Q4 2023 Independence Contract Drilling Inc Earnings Call
Operator: Good day, and welcome to the Independence Contract Drilling Inc. fourth quarter and year-end 2023 financial results and conference call. All participants will be in listen only mode.
Good day and welcome to the independence contract drilling, Inc. Fourth quarter and year end 2023 financial results and conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on a touchtone phone.
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Operator: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Philip Choyce, Executive Vice President and Chief Financial Officer. Please go ahead.
Withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Philip Choyce Executive Vice President and Chief Financial Officer. Please go ahead.
Philip A. Choyce: Good morning everyone, and thank you for joining us today to discuss ICD's fourth quarter 2023 results. With me today is Anthony Gallegos, our President and Chief Executive Officer. Before we begin, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. A number of factors and uncertainties could cause actual results in future periods to differ materially from what we talk about today. For a complete discussion of these risks, we encourage you to read the company's earnings release and our documents on file with the SEC. In addition, we will refer to non-GATT measures during the call.
Good morning, everyone and thank you for joining us today to discuss Icd's fourth quarter 2023 resolved.
With me today is anti Guy I guess, our president and Chief Executive Officer.
Before we begin I would like to remind all participants that our comments today will include forward looking statements, which are subject to certain risks and uncertainties.
Number of factors and uncertainties could cause actual results in future periods to differ materially from what we talk about today.
For a complete discussion of these risks we encourage you to read the company's earnings release, and our documents on file with the SEC.
In addition, well refer to non-GAAP measures during the call. Please refer to the earnings release and our public filings for a full reconciliation of net loss to adjusted net loss EBITDA and adjusted EBITDA and for definitions of our non-GAAP measures and with that I'll turn it over to Anthony for opening remarks.
Philip A. Choyce: Please refer to the earnings released in our public filings for our full reconciliation of net loss to adjusted net loss, EBITDA, and adjusted EBITDA, and for definitions of our non-GATT measures. And with that, I'll turn it over to Anthony for opening remarks. Hello, everyone.
Hello, everyone. Thank you for joining us for our fourth quarter 2023 earnings conference call.
Anthony Gallegos: Thank you for joining us for our fourth quarter 2023 earnings conference call. During my prepared remarks, I'll talk about the current super spec rig market and progress we've made on some important strategic initiatives. Also, I'll close out by talking about our plans for 2024.
During my prepared remarks, I'll talk about the current Super spec rig market progress we've made on some important strategic initiatives.
Also I'll close out by talking about our plans for 2024, but first just a few comments looking back on the fourth quarter and full year, and which ICD achieve some meaningful accomplishments. Most important we continued our fleet evolution towards 300 series specification and this trend was turbocharged in the back part of the year.
Anthony Gallegos: First, just a few comments looking back on the fourth quarter and full year in which ICD achieved some meaningful accomplishments. Most important, we continued our fleet evolution towards 300 series specification, and this trend was turbocharged in the latter part of the year. To provide some context, we initiated our 200 to 300 series conversion program about 18 months ago. Nevertheless, at the beginning of 2023, we had completed only one conversion, and only 50 percent of our operating rigs met 300 series specifications. Since the beginning of 2023, however, we have transformed our operating fleet. Today, 90% of our operating rigs meet 300-series specifications, with five conversions having occurred since September 1.
Some context, we initiated our 200 to 300 series conversion program about 18 months ago.
And at the beginning of 2023 we had completed only one conversion and only 50% of our operating rigs met 300 series specification.
Since the beginning of 2023 hour ever we have transformed our operating fleet today, 90% of our operating rigs made 300 series specifications with five conversions having occurred since September 1st.
Anthony Gallegos: Today, all but one of our former 200-series rigs operating today is a 300-series rig budgeted for the remaining 200-series rig to be converted later this year depending on customer requirements. I'd be remiss if I did not point out that we have received full cash payback or more during the initial contract term on the CAPEX required for all of our 200 to 300 series conversions to date. This fleet transformation paid significant dividends for ICD in 2023 as we navigated a severely depressed Haynesville gas market and an overall decline in the Permian rig count as well. In fact, as of today, we've increased our Permian rig count by over 40% compared to the beginning of 2023, even while the overall rig count in the basin declined 15%. Along with our reputation for operational excellence and customer service, our ability to efficiently execute our 200-300 series conversions drove this significant market outperformance.
Today, all but one of our former 200 series rigs operating today as a 300 series rig budgeted for the remaining 200 series rig to be converted later this year, depending on customer requirements I'd.
I'd be remiss, if I did not point out that we have received full cash payback or more during the initial contract term on the capex required for all of our 200 to 300 series conversions to date.
And this fleet transformation paid significant dividends for ICD in 2023, as we navigated a severely depressed haynesville gas market and an overall decline in the Permian rig count as well in.
In fact as of today, we've increased our Permian rig count by over 40% compared to the beginning of 2023, even while the overall rig count in the basin declined 15%.
Along with our reputation for operational excellence and customer service, our ability to efficiently execute.
Execute our 203 to 203 hundred series conversions drove this significant market outperformance.
