Q4 2019 Earnings Call
All participants.
So again.
Good day, everyone welcome to the fiscal fourth quarter 29, <unk> earnings Conference call. All participants are in listen only mode.
Later, you'll have a chance to ask questions during the <unk> session.
Please note today's call will be recorded I won't be sitting by if you shouldn't read any assistance.
It is now my pleasure to turn the program over to Dave Wilson.
I've Investor Relations.
Please go ahead Sir.
Thank you Brenda and welcome everyone to how it can pants conference call and webcast for the fourth quarter fiscal year ended 2019, because today are drawn Lindsay President and CEO , Mark Smith, Vice President CFO .
Well, John and Mark will be sharing some some comments with us after which we'll open the call for questions.
Before we begin our prepared remarks, I'll remind everyone that this call will include forward looking statements as defined under the securities laws such statements are based on current information in management's expectations as are the state are not guarantees of future performance.
Forward looking statements involve certain risks uncertainties and assumptions that are difficult to predict that sector actual outcomes and results could differ materially.
Learn more about these risk in our annual report on Form 10-K , all reports on Form 10-Q , and our other FCC filings you should not place any undue reliance on forward looking statements and we undertake no obligation to publicly update these forward looking statements.
We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics, you'll find the GAAP reconciliation comments and calculations in yesterday's press release with all that said I'll turn the call over to John Lindsay.
Thank you, Dave and good morning, everyone.
The Wall Street Journal had to salient articles about the energy business. This week.
Both underscored the copious amounts of energy supplies that exist worldwide.
And the catch 22 this has created for the industry.
Our industry the industry most responsible for this economic Bonnie.
Today, where oil and gas companies are suffering from a curse of abundance and according to the journal articles were still deep in other words in terms of supplies and pricing.
What article points out that energy has been the only negative sector and the S&P 500 over the past 12 months and that energy indices have declined by more than 40% during the year.
This is another place to find ourselves as an industry, particularly after delivering so much value to the economy over the last decade.
The U.S., it's no longer energy.
Dependent.
Our country as exporting energy again.
Energy supplies on pricing remain key determinants of National security and the health of our economy and while we may be considered an ugly duckling in wall Street indices, only the energy industry can say with complete confidence that all other industries depend on asked for their continued prosperity.
Think about everything that abundant and low cost energy enables across the globe [noise].
He is very proud to play a role in this progress and to have pioneered rigs and technologies that have been able to safer faster and better drilling that anyone could have ever imagined even 10 years ago.
I'm going to cover three three main topics today first is U.S. land activity and pricing.
Second is discussing updates and outlook for H.P. technology segment.
And third I will talk about our international segment.
I'll begin with U.S. lab, a the company continues to perform efficiently this past quarter. Despite.
Sizable pull back in the industry activity.
Collectively our customers appear to have outspent their budgets during the first six months of 2019.
And have been making airport in the second half.
Reflective of these trends as well as customer conversations.
We expect to see more stability in rig demand over the next couple of months and heading into calendar 2020.
That said capital discipline will remain the dominant theme.
Once silver lining to the spending discipline is that customers are becoming more selective and the quality and capability of the rigs they employ.
Legacy rigs drilling unconventional wells declined approximately 45%.
Significantly more pronounced drop when compared to the decline felt in the Super spec space, which is approximately 11% year to date.
In previous industry Downdrafts, we've experienced rigs released regardless of performance or capability.
So this discernment on rig performance is welcome news.
And we expect this environment represents the final partner for many legacy rigs in the U.S. market.
Despite the decline in industry rig count during 2019 Super spec utilization is still strong in the most active basins and as a company. We have remained disciplined in our approach to pricing.
We believe services and solutions that deliver lower costs and better well performance deserve compensation that is commensurate to the value that [noise].
Our people armed with our technology solutions are partnering with our customers to drill safer faster lower cost and better wells.
And they're making it happen every day.
We have been experimenting with different pricing models, and thus far performance based pricing models are getting the most acceptance.
The K P eyes are well aligned and focused on results that matter to the customer.
And can produce a win win for both the customer and HMP.
Shifting to our HMP technology segment.
The fourth quarter results not only reflect the decrease in overall drilling activity, but also the slow and often difficult process of introducing change end of the industry.
H.P. technologies purpose is to drive deployment.
Or to drive development of an autonomous drilling platform designed to improve safety.
Drilling consistency and accuracy and improving overall economics for our customers wells.
One example of this is out of slide which is automated sliding while directional drilling and it is currently commercialized in for U.S. basis.
We have autonomously drilled over 100 wells and a total of 1.7 million feet, a vertical curve and lateral footage.
The customers that are using out of slide today love the results and are saying consistent improvement and predictable performance that only automation can provide.
We're working closely with our partners to close the gap in top tier performance and sustainable and scalable ways with auto slide.
Our customers are seeing improvements in wellbore quality and the ability to lower the risk and cost profile through the enablement of head count reduction at the rig site.
