, can even optimization to of be But be AC those have Of NOVOS be enabled, of half

value the would pocket guess our and good in in put it So of I are industry process. we summarize out is, going money the customers be bit leverage to in and a hopefully, able way little the I today off bring more to the to efforts ICDs

Operator

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

Anthony Gallegos

on the to Okay, for efficient on their call. today employees I'd dedication you guys. operations quarter customers from when thank look you our look about talk I'd to to and and we has reliable to our safe, to certainly again for end road to forward We like also and for here. you, the and talking dialing you safe thank all our third everyone results. all. just and in work like we'll out day, forward happy. keeping it to and in seeing say listening Thank hard you everybody Hope a

Operator

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

You may disconnect. now

Independence Contract Drilling (ICDIQ) 5 Aug 192019 Q2 Earnings call transcript