Anthony Gallegos: As we enter 2024, our conversion strategy is continuing to pay dividends in terms of contract renewals and extensions. For example, we just executed several multi-year contract extensions with one of Permian's largest operators and signed another term contract with a new Permian customer. The majority of these contract extensions involved 300-series rigs that were converted by us in 2023. In 2023, we also began to take advantage of the partial pay down opportunity in our indenture by paying down a total of $15 million worth of convertible notes, including a $5 million pay down in the fourth quarter. We have mentioned in the past that positioning the company for a potential refinancing of our convertible notes is a high priority for us. As you may have noticed in our press release today, although our convertible notes do not mature until March of 2026, the refinancing window for these notes will open later this year, and we have appointed a special committee of independent directors to proactively begin the process of reviewing and evaluating opportunities regarding the notes and any other strategic opportunities that can be considered in connection with that review.
As we enter 2024, our conversion strategy is continuing to pay dividends on contract renewals and extensions for example, we just executed.
Several multi year contract extensions with one of the Permian is largest operators and signed another term contract with a new Permian customer. The majority of these contract extensions involved 300 series rigs that were converted by us in 2020 three.
In 2023, we also began to take advantage of the par paydown opportunistic in our indenture by paying down a total of $15 million worth of convertible notes, including a $5 million pay down in the fourth quarter.
We have mentioned in the past that positioning the company for a potential refinancing of our convertible notes as a high priority for US as you may have noticed in our press release today, although our convertible notes do not mature until March of 2026, the refinancing window for these notes will open later this year and we have appointed a special committee of independent directors to proactively began the.
Assess of reviewing and evaluating opportunities regarding the notes and any other strategic opportunities that can be considered in connection with that review.
Anthony Gallegos: Moving on to our fourth-quarter results, Philip will provide more details during his prepared comments, but I wanted to make a few. While our margins came in on the higher end of our guidance, our overall results came in at the low end, almost entirely due to higher rig reactivation expenses, much of which was related to higher labor and related expenses originally earmarked to perform maintenance and upgrade CAPEX on rig reactivations that ultimately did not materialize. The offset, of course, is that outlays for CapEx during the fourth quarter were only $2.7 million.
Moving on to our fourth quarter results Philip will provide more details during his prepared comments, but I wanted to make a few one.
While our margins came in on the higher end of our guidance. Our overall results came in at the low end almost entirely due to higher rig reactivation expenses much of which was related to higher labor and related expenses originally earmarked to perform maintenance and upgrade capex on rig reactivation that ultimately did not mature materialized.
The offset of course is that outlays for Capex during the fourth quarter was only $2 7 million.
Anthony Gallegos: Now I'd like to talk about the market for superspec rigs and our target markets, including what we are seeing from a day rate perspective and what has changed from our last conference call. Obviously, our Permian market has held up pretty well based on ICD's increased rig utilization and that base. But let me begin with our gas-directed Haynesville market. It's no secret that the Haynesville market was severely depressed throughout 2023, but early in Q4 of last year, as we entered the winter season, we've started to see some small opportunities for rig ads in 2024. Unfortunately, the combination of further declines in commodity prices driven by a very warm winter has paused these opportunities.
Now I'd like to talk about the market for Super spec rigs in our target markets, including what we're seeing from a day rate perspective, and what has changed from our last conference call.
Obviously, our Permian market has held up pretty well based on Icd's increased rig utilization in that basin, but let me begin with our gas directed haynesville market.
It's no secret that the Haynesville market was severely depressed throughout 2023 but early in Q4 of last year as we entered the winter season.
We started to see some small opportunities for rig adds in 2024.
Unfortunately, the combination of further declines in commodity prices driven by a very warm winter has paused these opportunities.
Anthony Gallegos: With these factors, combined with duck inventory builds in the area and customer consolidation, our expectation today, unfortunately, is for further decline in the Haynesville rig count overall and for ICD. We had three rigs working in Haynesville at the beginning of this year, but two of our customers with whom we were anticipating contract extensions notified us that they were not going to continue their programs. We've already relocated one of these rigs to West Texas, including completing a 200 to 300 series conversion during the rig move and placing it on a six-month contract with a new customer, all with zero operating time.
With these factors combined with DUC inventory builds in the area and customer consolidation our expectation today. Unfortunately is for further decline in the Haynesville rig count overall and for ICD.
We had three rigs working in the Haynesville at the beginning of this year. However, two of our customers with whom we were anticipating contract extensions notified us that they were not going to continue their programs. We've already relocated one of these rigs to west, Texas, including completing a 200 to 300 series conversion during the rig move and placing it on a six month contract with a new customer all with zero.
Anthony Gallegos: While the movement of this rig did cannibalize an opportunity we previously had earmarked for an incremental rig add, the rig is performing exceptionally well, and we feel we have a very good opportunity to add a second rig with that customer later this year, assuming their plans remain in place. For the second Haynesville rig where we received notice, we have been successful in placing that rig on a follow-on opportunity with a different customer, but it is a short-term program, and we are continuing to market the rig for follow-on opportunities. The takeaway from all this is that we expect to run two or so rigs in Haynesville for the foreseeable future and are scaling our operations accordingly. Our West Texas market, on the other hand, has held up much better, and we obviously have been successful in adding rigs across our customer base and increasing term contract exposure where it makes sense. We currently have 14 rigs running in West Texas.
Off rate time.
While moving up this rig did cannibalize an opportunity. We previously had earmarked for an incremental rig adds the rig is performing exceptionally well and we feel we have a very good opportunity to add a second read with that customer later this year, assuming their plans remain in place.
