Independence Contract Drilling (ICDIQ) 1 May 242024 Q1 Earnings call transcript

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

First Quarter 2024 Financial Results and 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 CFO. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss ICD's first quarter 2024 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 Anthony measures. With refer adjusted full and adjusted we I'll that, opening filings and to addition, to the non-GAAP over EBITDA, non-GAAP remarks. a call. to our EBITDA turn it measures and Please reconciliation for for release loss loss, during of for net the to definitions earnings net our public of

you, you thank XXXX to Hello, for first everyone. conference joining call. Thank I quarter want our earnings for say Philip. us

we During my the I'll the talk first about prepared and remarks, made quarter. during progress positioning

outlook few for super-spec just rest first, offer and on market. But rig the year a perspective this on looking first some quarter. current back the Our comments, of the

the we and our to in hard the and cost ICD's in from by to the Our efficiencies the and prior the to during driven work our better driven and customer. Cost reputation rig and Permian rig new went of quarter where a count were slightly overall by declining utilization working a given work quarter. staff control quarter. Haynesville cost strong brand better the possible of implemented relocation than rig financial guidance, the our outperformance for the market initiatives and utilization the flat our were for rig results a early helped was environment straight reduction support marketplace by

it to customer XXX conversion. X is in completed series and XXX is series our only also our a such one actual Today, additional conversion timing year later fifth the preference. operating by this which rigs dictated rig, quarter, conversion with is scheduled early for of XXX We being

challenged talk to rigs how like our and summary, to Permian pretty up X and remains well I'd what super-spec hold started In target to West working Haynesville, medium for and in market our and rigs January, term. the one to X Haynesville We markets. the about market XXXX in of short seeing in rigs the in we we're relocated continues responding with Now we're market those Texas. the

cannibalized we In had the add. process we of ICD earmarked rig rig, that previously an opportunity an incremental relocating for

run rigs we today, the result, maintain reputation X nat are in want that to presence future. We and a and in we expect the an Haynesville, to decade in earned and in market like appropriate working And Haynesville. the the a to Haynesville As to X for the activity. rigs portion we've fleet gas of brand last want maintain and appreciate exposing the over we foreseeable our

optimistic at half rebound expect longer-term that the are don't the we second earliest. but basin, We the until our see in of about to XXXX activity

ICD for steady West months. basin sense. makes year that where other rigs has is successful adding rig the exposure over over been as spite This term base increasing in XX of in customer vehicle in in the the it our the hand, our been market growth we've and On count overall a contract Texas last across decline last

Our outperformance. or program series XXX market to reputation well this catalyst conversion as XXX service our and for as for professionalism

market, indications to moved today, is the about second the expect here companies former rig last half our XXX-ish to first all very the Permian primarily of are overall not year During Texas capital the average this XXX and from count chances low will a quarter. The during but in due the this of work quarter to second idle flattish bias one for in flattish rig first the in quarter, of we be prices. go our that Haynesville rig the is in the half upwards amongst count I for operators series signed, rig range flattish E&P my West most good during rig I second with E&P the active for Permian expectation yet to in contract customer. Standing discipline WTI the a and the with public And late feel and consolidation XXXX.

average the with of actively X are rigs of flattish churn but over working throughout our the opportunities XX generally year-to-date competitive. where moved the operate market to XX spec increase the I in will upon we those add competitor rig private the Thus, E&Ps, quarter. Overall, continue, where the winning net we would rigs on quarter following and we've not so transactions. are part current and rig fleets Lower Permian the a churn, we in XX an the very lower by tick far, of sideways overall Permian share. We very from to light of back Permian primarily in us do that half towards driven opportunities driven ICD presence. a Permian displaced been rigs Haynesville up based rigs strong underperforming the ICD average net incremental XX. rigs. These also year come our we rebalancing activity expected E&P than fair movement within We of during the closings in expect expect Permian this by ICD of marketing operator Basin, rig have of rigs consolidation see will the rig do the that incremental experiencing. Dayrates count in to rig to churn high-grade count count because year, quarter private bias the in expectations the Right in half to is in for more for in announced the But elevated rig next successful the rig XX expect all now, of has expect during believe second back be overall alleviate opportunities and