Even with the adoption.
We've had thus far with auto slide like in many disruptive innovations the largest barrier to new technology adoption as the human work flow changes these technologies trigger.
The adoption resistance, we are experiencing today is reminiscent of the initial responses. We had over 15 years ago, when we rolled out our first AC drive Flexrigs.
Based upon past experience introducing new technologies, we believe customers will continue to adopt and utilize see software solutions at a faster peaked at a faster pace because of the value proposition they provide.
Look at the headlines regarding parent child, well interference at the inherent consequences.
And our Magloire software solution can mitigate those risks.
Today Mag bars on approximately 220 rigs and motive is on approximately 25 rigs, including the auto slide commitments.
These incremental investments in well performance.
Wellbore quality and productivity on the front end will pay dividends over the entire life of the well for our customers.
Not just drilling costs, but also by lowering cost for completion and production operations.
And we will talk more about their those metrics in the future. So we'll be talking about it that.
Finally, I will conclude with our international business segment, where last quarter.
We reported off some encouraging developments I'm pleased to report distraction has continued and or our fourth quarter and fiscal first quarter.
The company signed letters of intent to deploy a third flexrig in Bahrain.
Two flexrigs and Abu Dhabi, a high horsepower AC drive rigs in Colombia, and our flex apps to a customer in Argentina.
Each of these successes.
Demonstrate efforts to increase awareness in international markets of the value HMP drilling and HMP technologies can deliver from both the rig.
And a digital technology perspective.
The elections are over and Argentina, but their impact is still very uncertain.
While we have not experienced any meaningful operational disruptions. This quarter, we did have a customer delay a commitment to move a second.
Super spec flexrig from the U.S.
Even with these challenges we continue to remain committed and optimistic about the ultimate potential and the buck or more to basin and in Argentina in general.
In my opening remarks, I commented about the negative views on the energy business.
Next year, we will celebrate our centennial. So we have seen our share of market challenges through the cycles.
Delivering high levels of performance in a challenging environment is not new at HMP.
The dedication of our employees combined with our rig fleet.
Digital technology solutions and customer partnerships are unmatched in the industry and give us a solid base to build and activate upon.
And now I'll turn the call over to Mark Smith.
Thanks, John [noise].
Today, I will review, our fiscal fourth quarter and full year 2019 operating results provide guidance for the first quarter and full fiscal year 2020 and comment on our financial position.
Let's start with highlights for the recently completed fourth quarter and fiscal year ended September 32019.
The company generated quarterly revenues of $649 million versus 688 million in the previous quarter.
Totally $2.8 billion for fiscal 2019 versus 2.5 billion in fiscal 2018.
The quarterly decrease in revenue sequentially is primarily due to the expected decline and the average number of rigs working and the U.S. land segment.
[noise] direct operating costs decreased to 432 million for the fourth quarter versus 445 million enough for their previous quarter and correlation with the decline in our activity.
General and administrative expenses totaled $50 million for the fourth quarter and 194 million for the full fiscal year consistent with our previous guidance on the July call.
Because our pre tax income came in lower than we expected we recognize the tax benefit for the quarter of $13 million as we had over accumulated our tax provision during the first nine months of fiscal 2019 relative to our actual year end results.
To summarize this quarter's results.
Silicon pain earned a 37 cents per diluted share, including the aforementioned tax benefit of approximately 12 cents per share versus a loss of $1.42 in the previous quarter.
Activity this quarter came in below our expectations it with highlights of by segment as follows one.
You asked land costs were adversely impacted by a onetime legal settlement further the rig count exited the quarter at the low end of our guidance range.
Two international earnings were affected by foreign exchange losses in Argentina, as well as higher than expected startup costs for our first international Super spec rigs.
Three offshore experienced a 22 day downtime event on one rig for unplanned maintenance.
And the for HP technology costs benefited from the reversal of a contingent earn out liability, which resulted in a net credit for expense for the quarter.
However, our H.P.T. revenue targets were not achieved largely due to the rig volatile rig activity volatility during the quarter.
I will discuss these segment results in more detail later and prepared comments.
For the full fiscal 2019 as a whole we incurred a loss of 34 cents per diluted share. This was driven largely by the 224 million noncash impairment announced in our third quarter as well as other select items, including the mark to market losses on our legacy Securities portfolio.
Due to our adoption of a new GAAP accounting standard at the beginning in fiscal 2019.
Collectively these select items constitute a loss of $2 a nine cents per diluted share and absent these items.
Fiscal 2019, adjusted earnings were $1.75 cents per diluted share.
Capital expenditures for fiscal 2019 totaled 458 million significantly below our previous guidance due to a combination of ongoing capital efficiency efforts as well as the timing of a small amount of supply chain spending crossing into fiscal 2020.
[noise] agent be generated 856 million in operating cash flow during fiscal 2019, representing an increase of approximately 300 million from 558 million in fiscal 2018.