For the second Haynesville rig, where we received notice that we have been successful in placing that rig on a follow on opportunity with a different customer, but it is a short term program and we are continuing to market. The rig for follow on opportunities. They take away of all of this is that we expect to run two or so rigs in the haynesville for the foreseeable future and are scaling our operations accordingly.
Our west Texas market on the other hand has held up much better and we obviously have been successful in adding rigs across our customer base and create an increasing term contract exposure, where it makes sense and we currently have 14 rigs running in West Texas sour.
Anthony Gallegos: However, capital discipline and increasing consolidation of E&P companies kept a lid on the overall rig count in the Permian Basin during the second half of 2023, and all indications today are for a flattish overall rig count in the Permian during the first half of this year. We also expect continued elevated churn and rig movement within this overall flat rig count driven by the rebalancing of fleets following the closings of recent E&P consolidation transactions. Thus, incremental rig adds for ICD and the Permian are going to be predominantly directed toward high-grade opportunities, displacing lower-spec and or underperforming competitor rigs. These opportunities are very competitive, but so far, we have been successful in winning more than our fair share.
However, our capital discipline, and increasing consolidation of E&P companies kept a lid on the overall rig count in the Permian basin. During the second half of 2023 and all indications today are for a flattish overall rig count in the Permian during the first half of this year.
We also expect continued elevated churn and rig movement within this overall flat rig count driven by a rebalancing of fleets. Following the closings of recent E&P consolidation transactions.
That's incremental rig adds for ICD in the Permian are going to be from predominantly directed toward high grade opportunities displacing lower spec and our underperforming competitor rigs. These opportunities are very competitive, but so far we have been successful in winning more than our fair share.
Anthony Gallegos: In light of the flattish rig count overall at around 600 rigs, day rates in general have moved sideways, which is what we expect for the first half of 2024. Day rates and daily margins for superspec rigs are still healthy, but obviously lower than they were a year ago. This is more pronounced for incremental rig ads with new customers, for example, compared to when we renew or roll over a contract with existing customers. And, as you might expect, there's more day rate pressure in the Haynesville than in the Permian.
In light of the flattish rig count overall at around 600 rigs day rates in general have moved sideways, which is what we expect for the first half of 'twenty 'twenty four de.
The day rates and daily margins for Super spec rigs are still healthy, but obviously lower than they were a year ago. This is more pronounced for incremental rig adds with new customers for example, compared to when we renew a rollover of contract with existing customers and as you might expect there's more day rate pressure in the haynesville and in the Permian.
Anthony Gallegos: Spot market day rates on competitive awards can be up to a couple thousand dollars per day lower than rollover rates owing to efficiencies earned and friction costs of changing out rigs that are performing at today's required level of performance. Day rates in the Permian for our 300-series rigs have remained stable in the low $30,000 range and for our remaining 200-series rigs, in the high $20. There are some competitors bidding on regs at day rates less than this, but the largest providers have held up their pricing, which is helpful.
<unk> market day rates on competitive awards can be up to a couple thousand dollars per day lower than rollover rates, owing to efficiencies iron and friction costs of changing out rigs that are performing at today's required level of performance.
Rates in the Permian for our 300 series rigs have remained stable in the low 30000 dollar range and for our remaining 200 series rig the high Twenty's.
There are some competitors bidding rigs at day rates less than this but the largest providers have held up their pricing which is helpful.
Anthony Gallegos: We continue to earn full cash-on-cash payback over the initial contract for any CapEx associated with a $200 to $300 series conversion. In light of this backdrop, our strategic operating objectives and priorities as we move forward are as follows. While we still believe we can return to a 21-operating rigged fleet, that goal has been pushed to the right in light of the market dynamics I just described. During the first half of 2024, our priority will be to navigate the increased churn and choppiness we are seeing in the Haynesville and from customer consolidation in the Permian and focus on maximizing utilization on the rigs we currently have operating as we expect to deal with some rig movements here in the first half of this year as the effects of lower gas prices and customer consolidation and capital allocation priorities work their way through the system.
We continue to earn full cash on cash payback over the initial contract for any capex associated with a 203 hundred series conversion.
In light of this backdrop, our strategic operating objectives and priorities as we move forward are as follows.
While we still believe we can return to a 21 operating rig fleet that Golar has been pushed to the right in light of the market dynamics I just described.
During the first half of 'twenty 'twenty four our priority will be to navigate the increased churn of Choppiness, we're seeing in the haynesville.
Customer consolidation in the Permian and focus on maximizing utilization on the rigs. We currently have operating as we expect to deal with some rig movements here in the first half of this year as the effects of lower gas prices and customer consolidation and capital allocation priorities work their way through the system.
Anthony Gallegos: Beyond that, I expect we will see opportunities to grow our Permian Basin presence as this year plays out, as the benefits of our 300-series rigs and our 200- to 300-series conversion program combined with our ICD impact offerings continue to bring new customers into the fold and allow us to expand existing customer relationships. In the face of a likely flat overall Permian rig count in the near term, we will likely need to continue to punch above our weight class to drive incremental rig reactivations, but I think we've shown that we're more than able to do that. Obviously, if the Permian rig count moves upward sooner, that will only increase our opportunities for rig reactivation and margin improvements in the first half of 2024. As I mentioned, given further declines in the Haynesville, we don't see a recovery in that basin until mid-2025, given the very warm winter which is winding down, large gas storage levels, significantly lower natural gas prices, and the duck inventories which E&P companies have assembled.