margins revenues range dayrate ago. super-spec but for Permian expect the this revenues rigs for series the are for our lower Dayrate trend in rig, year high and dayrate our stable quarters. the next remained they the around XXs. couple XXX rigs We to $XX,XXX a healthy than XXX of continue were and have obviously Dayrate remaining series

dayrate X Our the in are than Haynesville revenues levels. for our rigs these lower

priority So second count the of levels average I'd my by maintaining in wind as that rig quarter to our like current remarks, down operating I of reported is utilization strategic our end the here reiterate growing today and year. prepared

believe short first most have of most contracts rig of in most, wood nature, are stretch relocations to customers but the appropriately of we quarter. through the our additional if term as fleet our in early rig We have a this lot Haynesville X Permian of our have positioned all, through that chop to not year. I lines

of plays expect and drag we this see rest customer market continue lower of priorities this year. I as presence to allocation the our and will put capital solidify gas we year the the expect a nat out. Permian effects consolidation, As on Haynesville prices will Basin opportunities to continue to

opening we've our impact call call likely concluding us the fold make outlook weight now, overall to up flat drive detail. additional year, class we're the our believe existing able some count rig offerings to of that the allow rig to financial benefits results want the HS&E turn ICD above and As little But punch to new and that. I'll into continue imperative utilization. Permian before more through it remarks with bring to and our to incremental of continue rigs, I combined questions. shown we than relationships. In expand right summer customer for operational is a Philip discuss But our ICD financial the over series performance that in and this a customers the XXX more do I to to face

Anthony. Thanks,

$X.X variable were discount we by per Tax to our the million stock per of and million associated with quarter, price. Interest line -- reported or during million. strong included $X.XX loss and due per quarter line amortization implemented expense Cash of in $X during was quarter changes onetime by came for $XX.X revenues cost XX.X cost very issuance when expense at conference costs with deferred net operated control. accounting included adjusted exceeding SG&A to quarter, approximately presenting guidance. Margin the the during our quarter which compensation the $XXX,XXX in than termination in Early and an prior stock-based $XXX,XXX. driven minimis. SG&A the deferred $X.X tied average approximately the $XX,XXX call adjusted expenses. day, of lower aggregated This compensation quarter during adjusted was was with during we charges in of excluded EBITDA rigs benefit and million. the share day We During $X.X million initiatives income. de the were noncash which $X.X $XXX,XXX in and included debt guidance Stock-based cost expense quarter of million with guidance, the quarter. associated net guidance during

disposals, cash in of $X related $X.X million of During the CapEx at approximately end. net $X.X accounts of for million quarter were there items, payable payments capital period included approximately expenditures, prior accrued million quarter, and payments to and was

under incentive on convertible nets. end, in a slight interest increase million working to valorem Moving associated of on credit increased capital end, the working $X.X normal $X.X seasonal prior by to our quarter And kind We our facility were with notes and ad annual million at sheet. quarter $XX.X quarter capital compared at $X.X due million at investments. Overall, of paid we with balance during investments million repaid year-end revolving net convertible also taxes end. payments. compensation quarter Borrowings accrued the associated

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

now, rigs' for on XX ICD actively rigs for of markets. to of guidance by Haynesville affected is play basin Right elevated a the between XXXX. and perspective. the a handful to from and utilization moving in But have we churn quarter Permian relocations these second XX Now marketing

also on for the quarter operating half we outlined we expect during during rig a operating as count of challenged rigs to market. Anthony average with the very expectation well quarter, as X,XXX already flat first average our a near-term headwinds. Overall, the flat some relatively days, relatively expectation rig X Haynesville back the the as for basis additional of have improvement headwinds reported the of second the utilization address second Our for in the quarter. year approximate an days some our

come sequential dayrates day contracts now a per to expired. in margin as renewals $XX,XXX between day per and lower legacy expect $X,XXX decline all have to contract relating with We on

small compared to quarter. increases in some And per first the cost day

our the components. out to compared at are mentioned, Haynesville Anthony operating land the Breaking X lower market. U.S. dayrates As rigs broader

