ICD - Earnings call transcript Q1 2022 | Independence Contract Drilling, Inc.

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Operator

Good day and welcome to the Independence Contract Drilling, Incorporated First Quarter 2022 Financial Results and Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. 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 first quarter 2022 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 it non-GAAP refer adjusted full and adjusted we And measures. to filings and to addition, to the non-GAAP I’ll EBITDA our opening for Anthony our call. to our EBITDA with that, measures and Please remarks. reconciliation for over release loss loss, during of for net the turn our earnings net of public definitions

Anthony Gallegos

through will first of of Hello, quarter go XXXX financial the minutes. in of everyone. the a couple results for details Philip our

and strong discuss may continue how Before ICD upcycle. by the stockholders. which which we awards, I recent couple a I itself that think our of our that, the in which all benefits employees, describe I so pad-optimal very illustrate is to briefly want close of And positioning the to fleet. demand want customers our to ICD our benefit to I very want our of this from sharing and effects undergoing, positive contract transformation is super-spec including participate for stakeholders,

margin sequential our quarter XX% quarter. we business EBITDA our day think the increases of day sequential in of these improvements upcycle. navigate labor even to absorbed associated revenue I XXXX. day idle we XXX% by and with $X,XXX. a more customers, continue approximately have quarters. sequential to and able EBITDA prior day margin days optimistic $XX,XXX per the sequential transferring of driven approximately relocating comments per between in significant rapidly, quite days that the increase of day in few the though per third compared million, $X.X conditions which increase increase our and $XXX improvements, upcoming Most as is leverage rigs improve operating to achieve we meaningful reported on I’m a XX demand What and most illustrates represented primarily quarter trucking the super-spec importantly, rigs. than straight in expected, meaningful for a our the quarter. fourth we current and which per We of first them impressive was per so idle from improvements reported we we just sequential quarter and revenue This reported pad-optimal had is representing were market continue non-operating XX% First, continued Overall, This to rigs about margin sequential adjusted delays about

quarter, day factors quarter, XX% most seen, during and of in re-rate third look we a super-spec about us to sequential which I EBITDA we forecasting margin early contracts are increases expect per we make the When driving in ICD’s believe and quite the into second the are back of pad-optimal dynamic, I of in innings and we have rigs day and continuing excited rigs this the and significant year For we’re throughout forward, XXXX. the again the on in margin market future. half based today there number constructive growth adjusted several will have for that place meaningful XX% per the sequential

Haynesville. are during factors First, particular meaningful and are basins oil this a believe rigs. this from targeting benefit consequence first We We split are geographic at in gas Permian what the of the to two flow and will better two the concentration to basins one-third margin of in oil continue a our greater result our we the prices, rigs market be remain America. the targeting of the positioning commodity roughly North and prices on several natural as constructive allows economies laser-focused and as important scale this That’s to of gas. unfold. position, rig our to and benefit continues continue and our cycle two oil as natural our commodity us gas most of ICD exposure from Through strengthen and we contributes and thirds optimum cash time, to more for remain fleet quarter to believe natural this on free

pad-optimal Second, fleet I’ve such our ever the seen. as rigs super-spec as as is ShaleDriller for market tight

a from growth. be to investor different demand is growth over and returns will discipline the may are though no part, rigs If even incremental to driven flood reactivation Capital virtually have available not are limited compared not costs by type our our super-spec our an operator part E&P customers, it For the we’re seeing will on there. out a cycles, requirements, an our rig, that reactivate hot industry in today. spending Unlike past likely of come super-spec rigs pad-optimal customers on prior cycles, vastly significant. there of today focusing most of competitors balance [ph] support markets, and to of sheets stack very wants capital

rigs For industry the day But pad-optimal the increase. coupled rig payback land target and are to more land requires. not is investments. before. necessary reactivating rates our rigs, the we super-spec additional higher needs particular, in by these rapid of Today, and be that pace leading-edge U.S. the the in And increases necessary spot the day continue in rate contracts rates not and provide rigs demand, driving to investments above are even to day U.S. margins on expect reactivate we for will unless $XX,XXX discipline drillers in tenor leading-edge seen super-spec drillers further returns contract count, terms rates, capital and contract market This U.S. capital at drilling the for market higher. market drilling most are make incremental and day to costs a part, adequate day rates contractual longer rigs, believe but will pad-optimal at order the basins