Beyond that I expect we will see opportunities to grow our Permian basin presence as this year plays out as the benefits of our 300 series rigs and our 200 to 300 series conversion program combined with our ICD impact offerings continue to bring new customers into the fold and allow us to expand existing customer relationships.
In the face of a likely flat overall Permian rig count in the near term, we will likely need to continue to punch above our weight class to drive incremental rig reactivation, but I think we've shown that were more than able to do that.
Obviously, if the Permian rig count moves upward sooner that will only increase our opportunities for rig reactivation and margin improvements in the first half of 'twenty 'twenty four.
As I mentioned given further declines in the Haynesville, we don't see a recovery in that basin until mid 'twenty 25, given the very warm winter, which is winding down large gas storage levels significantly lower nat gas prices and the DUC inventory, which E&P companies have assembled.
Philip A. Choyce: But we are leaving the door open for an eventual return when market dynamics in that basin turn more positive for drilling contractors with strong brands and reputations in the challenging operating environment which the Haynesville presents. So, rolling all this up, I'm confident that ICD is ready for the year which has now started. The overall CAPEX budget net of disposals for 2024 has been set at $18.2 million, and we have set our cash SG&A budget for fiscal 2024 at $15.3 million, both reflective of a flatter operating environment which we are now experiencing. I'll make some additional concluding remarks before opening the call to questions, but right now, I want to turn the call over to Philip to discuss our financial results and financial outlook in more detail.
But we are leaving the door open for an eventual return when market dynamics in that basin turned more positive for drilling contractors with strong brand and reputation and the challenging operating environment, which the Haynesville presents.
So rolling all of this up I'm confident that ICD is ready for the year, which has now started.
Overall capex budget net of disposals for 2024 has been set at $18 2 million and we have set our cash SG&A budget for fiscal 2024 at $15 3 million, both reflective of a flatter operating environment, which we are now experiencing.
Some additional concluding remarks before opening the call up for questions, but right now I want to turn the call over to Philip to discuss our financial results and financial outlook in more detail.
Philip A. Choyce: For the fourth quarter of 2023, we're reporting an adjusted net loss of $8.6 million, or 61 cents per share, and adjusted EBITDA of $9.9 million. In calculating adjusted EBITDA on the loss per share, we excluded $600,000 associated with non-cash SG&A marketing expense during the quarter, which related to an amendment to some contractual assets. We also excluded $14.7 million associated with a non-cash
For the fourth quarter of 2023, we reported an adjusted net loss of $8 $6 million or <unk> 61 per share and adjusted EBITDA of $99 9 million and.
In calculating adjusted EBITDA loss per share, we excluded $600000 associated with noncash SG&A marketing expense during the quarter, which related to an amendment to some contractual assets.
We also excluded $14 $7 million associated with a noncash impairment charge.
Philip A. Choyce: The impairment charge relates to idle equipment that we do not believe will be usable and the company's pleaded 26 marketed rigs on a go-forward basis, as well as capital spares that will be disposed of in connection with efforts to consolidate the company's yard location. During the quarter, we operated 14.9 average rigs in line with our prior conference call guidance. Margin per day during the quarter came in at $12,313 per day, at the high end of guidance. However, as Anthony mentioned, reactivation costs of $2.1 million exceeded guidance from our last conference call, and there were no early termination revenues during the quarter. SG&A costs were $5.7 million during the quarter, which included approximately $1.8 million of stock-based and deferred compensation expense, as well as the non-cash operating expense I've previously mentioned. Cash SG&A expense during the quarter was $3.9 million, relatively flat with the third quarter and in line with guidance. Interest expense during the quarter aggregated $9.8 million. This included $2.6 million associated with non-cash amortization of deferred issuance costs and debt discount, which we excluded when presenting adjusted net income. The tax benefit for the quarter was $900,000.
The impairment charge relates to idle equipment that we didn't we did not believe will be usable in the Companys fleet of 26 marketed rigs on a go forward basis as well as capital spares that will be disposed of in connection with efforts to consolidate the company's yard locations.
During the quarter, we operated 14.9 average rigs in line with our prior conference call guidance margin per day during the quarter came in at $12313 per day at the high end of guidance. However, as Anthony mentioned reactivation costs of $2 1 million exceeding guidance from our last conference call.
And there were no early termination revenues during the quarter.
SG&A costs were $5 $7 million during the quarter, which included approximately $1.8 million of stock based and deferred compensation expense as well as the non cash operating expense I previously mentioned.
Cash SG&A expense during the quarter was $3 9 million relatively flat with the third quarter and in line with guidance.
Interest expense during the quarter aggregated $9 $8 million. This included $2 $6 million associated with noncash amortization of deferred issuance costs and debt discount, which we excluded them presenting adjusted net income.
Tax benefit for the quarter was.
$900000 and during the quarter cash payments for capital expenditures net of disposals were approximately $2 7 million.
Philip A. Choyce: And during the quarter, cash payments for capital expenditures net of disposals were approximately $2.7 million. Moving on to our balance sheet, we paid $5 million of convertible notes at par at quarter end. The overall adjusted net debt during the quarter was reduced by $4 million.
Moving onto our balance sheet, we repaid $5 million of convertible notes at par at quarter end overall adjusted net debt during the quarter was reduced by $4 million.