Turning to our four segments, beginning with the U.S. land segment.
We exited the fourth fiscal quarter with 194 contracted rigs a sequential decrease of approximately 9% quarter end to quarter end and at the low end of our guidance range.
Agencies, U.S. land market share increased to 22% from quarter to quarter as less capable legacy industry rigs were sidelined as John mentioned that we expect more stability in the active rig count during this first fiscal quarter.
Despite softening market conditions during the fourth fiscal quarter pricing remained relatively firm in the Super spec market space, Our average rig revenue per day, excluding early termination revenues decreased.
To $25365 for the quarter slightly under our guidance midpoint. The decrease as mentioned in the press release is mainly due to less flex services revenue, which is comprised of services, including trucking casing running and rental equipment among others.
As a reminder from energy like all of this figure excludes our flex F. offerings, which are now included in our HP technology segment.
The average rig expense per day increased to $15440 due in large part to a charge of 9.5 million for settlement of a legal matter approximating $500 per day.
Asset this charge adjusted average rig expense per day increased to $14934, which is above our previously guided range due to volatility and maintenance in the supply is cost and then part to cost related to idling of assets.
Looking ahead to the first quarter fiscal 2020 for U.S. land.
We exited the last quarter with 194 rigs working but are seeing some slowing of net rig releases and a more stabilization and what has been a volatile market.
Our public customers spend about 54% of their budgets during the first half of the calendar year and or at least rigs on a net basis in calendar Q3.
As customers are reaching spending run rates that re align them with their budget goals, we have seen better equilibrium between rig releases and rig commitments.
We are currently operating 190 rigs in the U.S. with an estimation that we will exit the quarter with between 187 to 197 active rigs.
This would result in a sequential decrease of approximately 6% and the quarterly number of revenue days, which translates to an active rig count of approximately 191 rigs during the first fiscal quarter.
A recent sampling of our customers suggested decrease from their calendar 2019 capex budgets.
And our budgeting assumes calendar year 2020 activity levels relatively flat from second half calendar 2019, which is in line with such a decrease.
We generally expect customer budgets spend rates during 2020 to be more evenly distributed throughout the year.
As the market tightens and as opportunities to displace legacy rigs arise. Our initial objective is to put the 53 idle Super spec rigs. We currently have back to work.
Still we have 44, flexrigs that our upgradable to Super spec capability, when if market conditions warrant that investment.
Compared to the fourth quarter.
At $25365 per day, we expect the adjusted average rig revenue per day to be within a range from 24752 25250.
Our average day rate in both the spot and term markets.
Remains in a low to mid twenties range and leading edge Super spec Flexrig pricing is also in the low to mid Twentys.
The normalized average rig expense per day directly related to rigs working in the U.S. land segment is now approximately 13900.
Up roughly $200 from previous.
As fixed overhead cost are spread across fewer working rig days.
The average rig expense per day as expected to be in a range of 14000 414800 for the first fiscal quarter.
Some of these costs related to the idling of recently released rigs.
If and when recount stabilizes the significant costs, we incurred in 2019 to re commissioned long idled rigs and or stack out active rigs will subside and we can continue to encourage commissioning decommissioning costs reflects four rigs as discussed last quarter as well as cost associated with maintaining the idle portion of the fleet.
We had an average of 133 active rigs under term contracts during the fourth quarter and today that number is 127 or about 67% of our 190 working rigs.
We expect to have an average of 130 rigs under term contract in the fiscal first quarter earnings.
Earning the current average day rates 95 rigs currently remain under term contract through fiscal 2020.
Moving onto our international land segment.
The number of quarterly revenue days increased 6% and the fourth fiscal quarter inline with our guidance.
The adjusted average rig margin per day in the segment decreased by 2014 and $23 to 5481 in the fourth fiscal quarter. This decrease was primarily due to higher than expected started up reactivation costs for a super spec rig in Argentina as well as macroeconomic.
Dances in Argentina that are driving rate concessions.
Additionally included in that segment operating income was a 3.5 million currency exchange loss driven by the significant decline in the Argentine peso.
As we look toward the first quarter of fiscal 2020 for international.
Quarterly revenue days are expected to decrease slightly with an average fourth quarter rig count of approximately 17.
Susan.
Fourth quarter rig count of approximately 17 active rigs in the segment.
Our first international Super spec Flexrig commenced operations in Argentina, midway through the quarter within International company.
The average rig margin is expected to decline to between three to $4000 per day during the first fiscal quarter.
Due to the startup costs for two rigs in Abu Dhabi, one rig in Bahrain, and one rig in Colombia.
These four rigs are expected to commence operations late in the first fiscal quarter early and our fiscal second quarter.
Additionally, two rigs in Argentina will be rolling off of their original five year term contracts with the national oil company during our first fiscal quarter.
As customers gain clarity following the Argentina elections, we are hopeful that these rigs will return to work in the coming quarters in the Bakken Marta.