year In terms means I the contracts, do by contract million, demand our loan year. marketing annual $X.X decision driving focus have our to additional mid-July, reactivation Reactivation later expect command has will short-term and on supply with to follow term types $X.X during payback market for highest periods than refinancing of current we our to one budgeting and single in in three to a really between the with day this of should sequential past which less and rigs beyond. our early rigs recommenced should is two term million been strong. our to and strategy, pad-to-pad And we these us, now rates and improvements dividends with rig of margin XXth a All rig these investments. fleet year. the of market rigs, these meaningful of What which XXXX the of at with Right strategic on we shortest rigs mid-October our customers’ are three fourth series program rigs and scheduled range least XXX quarter repriced now, of remainder ICD’s not will that rerate normal achieve XXXX. have these of pay enter our entire rigs behind extending be to simple costs all remains this for the day over are rates very season,

term anticipating, up I we with are second navigate the expansion our for rate and to coverage with portfolio opportunities the evaluating expect, sets begin contract XXXX ICD. margin nicely adding day as half forward, to of very this our All Moving begin will we beyond. we customers

reactivations market and ratios. in expecting are also our but with we substantially normalize only flow overall front we fund debt use reduce debt-to-EBITDA and not over the cash future see With we very can returns attractive our position decrease time free to and meaningful paybacks, generation net us, that of rig

drilling but the not our continue industry market chain The while there our ICD recover as effects. our drilling ensure for address. must of all these to the and This are exist market reliable and to the from our Philip but U.S. that of the as and investments is available. our economies course, job well. most and continues spares supply we’ve for to we to challenges spite continue Competition to ever industry, the as industries as seen industry. Also, other a and strive doing fantastic Of people personnel safest in contract demand contract operating are headwinds some particularly position. improve, global details, tight services day teams contract tight, services the entry-level the for it. In business exist as every needed acute with drilling is only its within pandemic provide will are challenges, making through we support the critical more go to are labor

As safety, I’d a performance days versus share the move improving, in rigs metric and it’s out prepared of I rig strong, like depth, of our downtime, is times our day that highlight to Two are that just portion or couple mix. I close awards. that remarks, recent not include this contract highlights of customer to evolving and is reflected want rate my margins remains whether our

and with with. one active very involving operators, public series work to Permian’s We a very rig demanding we opportunity commenced independent most previously not well-respected customer have that had have contract a recently a XXX of largest, the the

can over of and customers in reflects in make proud now, XX. of discuss our in ICD do to be to the for confidence concluding competitors providing and one E&Ps additional their the to largest the the larger and on the our financial and project efficient professionalism of very remarks, but contract international program the quality we’re lower rig this selected further outlook current our Selection the of while drilling additions. also that drill like validation ESG results have a possible. attractive Philip services we customer, well public over an support their will some carbon detail. our little high-profile to additional I’d customer turn bit by equipment, front, here we a safest ICD everything this in to were expectations We right teams I’ll for of And most world is capture more pilot the exceed candidate the series drilling call believe XXX the to

Philip Choyce

Anthony. Thanks,

we quarter. the share reported $X.XX Reactivation were million. negligible. of of loss average million during net during rigs quarter the EBITDA expense and the $X.X cost XX.XX an adjusted During $XX.X or per operated quarter, adjusted We

were to fleet came day per beginning in quarter but again as expect flat relatively in improve increases a utilization based rig $XX,XXX was quarter. in end expected at be reactivated Sequential XX.X% the at Revenue $XX,XXX, to little representing third per instituted sequential pay than of day gets We during XXXX. higher the Cost our second the of increase. upon field a guidance. increases