Philip A. Choyce: Our financial liquidity at quarter end was $26.2 million, comprised of cash on hand of $5.6 million and $20.6 million of availability under our revolving credit facility. Now, moving on to guidance for Fiscal 24 and the first quarter of 2000. As Anthony mentioned, we have set our capital expenditure budget at $18.2 million net of disposals for 2024. This includes completion of a 200 to 300 series conversion on the loan 200 series rig we have operating today. The budget is based on 17 operating rigs in the near term. As Anthony mentioned, we are expecting a relatively flat operating rig count for at least the first half of 2024. We expect to adjust our capital budget upward on any incremental rig adds that increase our operating rigs above 17 before these expectations.
Our financial liquidity at quarter end was $26 $2 million comprised of cash on hand of $5 $6 million and $26 million of availability under our revolving credit facility.
Now moving onto guidance for fiscal 'twenty four in the first quarter of 2024.
As Anthony mentioned, we have set our capital expenditure budget at $18 $2 million net of disposals for 2024. This includes completion of a 200 to 300 series conversion on a loan 200 series rig we have operating today.
Budget is based upon 2017 operating rigs in the near term.
As Anthony mentioned, we're expecting a relatively flat operating rig count for at least the first half of 2024.
We would expect to adjust our capital budget.
Incremental rig adds that increase our operating rigs above 17 earlier than these expectations.
Philip A. Choyce: I would note that due to the white space created by rig churn, our reported average operating day during a particular quarter will likely be below 17 until we begin reactivating additional equipment. For more information, visit www.fema.gov. We have set our cash SG&A budget for 2024 at $15.3 million. This is a reduction of approximately 8% compared to fiscal 2023 and represents consolidation of various corporate functions that occurred early
I would note that due to white space created by rig churn our reported average operating day during a particular quarter will likely be below 17 until we begin reactivating additional rigs.
We have set our cash SG&A budget for 2024 at $15 $3 million. This was a reduction of approximately 8% compared to fiscal 2023 and represents consolidation of various corporate functions that occurred early in 2024.
Philip A. Choyce: Non-cash stock-based compensation during 2024 is expected to be approximately $5 million, but much of this is tied to variable accounting and is driven by increases or decreases in relation to our stock price at the time. We're budgeting interest expense in 2024 to approximate $30 million. In addition, we expect to recognize $12 million of non-cash interest expense associated with amortization of debt discounts and offering costs.
Noncash stock based compensation during 2024 is expected to be approximately $5 million, but much of this is tied to variable accounting is driven by increases or decreases.
And to our stock price at periods that.
We're budgeting interest expense in 2024 to approximate $30 million.
In addition, we expect to recognize $12 million of noncash interest expense associated with amortization of debt discount and offering costs and finally, we expect our effective tax rate in 2024 to be approximately 5%.
Philip A. Choyce: And finally, we expect our effective tax rate in 2024 to be approximately 5%. Now moving on to more specific guidance for the first quarter of 2024, we expect operating days to be approximately 1,343 days.
Now moving on to more specific guidance for the first quarter of 2024, we expect operating days to approximate 1343 days.
We expect margin per day to come in between 10004 hundred $11000 per day with a sequential decline related to lower day rates on contract renewals.
Philip A. Choyce: We expect margin per day to come in between $10,400 and $11,000 per day with a sequential decline relating to lower day rates on contract renewals. Breaking out the components, we expect revenue per day to range between $30,100 and $30,400 and cost per day to range between $19,300 and $19,600. Based upon cost efficiency initiatives instituted at the beginning of 2024, we are expecting positive trends in our overall cost per day compared to 2023. Unrecognized overhead expenses will be about $800,000 during the quarter, and we've excluded those expenses from our cost per day guidance.
Breaking out the components, we expect revenue per day to range between 30100, $30400 and cost per day to range between 19300 $19600.
Based upon our cost efficiency initiatives initiatives instituted at the beginning of 2024, we are expecting positive trends in our overall cost per day compared to 2023.
Unabsorbed overhead expenses will be about $800000 during the quarter and we've excluded those expenses from our cost per day guidance. This includes approximately $200000 associated with relocating rigs from the haynesville to the Permian.
Yeah.
First quarter cash SG&A expense to be approximately $4.4 million, which includes severance costs of approximately $400000.
Cash SG&A during the year somewhat frontloaded due to year end professional fees.
Philip A. Choyce: This includes approximately $200,000 associated with relocating rigs from the Haynesville to. That first quarter cash SG&A expense is expected to be approximately $4.4 million, which includes severance costs of approximately $400,000. Cass SG&A during the year is somewhat front-loaded due to year-end professional fees. Similar to our expectations around cost per day, we are expecting positive trends in our cash SGA expense in future quarters based upon cost efficiency initiatives instituted at the beginning of the year. Stock-based compensation expense for the corridor should approximate $1.4 million, assuming no material changes to our stock price that would impact variables. In the first quarter, we expect interest expense to approximate $10 million, and of this amount, approximately $2.7 million will relate to non-cash amortization and deferred financing costs and debt.
Similar to our expectations around cost per day, we are expecting positive trends in our cash SG&A.
Expense in future quarters based upon cost efficiency initiatives instituted at the beginning of the year.
Stock based compensation expense for the quarter should approximate $1 $4 million, assuming no material changes to our stock price that would impact variable awards.