Turning to our offshore operations segment.
We continued with six active rigs during the fourth fiscal quarter.
And had one rig incurred 22 days of unexpected maintenance downtime as zero rate, which negatively impacted revenues as well as expenses in the quarter. The average rig margin per day decrease sequentially due to the previously mentioned unplanned downtime.
As we look toward the first quarter of fiscal 2020 for our offshore segment. We currently have six of our offshore rigs contracted one rig recently commenced the process of changing customers during this quarter.
The average rig margin per day as expected the increased or range of.
12000 to 13000.
During the first quarter.
Now looking at our homework and pain technologies segment and allow me to remind you once again that we removed our flex apps moved our flex asked to agent Pete technologies in the fourth quarter historical segment information in the press release was recast to reflect the move of the flex apps to have comparable financial information.
Some customers have expressed interest in using the apps on non agency rigs in much the same way that the motive big guidance system and Mag var are deployed via software as a service we're still working on the process to make our software applications available on other rig operating systems.
H.P.T. revenues fell short of expectations.
Primarily as a result of the drop in agencies rig count and the overall breakout reducing the possible points of sale for these technologies.
Currently we are primarily focused on our auto slide technology offering and it's on adaptation by customers on our flex rig fleet.
HBT operating revenue was about 14 million and operating expenses were and netted to $0 due to a onetime credit the benefit was due to an 8.9 million reduction in the financial earn out liability.
Metrics put in place at the time of an acquisition.
Absent this benefit the HBT segment would have incurred an operating loss of just over a million during the fourth fiscal quarter.
We are expecting that fiscal Q1 revenue for HBT will be between $15 million to $18 million inclusive of flex apps that said fourth quarter results should serve as a reminder, that HBT is a new business model and even with the ongoing success as we are experiencing.
Widespread customer adoption is hard to predict with certainty in our industry and even more so under challenging market conditions.
Looking forward to the fiscal first quarter and full fiscal year 2020.
At fiscal year end and as of todays call our revenue backlog from our U.S. land fleet was roughly a $1 billion for rigs under term contract, which contain early termination provisions.
Capital expenditures for the full fiscal 2020 year are expected to range between $275 million to $300 million.
Based on our current outlook for fiscal 2020, which is approximately a 40% reduction to fiscal 2019 capex.
This capital outlay is comprised of four buckets two buckets, our investments in our fleet for maintenance Capex and can for conversions us getting pad capability to walking pad capability.
As previously guided we expect to average from 750000 to 1 million per active rig with international and offshore rigs being higher than the average.
Maintenance Capex is expected to be in a range of 57% to 62% fiscal 2020 Capex.
For customers with a need for walking rigs that we will convert certain rigs firms getting to walking pad capability for multiyear term contracts.
Walking conversions are initially estimated to be between 11% to 15% of Capex.
The third bucket is made up of Tubulars.
Which have become a larger part of our capital spend for the longer lateral wells we drill.
This spend is offset in large part from customer reimbursement for the replacement value of drill pipe that is damaged or lost in held during drilling operations.
Tubular spin for F. Why 2020 is expected to be in a range of 17% to 19% of Capex I should note here that an f. why 19 us land Drillpipe reimbursement represented two thirds.
Gross proceeds from asset sales.
The fourth and final fiscal 20, Capex budget bucket is made up of corporate items, including some significant information technology projects estimated to be approximately 10% of the 2020 budget.
During fiscal 2020, the Capex just described should be spent more ratably throughout the fiscal year.
The total number of walking conversions, we complete with our budgeted dollars will depend on customer demand.
Depreciation for fiscal 2020 as expected to be approximately $540 million. This is approximately $20 million less than fiscal 19, primarily due to the third quarter downsizing of the flex for rig fleet.
Our general and administrative expenses for the full 2019 fiscal year are expected to increased slightly to approximately 200 million.
The increase is driven in part by our two fiscal 2019 technologies segment acquisitions and in part by our targeted investments in certain capabilities, including cyber security.
Our cutting back to Johns commentary on the autonomous drilling platform, we are investing still in our enhanced technology and innovation capabilities through ongoing research and development efforts, which we expect to approximate $30 million in fiscal 2020.
The statutory us federal income tax rate for our fiscal 2020 year end will be approximately 21%. In addition to the U.S. statutory rate, we are expecting incremental state and foreign income taxes to impact our tax provision, resulting in an effective tax rate range of 25% to 30%.
Now looking at our financial position.
As you May recall, we conducted a debt exchange in December 2018 to move our agency Idcs subsidiary senior notes to the agent be inc. parent level, a very small portion of the noteholders did not exchange and in Q4, we called those remaining Idcs subsidiary notes, reducing the overall outstanding debt.
By approximately $13 million.
Okay.
Our stock portfolio is a legacy investment that we have not attitude in many years and we continue to monitor this holding for appropriate monetization.