$X address the as tightening with However, million, related fewer and which cost by cash of the approximately operating deferred for well were rigs sequential in recruiting costs. $X.X pay of per pre-COVID customers, quarter which costs metrics the couple compensation associated elevated of day result was as increases labor million time SG&A to a the market were expense, as of to longer as compensation transition moving further primarily delays. days included well for reinstitution between and SG&A onboarding trucking stock-based impacted adjustments

and inventory XXXX. approximately Breaking of $X second quarter, CapEx this $X.X reactivations, expenditures the and approximately which million million of three related quarter disposals of we million. end, the million to during additional capital and $X.X at During We by This There’s were an relating deliveries. included payments will $XXX,XXX investments to of in CapEx million. expect aggregate approximately net $XX.X rig the $X.X related of through million $X.X maintenance related prior between plan end XXXX reactivate to to at CapEx to million out, quarter cash year capital cost flow accrued spares. rigs $XX.X for

bring to million to We requirements. spares as mitigate forward rig and account are to into for we risks increasing retain capital our reactivations customer investments $XX these meet $XX in million as XXXX well from CapEx to budget XXXX annual supply plan

of Our are backlog all original terms million, contracts expires least XX XXXX. which of at in months six at of term the March at stood $XX.X

of expires fact, all of virtually quarter of the In third the it end XXXX. by

of our take rerate day fourth fleet market backlog and are well of advantage rate Obviously, market. in most short-term positioned our operating historical to an on as by momentum substantially of beginning view below strong of So, our levels entire the the our pad-to-pad improving rigs a now contracts, are capitalizes is which quarter. on we

we sheet, portion GAAP debt the million deferred A derivative a reflected balance small this comprised end, refinancing convertible net at $X.X were as on of drawn net debt and in Finance leases purposes. is balance liability completed costs. to of on million. issuing financing on $XXX.X $XXX.X loan of end million of but quarter March, convertible the approximately classified revolver, of convertible Moving our $X.X our our we our notes. leases. quarter term At million reported was This notes sheet balance debt excluded of finance for

we approximately the our raised During million quarter, ATM $X.X under program.

financial liquidity cash revolving was at available quarter million under $XX.X on Our $X.X $XX our of credit of hand comprised end and million, facility. million

of quarter financing representing the our end, result a improved a capital also increase the million sequential end We at being term loan of million working $X position $XX as XXXX. with approximately from

reactivation program, sufficient meaningful forward remainder Anthony – cash which and cash and fund funding the capital further of our these and intend with we planned we of to the along day and discussed balance expansion of our to forward, investments. flows rig Looking additions XXXX for sheet. the over will QX, working through capital XXXX margins be liquidity cash flows, normalize to outlook current operating anticipate, rates

the Our we executing to unless interest program, come available to more convertible flexibility pick option. our reactivation us. are additional And rig option to sources expect we this at utilize our provides notes capital desirable do while upon

to guidance. the on moving quarter Now, second

We to days, the average representing approximate quarter. during rigs expect operating X,XXX days XX.X working

in sequential per at representing per and the of between margin increase $X,XXX day, XX.X% endpoint come We approximate range. expect an this day to $X,XXX

expenses per per expected increases to revenue expect Cost day $XXX per between with rate to $XXX many only day per of day day rolls, increase come $XX,XXX We partially benefiting $XX,XXX, contract the second in reactivations to on is labor quarter. investments the with be per rig and other tight up day, market. staffing will a day very future guidance. our we costs cost overhead are associated not as sequentially higher for and incur in $XXX,XXX in Unabsorbed included

approximately We quarter expense expect be approximately be million, compensation million. is cash $X.X expense SG&A stock-based to second to $X.X expected

with of amortization to interest We Approximately Under cash June, first annual year. under the with depreciation approximately costs the becoming approval in our lower expense $X.X the rate to expense deferred terms related by $XXX,XXX our of in to the applicable. be a September expected to interest and convertible financing anticipated matters based PIK million rate of following to indenture, we $X.X substantially the XXXX quarter notes notes will effects pay interest quarterly of on convertible due expect to quarter million are be quarter. interest time. remainder the at interest reduce reduces our to guidance meeting interest in compared be and expense XX expect this expense flat the approximately notes related our second That would

cash $XXX,XXX, to will of through second quarter. back for statements our flow the tax For with million I Anthony. the before second of approximately $X.X turn we the expect approximately that, call expect net And we be quarter, over benefit capital expense dispositions a to expenditures during

Anthony Gallegos

Thanks, Philip.