The first quarter, we expect interest expense to approximate $10 million and of this amount approximately $2 seven will relate to noncash amortization of deferred financing costs and debt discounts.
Depreciation expense for the first quarter is expected to be flat with the fourth quarter and we expect our tax benefit during the quarter to be de Minimis.
And with that I will turn the call back over to Anthony.
Thanks, Phil So wrapping all this up I believe ICD performed very well last year as we navigated many challenges successfully and the process. We grew our Permian basin presence and we were able to expand some key customer relationships and obtained some new customers all the while delivering world class performance, including industry, leading Hs <unk> results, we continue to make.
Philip A. Choyce: Appreciation expense for the first quarter is expected to be flat with the fourth quarter, and we expect our tax benefit during the quarter to be de minimis. And with that, we'll turn the call back over to you. Thanks, Philip. So, to wrap all this up, I believe ICD performed very well last year as we navigated many challenges successfully. In the process, we grew our Permian Basin presence, and we were able to expand some key customer relationships and attain some new customers, all the while delivering world-class performance, including industry-leading HSNE results. We continue to make progress on the three most important strategic initiatives we have, which include paying down debt, increasing our exposure to the 300 Series market, and leveraging our ICD impact offerings. So with that, we'd like to take your questions. Operator, please open up the line for Q&A. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.
Progress on the three most important strategic initiatives, we have which include paying down debt, increasing our exposure to the 300 series market and leveraging our ICD impact offerings.
So with that we'd like to take your questions. Operator, Please open up the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Our first question comes from Steve Frenzy with Sidoti. Please go ahead.
Good morning, Anthony Phillip Thanks for all the color on the call.
Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then two. Our first question comes from Steve Ferenzi with Sidoti. Please go ahead. Good morning, Anthony, Philip.
Just first.
Just so I can clarify the guidance it sounded like you were setting capex based on 17 operating rigs, but it sounds like your guidance for Q1, it's probably slightly less than 15, giving me. Some some white space can you just can you sort of connect the two.
Philip A. Choyce: Thanks for all the color on the call. First, just so I can clarify the guidance sounded like you were setting CapEx based on 17 operating rigs, but it sounds like your guidance for Q1 is probably slightly less than 15, given the some white space. Can you can you sort of connect the two?
Yeah, there's a we've got when you look at our fleet see this fill up we've got 17, what I call Hot rigs.
Three or four of them. They really are moving around on US right now Theres a couple in the Haynesville as Anthony talked about his prepared remarks, we've got one I would characterize as caught up in the consolidation that's gone on where the customer's going to where we're moving that around and then you always have one we've got one so therefore, so rigs that.
Philip A. Choyce: Yeah, we've got, when you look at our fleet, Steve, we've got 17, what I call hot rigs. There are about three or four of them that are really moving around on us right now. There's a couple in Haynesville, as Anthony talked about, in prepared remarks. We've got one that I would characterize as caught up in the consolidation that's gone on where the customer is going, and we're moving that around. And then you always have one; we've got one.
Now we're moving around right now so there's 17 hot rigs.
And so that's really why the difference between the average rig.
Rig count in the quarter and what we're dealing with as far as actual rates move.
Philip A. Choyce: So there are four or so rigs that are, that we're moving around right now. So there are 17 hot rigs. And so that's really why the difference between the average rig count in the quarter and what we're dealing with as far as actual rigs move, you know, moving around. That's helpful.
Moving around.
Oh no.
That's helpful.
When I think about how you're seeing 24 play out and we know there was the warm winter obviously it had a significant impact on the haynesville, but in general you're talking about.
Philip A. Choyce: When I think about how you're seeing 24 play out, and we know that the warm winter obviously had a significant impact on the Haynesville, but in general, you're talking about Day rates being somewhat sideways, what's your risk level to that? Given that the Permians are at best flattish through the first half.
Hey rates being somewhat sideways, what's your what's your risk levels for that.
Given given if the Permian steadfast flattish through the first half.
I think it's a good question Steve.
Risk I mean, obviously day rates could go higher it could go lower but we've been in this kind of pattern for the last three or four months, where rig counts more or less moved sideways U S land rig counts around 605, its downside this and that pricing has been pretty steady and also pretty level during that.
Anthony Gallegos: I think it's a good question, Steve. The risk, I mean, obviously, day risk could go higher or lower, but, you know, we've been in this kind of pattern for the last three or four months where rig counts more or less move sideways. You know, U.S. land rig counts around 600, it's up five, it's down five, this and that. However, pricing has been pretty steady and also pretty level during that same period as well. You know, where we've been able to add, such as out in the Bermiand, it's been more on rig spec and capability as opposed to, being in the low bid for a. So, I feel pretty good, feel pretty confident about the margin guide. You know, the message I think we've tried to convey as we think here in the first half of the year is flattish.
Same period as well.
You know, where we've been able to.
Add such as out in the Permian.
It's been more on rig spec and capability as opposed to.
And the low bid for example.
So I feel pretty good feel pretty confident about the the margin guide.
The message I think we've tried to convey is we think here in the first half of the year it's flattish.
Philip A. Choyce: And we're optimistic about the back half of the year. So that's how we think about it. And feel pretty good about it. Steve, I might add. I might add just if you're looking from the fourth quarter to the first quarter, we don't have all of our legacy contracts, you know, that were at higher day rates signed back when the market was stronger. Those have all expired or rolled over.