As such we sold our legacy investment in Valores plc in the fourth quarter for proceeds of approximately $12 million.
During the fourth quarter, we saw a combination of excess liquidity and an attractive opportunity to repurchase some of our shares at prices that we believed to be value accretive.
Our long standing dividend remains our primary method for returning excess cash to our shareholders.
Despite our at ITC debt extinguishment, our share repurchase and they technology segment acquisition.
Our cash on hand, and short term investments at September 30 were up approximately $20 million from the preceding quarter ended June 30 to a total of $401 million.
Including our revolving credit facility availability of our liquidity it was approximately 1.15 billion.
On November 13th.
We extended our revolving credit facility maturity date.
In 2023 to 2024.
We do not currently expect to utilize this facility during fiscal 2020.
Our debt to capital at quarter end was 11%.
Best in class measurement amongst our peer group that we have no debt maturity until 2025.
Looking ahead and are planning horizon, our investments in the last couple of years in our fleet and drilling solutions technologies, coupled with a disciplined and centralized cost focus position us well to generate cash flow and maintain our strong balance sheet.
In fiscal 2020, we currently expect to create a modest amount of to our cash on hand after capital expenditures and after our dividends.
Our balance sheet strength liquidity level and term contract backlog provide agency the flexibility to adapt to market conditions.
Take advantage of attractive opportunities and maintain our long practice of returning capital to shareholders through our dividends.
That concludes our prepared comments for the fourth fiscal quarter, Let me now I'll turn the call over to Miranda for questions.
Thank you and at this time, if you would like to ask a question. Please pesky Star then one keys on your Touchtone telephone.
With all your question at any time <unk>.
<unk>.
Again Star one another question Keith today, and we'll take our first question that today's from Kurt Hallead with RBC. Please go ahead. Your line is open.
Thank you hi, good morning.
Morning card.
Appreciate the.
Update the insights and the outlook there John .
And Mark.
So John for you just in the context of your discussion about a stabilization and demand for for rigs. The one thing that kind of grab my attention specifically was your commentary about an expectation on kind of.
Kind of consistent level of activity.
Throughout 2020 that kind of replicate maybe the kind of second half averages of.
Of 19.
Do you get a sense and your conversations with the client base, John and what kind of underlying commodity price does that.
Is that dictated by.
As you know.
For the.
Our customers in general haven't in a large scale way Haven reported their budgets for a third for 2020. So we're making a couple of assumptions here, obviously I do think that for the customers that we have heard from it sounds like a very similar price deck to last year 50 to 55.
Dollar.
Per barrel as they are setting there as are setting their budgets.
So I think thats the best the best estimate that we have right now.
I do think.
Again based on what what we're seeing is that our rig count should flatten out.
Hopefully improve.
Through the rest of this this fiscal year. If you. If you just look at average activity levels for.
2019.
And then you contrast, it with where we're estimating the exit level activity would be.
For for this year going into next year. It appears that there there could be an opportunity for picking some additional rigs up and at the beginning of the year.
It's so hard to tell right now and again customers and large scale, we have a set their budgets. So we're just making an assumption on on that for the most part.
Okay. That's good color appreciate that and then just just in the context of I'm just looking at the international cash margin right. So.
First half of the year the cash margin was roughly about $12000 a day, obviously dropdown to to where it is here in the fiscal fourth quarter.
Yes, as you get out and you get these rigs up and running.
Is it possible that you know.
At some point during 2020 that the average cash margin kick it back to where it was during the first half of 19 or or do we have to re rethink that in and kind of reset the baseline on international cash margins with these new contracts and the contract rollovers moving forward.
Sure. Thanks for the question.
Yes, yes, the the four contracts the otherwise we have which are turning into contracts our.
Or accretive certainly to our margins.
And some of the items we've experienced.
This quarter are transitory. So yes, we do expect those to return.
Well they get back to first half of 19 levels.
And just really depends on the on the rollovers and our ability to redeploy them, but that's the plan.
Okay I appreciate that thank you.
Thanks Kurt.
Thank you and we'll go next to Sean Meakim with Jpmorgan. Please go ahead.
Thank you good morning, good morning genre.
So in the lower 48.
Low to mid Twentys rates per day for both term in spot work I think as what you said in the prepared comments.
Can you maybe just talk about.
The mix of spot versus term work and how thats been changing in recent months.
And maybe your outlook for.
Both your customers appetite for term as well as your.
Current levels going into next year.
Sean Thanks for the question, we've been able to interestingly, we entered this calendar year at about 60%.
Term coverage and that we're we're here today at 65, plus present term coverage on on the fleet and as I mentioned, we're going to anywhere already have booked for the full fiscal year 90, some odd.
Rigs on term, we like that future certainty of cash flow and plan to keep mix in a balance in that mix has not changed for us.
Through the year the target is to to keep it there.
Okay. Thank you for that.
I also your comments on technology adoption, I think are well taken particularly in the current environment.