$XX,XXX and per day range per expenses and We expect per $XX,XXX million. to day. Unabsorbed to between overhead revenue $XX,XXX $X per about day $XX,XXX and range be cost day will between

have operating result of day savings more cost operating and into completed. costs is occur these the the associated expenses in operations, in our these once during of $X the quarter cost will Texas our third increase yard excluded our second Houston which West We million from per guidance. annual thereafter and consolidation XXXX, The or with

$XX.X debt expected for second noncash amortization noncash quarter deferred million stock-based approximately to expect costs were approximately million changes to to compensation with be amount, $X.X is expense stock million be be and SG&A the our quarter assuming second financing flat and $X.X cash We to expense related that variable of first $X million this expense awards. Interest the quarter. to discounts. Depreciation to would approximately impact expense no approximately price of material be

We second to quarter quarter tax as the be in for first line benefit with the expect the well.

we discuss of this the and year I to want to next back navigate the sheet year. I over Anthony, as Before balance priorities and remainder into move capital did call turn

We payments our interest have pick for our made due as likely the on election payment next September this and interest year well. to notes convertible will pick XX under subsequent

anticipation will that mandatory will convertible offset continue lenders increases to which note to at our offers is Our in balance. somewhat repurchase par, overall notes accept the

Most considerations. interest our our is continue decision market for rate is are than to the other rate by pick there flat conditions to interests relatively for one points. lower obviously driver important, expectations several notes but under XXX our basis cash PIK key Our

managing our a from for cash-on-cash debt. best net perspective maturity, So we this through believe overall decision is

maturity balance Another is pay manage September overall revolver while to in to liquidity our to XXXX. important of its budgeting down prior consideration

refinancing or strategic And extended. extend replace of Our to our our are process that our formal that, we particular will facility at expectation call maturity be process can over to or for outcome challenging in announced, or turn until is or we'll with more is notes other regard, Anthony. has transactions form transaction the that a committee Board one opportunities. as convertible outcome. And and notes be of of this refinanced independent initiated that such time Directors revolver a or previously purpose. Obviously, begin strategic to any alternatives respect convertible the evaluating result In any assurance evaluation directors back or timing there the this or no I'll the to with any review

Philip. Thanks,

all year-to-date maximize opportunities to are rolling our to that the efforts up, pleased with here So company the us available this I'm to in XXXX. position

continue and our contracts ICD to We XXX in eventually leveraging important down the margin series make initiatives offerings paying which we market presence, our operational and per continue process, overall Permian the HS&E win with is we performance land day. and better strategic the to to to include exposure our important incremental along market impact progress most our Lower which Basin debt, the grow increasing XX. In X the on rig most have,

we Q&A. with line questions. please that, your the Operator, So take up will open for

[Operator question from & Alex Instructions] Hantman with The comes Sidoti Co. first

This is Alex Ferazani. on end. few A for questions on Steve my

competitors First, getting a some any about talk stabilization the guidance in And much for pricing? And know of Can function you're being sort the that margin on you're super-spec of weaker too there. that premium I the stuff? supply, kind is feeling. just you if of decreasing of rigs. market, pricing dayrates. that is disciplined a function a of less the Or in

the Alex, I question. appreciate

sideways, way especially pretty that end, Things renewals. that the been a think revenues rigs. dayrate Where have in on decrease kind series XXX around moved this played spec has have higher I of rates the you've the seen us expected. year the average we out contract much really for

ago. is off ago. rig that a was in think contract had rate it's we it than example, you're a while lower that's and a the repricing, Obviously, today I a rolled seeing. And For year place put that X-year what was quite

experiencing things quarter market, In terms That's but few a flat, on there sideways the with were the move what a in okay. rig we're Permian. has of The is less in our of But but just next months, to the churn been than there count a for in historical lot the is light creating That's flat the and been basis, we're able last they're and the current on here. the below out expect market. surface. more And out X or seeing. pleased guidance, they're that's company for overall what of it's revenues. Obviously, do we function that a or ago, especially of still to headwind churn they generate lower what's the in the dayrate quarter year first the

helpful. for the you second on Very the context. SG&A. And Thank question

that? a lower is more much to And which was you bit you're how about little great. it that talk some Is able achieve of So sustainable? could