And we're optimistic about the back half of the year.
That's how we think about it we feel pretty good about it okay.
Helpful, Steve I might add.
Ed.
Okay.
I might add just if youre looking from fourth quarter to first quarter, we don't have all of our legacy contracts.
At higher day rates signed back when the market was stronger those are all expired rolled over.
Okay.
You highlighted the fact that obviously the Permian was soft during 'twenty three yet you were able to move a lot of rigs there and then from the Haynesville and when contracts what's your ability in this environment.
Anthony Gallegos: You highlighted the fact that obviously the Permian was soft during 23, yet you were able to move a lot of rigs there and went from the Haines to Linwood contracts. What's your ability in this environment? Because, clearly, you've had the ability with the 300 series rigs to displace other rigs. Is that harder now?
Clearly you have had the ability with the 300 series rigs to displace other other.
The rigs is that harder now.
Anthony Gallegos: No, I think, you know, obviously, we need the programs to continue. We need to have a long enough rig line in front of us for the customer to justify the kind of friction of changing a competitor out. But I think, you know, it's why you've heard us pound the table now for going on two years about the need to continue to evolve our fleet toward the 300 Series spec because, in this environment we're in now, the laterals are getting longer. Our customers are more interested today in adopting, evaluating, and adopting technology.
No I think you know obviously, we need the programs to continue we need to have.
Long enough rig line in front of us for the customer to justify the kind of the friction of changing a competitor out.
But I think it's why you've heard us pound the table now for going on two years about the need to continue to evolve our fleet towards the 300 series best stack because in this environment. We're in now the laterals are getting longer our customers are more interested today in adopting evaluating and adopting.
Anthony Gallegos: That's why the stuff we've been doing in the background that we refer to as ICD impact is so important. And, you know, I think we've proven, certainly over the last year, that, you know, we can increase our utilization. You know, in some cases, that's coming at the expense of a competitor's rig. But, I mean, that's how I think about that.
Technology, that's why the stuff we've been doing in the background that we referred to as ICD impact is so important.
And.
I think we've proven.
Certainly over the last year.
<unk>.
We can increase our utilization.
In some cases, that's coming at the expense of our competitors rig.
<unk>.
But I mean, that's how I'd think about that so to the extent the rig lines continue.
Anthony Gallegos: So, to the extent the rig lines continue, you know, we've proven our ability to do that, and our expectation will continue to be able to do it. Won't happen as fast as any of us would like, but we'll continue to chip away at it. Thanks, Jeffrey, thanks today. The next question comes from Don Crisp with Johnson Rice. Please go ahead. Morning gentlemen, how are y'all doing today?
Now we've proven our ability to do that and that's our expectation will continue to be able to do it won't happen as fast as any of us would like but we will continue to chip away at it.
Okay.
Thanks, Phil.
Okay.
The next question comes from Don Crist with Johnson Rice. Please go ahead.
Morning, gentlemen, how are you all doing today.
Anthony Gallegos: Great morning, Don. Anthony, in the press release, you talked about tech packages on about half of your rigs. Can you remind us what kind of uplift that gets you, and is there opportunity to kind of expand that across the rest of the operating fleet, which is about half today? Yeah, I do think there's opportunities to continue to expand it, and I've been very pleased with what we've been able to do so far. You know, if anything, that number may be understating what we're actually doing when you think about all of the tools that are out there, but the adder, you know, the most important part of the adder would be the margin uplift, anywhere from a couple hundred dollars a day to, in some cases, a little higher than that. So, you know, I could see someone say, well, you know, look, the other company over there is charging a couple thousand.
Good morning, Don.
Anthony in the press release, you talked about tech packages on about half of your rigs can you remind us what kind of uplift that gets you.
And is there opportunity to kind of expand that across the rest of the you know the operating fleet, it's about half today.
Yes, I do think there's opportunities to continue to expand it and <unk> been very pleased with with what we've been able to do so far.
If anything that number may be understating, what what we're actually doing when you think about all of the tools that are out there.
But the.
The ad or the most important part of the outer would be the margin uplift anywhere from a couple of hundred dollars a day.
In some cases, a little higher than that.
So I.
I could see someone say well look so the other company over there is charging a couple of thousand well that other companies got a lot of capital invested in that and you know our strategy has been to be a very fast second mover here to partner with people that probably know more about the intricacies of it that the.
Anthony Gallegos: Well, that other company's got a lot of capital invested in that, and, you know, our strategy has been to be a very fast second mover here to partner with people that probably know more about the intricacies of it, the IT part of it, than we do, that have been working on this, in some cases, for more than a decade, and leverage their capability, combine it with the AC pad optimal super spec rig which So, like I said, we probably aren't able to bring as much to the bottom line or the margin per day as some of our competitors, but we've essentially got very little invested in.
Part of it than we do.
That had been working on this in some cases for more than a decade and leverage their capability and combine it with the the AC pad optimal super spec rig, which we have and deliver value working together to our customer. So like I said, we'd probably arent able to bring as much.
The bottom line or the margin per day.
Some of our competitors, but we've essentially got very little invested in us.
Anthony Gallegos: Right. And on the contracting side, you know, it sounds like you signed a couple longer-term contracts here in the last couple months or so, but are you getting... Significant inbounds from the people that you're working for today to kind of turn them on for two or three years, and what is your willingness to do that today? Yeah, we're not getting a lot of inbounds. In this particular case, it was a very important strategic client for the company.