So given maybe timing is a bit I have your control to some degree but.
Can you give us a sense of what type of revenue base.
For HBT is required to get that business up to operating profitability.
As shown on might start start with just by Reemphasizing I think one of the.
One of the advantages to enhancing adoption is success.
Obviously, we've had quite a few rigs that have been released both our rigs and competitor rigs that had the have had the technology deployed so that's hurt us on the activity side I think the.
One of the reasons why I wanted to talk about what.
What customers are liking is they like the consistency they like the predictable performance that automation can provide.
While it is a challenge on the on the change management perspective, they see the as they are beginning to see kind of a lot of data the tell so speak.
So I do think that Theres, a that theres opportunities.
To continue to grow.
The autonomous platform.
And it's really.
John which is the leading to its about the it's about the number of deployments we have it's about how many.
Customers and rigs, we have signed up for software as a service because individually each of the product offerings.
Our very high margin there simply due to their nature is software as a service businesses. So once we can get a critical mass of units and production.
We're very excited about the accretive possibilities of HBT.
I appreciate that so is there are there any of their benchmarks around.
Got a side that critical math you can offer for us.
Not yet to really.
Okay fair enough. Thank you guys.
I show Exxon.
Thank you.
Our next to Tommy Mall with Stephens, Inc. Please go ahead.
Good morning, and thanks for taking my questions.
Good morning.
I wanted to start on leading edge day rates for Super spec. It sounds like we're still in the low to mid Twentys range.
Which I think is likely.
More disciplined than what.
A lot of folks had feared going into earnings season.
So I was hoping you could comment on agencies continued.
Commitment to remain disciplined there on pricing and then also it's something that might help clear up some of the confusion among investors I think is the difference in the all in rate versus the base rate, where there are a lot of different components that build up to.
The number that you actually report so anything you could do to help us understand the difference in those two data points would also be helpful. Thank you.
Sure Tommy I'll start with.
We like to look at the value proposition that were that we're providing our customer and.
Our focus is there.
We really believe strongly that it's a it's a win win situation.
For us and our customer because if you look at the results what you see our.
Improving well cycle times, you see improving costs of wells for customers.
Those cost savings are not a function of.
Drilling providers lowering the rates that the cost savings are a function.
Better better productivity.
And then as we began to layer on additional.
Technologists, theres going to be even even greater.
Greater savings so I think it really comes down to did you think about how hard the rigs you're working.
And the value that we're providing we really can't afford to come off of pricing and again, it's one of those situations you continue to hear me talk about.
Partnerships with customers and that's that's really a big big big part of that.
Ill just add.
I made to that that are.
Average rig revenue per day range that I mentioned fracs our expectation.
On top of that are the flex flex service as I mentioned and those range everything from trucking casing running tools rental equipment extra personnel other adders and those can can vary.
From 1000 to $2000 per day, depending on the basin the customer the rig itself.
So that is what you add on top of the low to mid twentys spot rate to get to the average revenue per day.
Thank you both those are.
Those are very helpful comments, and then to shift to Capex.
You've identified the budget for next year, which is at the midpoint slightly lower than what we had previously expected. So good to see continued capital discipline there.
You also broke out the.
The piece of the overall budget allocated for maintenance Capex.
And obviously theres, a big range there but.
That expectation for maintenance contemplate a U.S. rig count.
Flat up or down versus where you think.
You will end this first fiscal quarter.
I'll.
Tom ill, let you do the math and extrapolate.
[laughter] full year guidance.
Okay.
All right I'll turn it back because we can tell you what we hope for that.
We hope it.
The upper into the range well, that's what we hope, but again Thats I think you'd like Mark said you have to do the math on it but okay.
So what oil prices are there's a lot as you know there's a lot of variability it's hard it's hard to its hard look out.
Just one quarter much less full year.
Fair enough well, maybe I could ask at a different way or a related question.
To the extent you do see.
Opportunities to add rigs next year.
Would there be any headwind on your cost line as those rigs go back to work.
I'm not as not as much as if we were.
Reactivating.
For example is we're activating lot long idled rigs are rigs and we had upgraded to super spec because as I mentioned on the call the.
The fact is we have 50 plus super spec rigs currently idle and those are recently I'd also there.
Hot to warm and most all cases and would require little additional.
Cost to get to get back into the field on one hand on the other hand, we certainly would have personnel costs related to re hiring and training et cetera.
Okay.
Alright, Thank you very much I'll turn it back thank you.
Thank you.
<unk> audience that Star then one she'd like to ask a question today well take our next question from Marc Bianchi with Cowen. Please go ahead.
Thank you.
Hi, I guess just quickly on the spot market or kind of leading edge market commentary free.
You guys have been disciplined you're talking about stability in the rig count.
Would you anticipate that kind of the going forward now you sort of see stability in that leading edge rate and the in the low to mid Twentys is that that how you would characterize it.