Yes.

the So -- quarter the SG&A first in in actually the quarter. first fourth in to was a the compared our guidance little elevated

seasonal. of that's Some

costs $XX reorg first a A We're lower that on on a do quarter. lot The million we cash awards variable that maybe tracking annualized along had to on costs, SG&A with onetime price. incurred some stock basis. had comp, an was the stock-based some for in basis, quarter. also that change of the the with accounting our year-ish We in

our to I next what quarter, that on expect depends months. next be low So X this stock but happens all it whether the over don't -- to it price

that. XXXX. And question, your last to out, Thanks get for clarifying. I appreciate me view leave just curious on

terms oil think excitement there, Look, today, you if there'd In rig bit tremendous think A customers to to but you their -- see. of little Sticking It's what communicated are, investors. the priorities of a are then, terms it's to we're their their they've about guns optimistic. have what in now out our where of more prices to be and market. lot between just continue quarters and discipline. -- demonstrate we'll

comes Crist question next The Johnson Rice. Don from with

while, rising here out any able -- quite you a but decent take up they in a had in wanted first the on quarter. for big I pull side have been Costs go specific it second that about a to actually there drivers happened the a looks the like first touch the the it costs. just to Are may ask chunk that? were But them quarter. cost what back some? like And sounds behind in quarter

as did quarter first some XXXX of thought on, what obvious we the the and activity compared we a third Yes. point was last to fourth we in rightsize together level would what begin measures in January, of institute Well, kind to in year. of put organization to our budget at for that be lower

support, in in field So cost. support you op that some of SG&A, but primarily see type

it of Some was also timing.

size when many flow they through impact. can through and drill purchases and smaller line flow an Our how have

made we think I have progress.

cost a going the reductions of I just months, be enter is move there, bucks we that a sustainable. heat. Some we summer you couple typically out that's hot today a the hundred I to to our see would that West as percentage point costs working Texas, are And day. fleet how But More It's in up. has. don't by gets impact have Permian driven Basin. of the as tell out it of

other that, obvious, radiators it's as kind of there's Gatorade, stuff not, that's and obvious and water, some just AC or believe units stuff so not of such it like around stuff. Some and that but

But that the way because think back it performed, So of We'll again, the I in pleased has really company the yes, it that I some year-to-date. the reasons probably out. on sustainable. just cost line QX give do with of is of some pointed especially

to Haynesville -- touch out there. or displacing your obviously, job past who high you're Permian But are a or you've you of can X the we the have of some just on is against customers' of months buttoned-up where work to very to the the more to from over in that the moving grading Appreciate the much good And are rigs color. the go and or stuff rigs half rigs and very, that so pretty you done putting still there of some another lower been spec back that year? displaced? working, point back rig that high-spec all comment surrounding is Or had and the maybe less

to do think more Don. I come, there's Yes,

move to move. the decision first quarter, the the that no on right Just was in doubt rigs

QX. And this E&P that the primarily of up do some lower out driven that's during QX, activity. look Permian. in Thought XXXX, we do If early to work really One would for to rigs the the by straight QX begin rigs other you are chance hit has been what had we we've think work. late was hardest, that as contract the relationships we're X will there under you an putting think as about contract markets know. working long-standing I'm to year, I cannibalize in went in with. rig. going country, the near of some and tough that's today. private Permian Unfortunately, rig to are be the had to that as Haynesville Those QX, go about over spec those up tick rig then following back And think a guys the excited and going mentioned. around fleet. the I a better our and we provide that expect But really opportunities term that opportunity, the I That's count on still balance are second for one, we

of about feel we'll but in So bias running look, back X flat QX. if this in see is here rig then in business optimistic the the nothing X, pretty And is this at year. part a is layup anymore,