questions, say environment. that Before the in for to the call I with current we’re opening ICDs pleased strategic up want market positioning

have strong strong in Pad-Optimal our for very with We Super-Spec demand a sales win rigs. our

we free continue our of participate EBITDA position can as generate with cash to Our making we flows. awards in upcycle combined good provide operational strong recent this our increased so the investment performance and margins, our to recent that rigs, evidence With will refinancing and cash complete, on contract series that footprint stakeholders XXX consolidated continue our flow. all in very tangible and we’re company investments the our increase confidence and returns

debt ahead and significantly us the ratios and position fleet leverage all and enable of go expect during value to open embedded move forward this ICD’s up the that, operations. reduce for With questions. we sub-cycle improve untap as our net We line the will in and rig let’s

Operator

question Don First Instructions] [Operator Rice. of Johnson from ahead. go comes Please Crist

Don Crist

all you gentlemen. Good today? How are morning

Anthony Gallegos

you are doing Don? We’re How good.

Don Crist

that dance I’m with your talk know have the short you doing hanging tight is super right now, right I’m contracts. on on that they where market all the to term best and how. in delicate rig? are to thinking a now to you contracts that Obviously, next of are up supply contracts? rigs have Can could Can about E&Ps that you the and you all for start assured the term rig when duration want there, mix? about you could sure year shake talk and about adding term some out in

Anthony Gallegos

couple rigs. of we’ve course, a in turn either. to you given us, that position, very vocal term up Sure. over not want to rigs know had for last the lot Don, of our up our customers we’ve least of didn’t outlook And quarters, wanting been we at

think So it’s a little I bit early.

calendar as and through I discussions programs. around move we think in began XXXX year the earnest

to ourselves term. to year. see with first to And I our as least of And of to the it’s going out. that willing of over more as of opportunity the played year, think to I’m there months We customers. going through course, where our day three be show believe that’s the it at being would to And the plenty that’s continue continue. way you’re that’s rate expectation frankly class about more this progression it’s is say talk tight pleased rigs be market for that just

big great to hurry. starting So we’re are with remarks as are starting rates not rates leading-edge But three. the heard in you’ve day now, start a – in the

willing be like of does that, the of in begin things types ICD back of see bit to you’ll more term little as move that what half this discussions. books I we backlog to year, security a terms entertain about put those believe, think you and and the on If into

Don Crist

spares can Is large touch that you have of lead obviously, up potential or pipe have is a CapEx future? a any firm kind you’re what strings dig components where to don’t you that – into today here. adding? up that trying of Can we you’re in the time to long Okay. And going issues other

Anthony Gallegos

Yes.

happy. So it’s engines, chains like out the stretched. person part our But our supply of is low, are you... things that equipment things us to access as keep to across it need drill traction industries given make way there, that, playing or parts we sure Don, also remember, to just have whether you are customers downtime mentioned. that our did keep need motors that running, I we the mean, our provides rigs pipe, Philip we keep for

Philip Choyce

overhauling drill part lot components of new The biggest Yes. more had we a bringing items or of us like forward the it new is bit that. drill as engine thing engines little is something a like and There’s But be as things pipe. not might will of necessarily bite. that spare far that. it’s than inventory and before. But an It biggest equipment

Don Crist

in And is nine time what lead Is that it... that still range? the is it month today? for Or

Anthony Gallegos

That’s but to probably you’re ordering, months. probably – on depends six nine what

Don Crist

the of or competitors, going going high-spec E&P talked expected is so. or things lower on had to some a because the Any spec And to not to nine rigs in just about this well, availability towards and market rigs to get morning you That heard limited looking Okay. rigs on that. this insight was one sorry, rigs older competitor, low six specs the the that on to the of I next forward? Do lower-spec first months morning done. of here your of really kind E&Ps the market hit perpetuating Cactus, see

Anthony Gallegos

some pumps have on to are, of may had No, markets to oil in that’s my opportunities target that two probably into engineer, core be sort about of customers, We think don’t when there’s as can certainly particular that rigs we’re be you guess, that lot programs gas our terms outside our know. see activity that stimulating may we I configuration the that are driving of markets where or require reflection They our focused unconventional, things. equipment, that of we and – and our the mud would I think be – and type because If of demand, – conventional think generators guess, rigs, I exposure maybe engineered to rigs optimal basins a Don, capability, that a AC-driven super-spec and prosecute, they prices of pad in require walk. X/X commentary. U.S.

a have us So customers, but markets it’s compete. not reflection we in we had the our of of as I put where front for another that certainly opportunity think probably

Don Crist

Right.

up I appreciate about Good Okay. catching the quarter. I forward a or in look color. so. month to

Anthony Gallegos

Thank you, Thank Don. you.