Well markets.
It's hard it's hard to say.
We obviously have have pricing pressure, which isn't unusual in our industry, Rick almost regardless of what the market is.
But obviously an improving outlook.
Makes it a level a little less a little less challenging and I again, I think for the most part.
The.
The drilling peers have.
I have maintain disciplined youve, we havent seen a lot of irrational pricing, particularly with larger players. So.
I think and I think in general our goal would be to keep it in the range.
Where we are.
That's that's our goal it's hard it's hard to say for sure.
How it ends up how it ends up turning out but we can we can tell you what we're trying to accomplish.
And again, we continue to focus very very much on the value proposition that we're providing and whether that's providing.
Front type contracts related to performance type contracts, where you're setting.
KPN guys for your for your performance.
Again, Thats a true when when and we're up were up for that all day long.
Okay. Thanks for that John .
In terms of H.P.T.
I just wanted to ask on the in this in the fiscal fourth.
Mark you mentioned the $8.9 million of.
Benefit there is that it was that benefit and gross profit I'm just trying to think about what kind of the run rate gross profit margin is to work off of that revenue guidance that you gave and.
Here for fiscal first.
Yes, it Oh.
I mean, it is it it net at all costs to zero basically.
Okay right. So the Delta would just be at the at the point I back to the cost right. Okay.
Okay. That's that's it for me thank you.
Thank you.
Thank you well go next to tailor researcher with Tudor Pickering Holt. Please go ahead.
Hey, good morning.
Morning.
John John you talked again about the new pricing model your exploring and it sounds like the performance based model is the one that's having the most success, thus far but could you maybe frame for us.
How many rigs are utilizing that pricing model today, and then with the results. Thus far is the revenue per day, you're generating.
With that sort of pricing model accretive to what you might generate in the spot market today.
I believe that the.
The performance pricing has been accretive to what we would see in spot market.
My preference is not to talk about the numbers in terms of numbers of contracts that we had but we have continued to see.
Improvements in that the numbers are higher this quarter than they were last quarter.
But in general.
Yes, again, it's a true it's a true win win because it puts it put skin in the game.
As if there isn't it's kind of the game already but it does put additional skin in the game. So we're we're we're all in on that type of pricing model.
Okay understood and then one question on capital allocation, obviously, the dividends still the priority moving forward, but this quarter you did.
Purchase I think about a million shares.
Maybe have some extra cash on the balance sheet moving forward and if the stock prices, it's still in and around current levels. Today should we expect you guys to I continue to.
Whittle away at share repurchases over the next few months or few quarters.
We have.
Taylor, we have a.
Extending authorization to buyback 4 million shares per annum, having said that.
We have repurchased shares in the past, but not on a frequent basis at all.
Based on the opportunity set.
Of what to do with cash at the time.
And the amount of cash accretion we were.
And we're experiencing in Q4, and we felt we felt the share repurchase was a prudent decision.
It also serves to mitigate some of the dilutive effects of various stock related awards.
Okay got it thanks guys.
Thank you.
Thank you and we'll go next to Scott Gruber with Citigroup. Please go ahead.
Hi, good morning.
Scott.
Can you update us on how many flexrigs have walking systems today and do they still costs I think it was about 5 million per when we thought kind of this time last year is that still around the right cost or is that come down some.
From a I'll start off Scott from.
Cost perspective, the walking rigs, where the higher end number they were to actually upgrade flexthree to walking was about 9 million, whereas this getting upgrade was three.
The cost to convert however from skinning to walking is around seven is what we're projecting so the delta there being the the PXI and the in the third mud pump.
Today in our fleet, we have and to the first part of your question today in our fleet, we have about 40 walking rigs.
And so just to be clear when you. When you guys say that the budget there was 11% to 15% skidding to walk on conversions that stood at 7 million.
You are targeting associated with those conversions.
Yes, otherwise.
Four to six for the year.
As a number you're trying to get through it yes.
Gotcha.
And overall are you seeing customers pay a premium for the walking.
Flexrigs over the skidding rigs or are we just.
Generally helping.
The appeal of the rigs to customers and 18 utilization.
We have Scott we've had a we've seen a.
You know consistent more talent mid Twentys type pricing. We've also had a skid rigs at mid 20, but the average hasn't been mid 20, and I would say the average for the walking rigs have been closer to mid mid Twentys.
And agenda in general we've had a two year term contracts with those as well two to three year. Some cases three year term contracts.
Just ended that that we will require a term contract to do such a conversion.
Gotcha is it safe to say that the the walking rigs at the high end of the spot range in skinny rigs or towards the low end the fair.
Yes, but we don't have that many that are on spot most of them or termed up.
Okay got you.
Thanks for the color appreciate it thank you. Thanks.
Thank you and we'll go next to Thomas Curran with B. Riley FBR. Please go ahead.
Good morning.
Good morning.