The David Stonegate Storms comes with question from Capital. next

what relocated customer-driven, more on to cost And and the you give process was rig? there the Permian. could just around any color the Was consideration? a we that back us Maybe helpful. a be as mentioned -- cannibalization. to thought more then could XXX give hoping you maybe series that you would timing you Just the rig Could color was that touch us little just the

Yes.

over customer in -- balance just one it's opportunity a XX% today, next. that's the X market down the I think X. the fact, think looking and one in have one And this to quarter year-to-date. our just over I we just the we've or with really only year, Haynesville from think of David. Haynesville being of sober the That next the rolled only working it's incremental rigs I over won out And there at bit

seeing confident it that put still very to was there's in second some having was that the such able to market, I confident that we're Permian work with of pretty customers, given the moved, think be we'd quality downdraft we the one that -- our I come. And rig I we're is in discussions to Basin. the that what

months, it -- some low, few So it over was, of opportunity in decision happen. on relocate relatively would leave it Permian, to money chips really, the we the Haynesville going felt or And and the what's to the going think odds have do next do we spend I and leave the I the it put put to work a to that's XX we good rig. table, a the to like pretty in work

for Understood. be helpful. one more acquisition you a Is then you're me. up? think competing their just more for of to And talk rigs. just these the thing a about? bit process waiting timing considerations some there other you're to that lower contracts Can replace about where to Or just spec when also little customer Very are

when got in. it. He releases of one a customer rig. brings that's another demo Yes, one in. one to has rig part move There's to another He's and friction that

a starting up you're Sometimes rig.

with not be as So few of months in customer. it course over months weeks the might quite the a will that efficient of as or be first it couple

people well out seen on working from days efficiencies, for reducing well things bit equipment of fill exciting times. The as of at of per ever the it's around us that are intense year-to-date. the look really we the efficiencies that it. have the we some we've pressure client So as we've has gone it's those I've that customers And days to today weigh. every the quality to wringing pretty quality on that cycle we got around last pad, attacking year-to-date the things But been that and have,

So the show We've picture, demonstrate per And going at help days. of caused based to where things count we at That's to got is going last value drill ICD changing XX mean but the the friction rig, that wellbore. I we're the that's you to that on not cost on can one, months drill customers end And Permian what's having fewer now. your we've day, data going a reduce them today. to better to that foot. I the We're pad that, that worth out you a fact the going the proposition. think pitch. it, rig to XX% in and got the rate that's do we over well the we've in here by can increased bigger testament be and help that necessarily is our

The next Johnson question comes from Don Rice Crist a with follow-up. with

lack your towards that. competitors has saving comments more just days, better moved can contracts any hole that? of and a cetera. like that. contracts one around consistent I uplift any reflected you really some term, of ask of today. the partnerships the doing Obviously, recent from forming, of making et are your I Or get with for kind kind operators It or in you sounds mean But to has most wanted comment. performance-based about of is Anthony, more

Yes.

is I Don. think showing, it

being might things you else's all because otherwise can or displace be someone equal you to rig that you Sometimes you right, win perform it opportunity have shows won, better. not in able an utilization, may where might

working think regards compete but to It's a in certain seeing demonstrate dayrate, can rolling you today revenues, this that the in but we first, reducing doing think to do And to QX, reflected you the year, is way add to into the think ICD's the not able safe, see to well, we day. revenues have average have utilization. that's add per today days market begin the that maybe pad. going value I not on on the days that price. Certainly, think forward, see that that you at I certainly environment, and dayrate next third, we determine I but just are I is, anything going to like going said, later I in company. be on baseline And not value year that to necessarily dayrate margin we harm

where get none But a today, that you anything if you additional have meet are of your certain contracts Okay. capital, thresholds, right? structure structured you bonus or like where

Don. correct, That's

are in had the be past. able would some discussions to to have And those would type We open -- certainly it point, we We're structure, expect open them. we've that today. I we're at of to

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

very you much. Thank

So close their say to as do for employees thank many want to and you out ICD call, I I the dedication. hard this also work at Thank thank you. I would like the taking would our from earnings and to sign like for you Thank you. here. listen thank our you that, call. their say time to business we'll to customers With for off to to

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

now may disconnect. You