Operator

Thank you.

go ahead. from comes John question Please Next Daniels, Simmons [ph].

Unidentified Analyst

guys. Hey

Anthony Gallegos

Good morning. John, how you? are

Unidentified Analyst

Don’s that why I’m But be tight I more surviving. would the assumed to asking a E&P not to be coming your just that thoughts? I is, how market would just want up have the companies I’m given bit. term. little curious might just follow to you case, for question

Anthony Gallegos

it example. has in you to February a year the John. as was you know was, that has the around back Yes. four no geopolitical going, ago lot for the the just what months one where you situation that’s saw played moved three, I the as a people would commentary be market look had. market well mean erupted at strip The out, this do, year impact outlook in from talk was, really when dial fast, as the I and where times XX-month of now And the strip, but

of a function very market moving fast. it’s I think the

short-term it’s on think the I of focus the customers. part

surprise maybe where I and some they are have how moved rates there’s at certainly right now. think fast

think are in been I has interested why party to reasons rigs that point. those neither this terming up up

Philip Choyce

Did you have...

Anthony Gallegos

of capital next function – haven’t year. also customers budgets think for how our I a set They it’s discipline. their their

So of do signing the commitment. willing in that. past, were type a more term they contract to into Maybe that

more for they’re budgetary think I season. their waiting

So opportunities happens. I there’s to think going more when that be

Unidentified Analyst

so where and but you customers forgive thought. on versa. if things get trying this is to your in But question, beat just a business sometimes Okay. soft get a And me sort is of this confrontational vice when advance, tough

more would really case, rig, And that’s seem right? which to high-performing but I So the I’m to business. it the a I’m with be aggressive a which not – mean, own. hear your customer That’s all. I you renewals? contract keep would And just hot have, want take my there’ll why is, this, sure want be assuming to existing understand to I’m to it your have a want hear approach on an thoughts – respect I need, I just I customer thoughts. service

Anthony Gallegos

Yes.

we ICD, not industry a just much has aggressive pricing. I taken referring have, but think I the more assume approach. you’re John, So to

Unidentified Analyst

– I getting Well, why definitely we’ve you on But I’m like be jerk today. don’t rig that’s not hey, industry trying not down, a I you mature a And say great to for right the yes, keep going you you’re again, has October, months sit and this margins now clearly, mean, to seen trying up price up another now to to but that mean, customer, price. it why job. sign want need the done XX are if this just making in not the expanding just nicely,

So that much of firm duration. when backlog now more you have a

don’t to... I thoughts. your need Just

Anthony Gallegos

contract, headroom John, term further rates we’ve rates, a are now, wanted go. day where XX-month up until Because think right? not and No. Yes. to We there’s going

leading-edge to don’t think kind that. I head we barrier to rate there that’s And a think, we’re a lot and market, taken XXXX. $XX,XXX breaching day for around day spot basis. went there. think either. now it of like get a when I But There’s time, through It’s stops their a I psychological a little on think people I mark look feel that’s the going

submit wanted up not we’ve term until now. I just would contracts So that

Unidentified Analyst

change performance. to and the indulging in Thank enough. me it’s for remarkable see you Fair

congrats. So,

Anthony Gallegos

No problem your John. for Thanks question.

Unidentified Analyst

You bet.

Operator

Gallegos question-and-answer back call session. This I’d you. now closing Thank remarks. Anthony to our turn like for Mr. over to concludes the

Anthony Gallegos

everybody everyone productive today’s day. from I Okay. say and you Well, to very thank thank want to in to safe certainly wish with off sign And participating you. we’ll we’d much. call. Thank you Guys, for that, a like Houston.

Philip Choyce

you. Thank

Operator

Conference today’s for has attending now presentation. concluded. Thank you

may disconnect. now You

Independence Contract Drilling (ICDIQ) 7 May 222022 Q1 Earnings call transcript