John or Mark when it comes to the new performance based contracting model you've been experimenting with what percentage of performance based wells drilled or revenue generated to date has resulted in higher revenue per day. The day rate you otherwise would have burned under traditional model or if it's a better measure us a higher average daily margin.
However, it is you think.
We should be focusing on to determine the efficacy of the new model.
Yeah, I don't I don't have performed or a percentage of top of my head, but I do know that that the.
The margins and the revenues are generally higher than what we would see and spot and spot market.
Type of contract.
Could you give us an idea of.
Average order of magnitude or sort of it the greatest.
Premium you've been able to realize thus far.
All right yeah, our preference would would be we would rather.
Rather not for for competitive reasons, but again we're.
I think it's I think it's a great.
Contract design as I said earlier.
We've got we've both parties have skin in the game and we're trying to.
To provide a win win.
Okay, but sounds like you're definitely capturing that that greater value, you're delivering than you otherwise would've been in.
And that that's encouraging.
And then it for auto Slide I know there was an expectation that you'd have a first commercial deployment in the Delaware by the end of last quarter calendar Threeq. You would you. Please update us on that Delaware push and then and then speak to which basins are most likely to be numbers, six and seven which are border they might occur.
Yeah.
As far I don't I'm trying to think where six and seven are and I don't I don't recall, where those are but Delaware is is just right around the quarter, it's actually been on queued up for.
Several months.
But it really comes down to having the right right customer the right partnership as I've mentioned there on several calls the change management side of the equation as it is as important.
As anything that we're doing the technology piece is really the easy part it's a.
As the work flow changes and change management. So I think we will have the Delaware in this in this quarter, if I'm not mistaken.
We'll have our first first round go in there, which will be the fit the basin, yeah that'll be the fit basis.
Right and then just one more for me on auto slide how many different unique customers have commercial use it thus far.
I think we're I think we're a five.
That weve that we've been working with.
All right I appreciate the answers guys all right. Thank you based on.
Thank you and we can go next teaching small cell with bank of America. Please go ahead.
Oh seasonal.
So the real quick I may have missed sales.
Did you disclose all the average day rate or your term contracts or just maybe it's neutral.
I don't know.
I'm, sorry could you could you say that again.
Oh, yeah, maybe as much so yes.
Looking to see if you disclosed the average revenue per day for us land business could the term contracts for fiscal year 2020, typical you give us that almost earnings call.
I did I said that they're earning the current average day rates.
Okay well.
Arms gates. Okay. You can you clarify that course current meaning.
Lets you.
What you gave for the quarter for Fourq fewer for Threeq, you recall wonderful acute.
Yes that is that is that low to mid 20 day right.
So to take the.
Question, we at earlier about the average rig revenue per day back off the flex services and you're you're out of that they right.
Okay, I guess I'm, just thinking offline that's long because that.
He is on the median distance between low low to mid so.
I guess.
On the day rate side low you've talked about some day rate pressure on it seems like maybe some of the rig declines are slowing.
Have you.
David stopped going down at this point, so superstar goods.
As we said we've been we've been.
Then very fortunate to have pretty firm consistency in our low mid [laughter].
[laughter] 20 day rate so.
Yeah, we were were pretty fortunate in that spot in term contract seem to be at about the same level.
Yeah, I was thinking more leading edge, but so if I'm hearing you right day rates are leading edge day rates of cloud now and then stop going down about where you correctly.
I'd say that yet already accurate alma leading the leading edge I would agree with it.
Well, one real quick one Argentina could you talk about what you expect in Argentina, as we roll into 2020, I think you've got some contracts.
That that rollover.
Our negotiations go with those and should we expect goes the kind of continue into 2020.
We do have as I as I mentioned the first.
To IP F.
Rigs that were dispatched to Argentina, five years ago Rolling off in this fiscal first quarter.
And the rest will roll off.
Through fiscal 20.
And we have been in active discussions to that those rigs back to work with iOS see is another NPD aka more into.
As John mentioned, we're sort of a Anna and I think I might have reiterated as well sort of waiting for the dust to settle from the recent election cycle.
And but but are pretty pretty buoyed by a recent trip to the country and visiting with prospects and.
And are still pretty bullish on the long term prospects of the Vaca Muerta for Argentina, and also for Helmerich <unk> Payne.
Okay, all right if it makes sense I appreciate the color. Thank you.
Thank you.
Thanks much.
Thank you and at this time I turn the floor back to Mr., John Let's say for any additional comments.
Okay. Thank you Miranda I'd like to close out the call today by reinforcing.
Agency has a track record of generating strong cash flow and maintaining a strong balance sheet and an industry where that is rare.
This strength along with our great team of employees put the company in a competitive position to address the challenges and opportunities that lay before us.
We're going to continue to partner with customers to achieve mutual long term success. So thank you again for your interest in HBP and have a great day.
Thank you. This will conclude today's program. Thank you again for your participation you may now disconnect and having a wonderful day.
[noise].