Right.
And on the contracting side you know it sounds like you've signed a couple of longer time contracts here in the last couple of months or so but.
Are you getting.
Significant inbounds from the people that you're working for today to kind of term up for two or three years or and what is your willingness to do that today.
Yeah, we're not getting a lot of inbounds and in this particular case it was very important strategic client for the company.
Anthony Gallegos: They did approach us, asked us what our thoughts were around that. And as we sat here and thought about the next year or two and some of the things that we have to get done, especially around addressing the convertible nodes that aren't going to mature until March 2026, we felt that it would be good and prudent for the company to put some backlog on the books. And I mean, there's a couple of two-year contracts in that mix, just so you know. So I think we made the right decision. They didn't have to get; in fact, the day rate on the longer term, the two-year term, was higher than the spot market rate.
They did approach us asked us what our thoughts were around that and as we sat here and thought about the next year or two and some of the things that we have to get done.
Especially around addressing the no convertible notes that arent going to mature until March 2026.
We felt that it would be good and prudent for the company to put some backlog on the books and theirs.
Theres a couple of two year contracts and that mix just starting now so I think we made the right decision didn't have to get in fact, the day rate on the longer term the two year term.
Was higher than the spot market right. So.
Anthony Gallegos: So, you know, I hope we're in a situation where a year from now we feel like we left some money on the table because that's going to be really good for the industry and certainly it's going to be good for ICD. Yeah, we did it, and we would continue to evaluate it, especially as we navigate 2024 and start to chip away at some of the stuff we've got to get done. Okay, and one final one for me.
No.
I hope were in a situation where a year from now we felt like we left some money on the table because that's going to be really good for the industry and certainly is going to get for ICD, but.
Yeah.
We did it and we would continue to evaluate it, especially as we navigate 2024 and start to chip away at some of the stuff we've got to get done.
Okay and one final one for me one of your major competitors at a conference last week talked about some <unk>.
Anthony Gallegos: One of your major competitors at a conference last week talked about some strength maybe in the fourth quarter in the gas basins, but it sounds like you're not really seeing that in the Haynesville. Is it kind of just splitting hairs there, or do you think that there could be some uplift in the fourth quarter in the gas basins as we move forward? Obviously, that'll be dependent on the strip as it progresses. Yeah. You know, look, maybe he or they have spent more time on it than we have.
Strength, maybe in the fourth quarter in the gas basins, but it sounds like youre, not really seeing that in the haynesville as well.
Is it kind of just splitting hairs, there or do you think that there could be some uplift in the fourth quarter.
In the gas basins as we move forward, obviously that'll be dependent on the strip as it progresses yeah.
Maybe he's our they have spent more time on it than we have I'm I'm just looking at it a very high level, Dan and you know what I see with inventory levels.
Anthony Gallegos: I'm just looking at it from a very high level, Don. And you know, what I see with inventory levels, the ability to liquefy and export gas. You look at the duck inventory levels as well.
The ability to liquefy and export gas you look at the DUC inventory levels as well.
Anthony Gallegos: It's just hard for me to see where there's going to be any real pickup. Until we get into the middle part of next year, I think we've got to work through the winter of 2024 rather than in 2025. I think as the strip moves up, what a lot of our customers are going to do is reach into their inventory of ducts and complete them, and then they're going to have to replenish those.
Just hard for me to see where there is going to be any real pickup until we get into the middle part of next year I think we've got to work through winter 2024, Rolling into 2025, I think as the strip moves up.
What a lot of our customers are going to do is they're going to reach into their inventory of ducks and complete them and then they're going to have to replenish those so that's why it may be a little bit more bearish on that longer term still very bullish on gas U S gas, what it's going to do for society, what it's going to do for our country in terms of energy security energy transition and all.
Anthony Gallegos: So that's where I may be a little bit more bearish on that. Longer term, still very bullish on gas, U.S. gas, what it's going to do for society, what it's going to do for our country in terms of energy security, energy transition, and all of that. Just I think the next 12, 18 months, we're going to have some headwinds. I appreciate it for the color.
That just I think the next 12 18 months, you're going to have some headwinds.
I appreciate all the color thanks, guys.
Anthony Gallegos: Thanks, guys. Thank you, Doc. The next question comes from David Storms with Stonegate Capital. Please go ahead.
Thank you dawn.
The next question comes from David storms with Stonegate capital. Please go ahead.
Philip A. Choyce: Morning, Dave. Just hoping we could start, last quarter we talked about some of the smaller contractors kind of pulling prices down a little bit, and there was a comment about their capacity hopefully drying up through this early half of the year. Just curious if you saw that come to fruition and kind of where you see pricing going from here in relation to the smaller contractors' capacity. Yes, I think the last time we talked, Dave, we were pretty optimistic about the rig count actually starting to increase as we exited 2023 and then in the first half of this year. And two things have happened since then.
Morning.
Good morning, David.
Just hoping we could start last quarter, we talked about are some of the smaller contractors are kind of.
Pulling pricing down a little bit and there was a comment around that.
Their capacity hopefully drying up through this really half of the year I'm. Just curious if you saw that come to fruition and kind of where you see pricing going from here in relation to smaller contractors capacity.
Yes.
The last time, we talked we were pretty optimistic about the rig count actually starting to increase as we exited 2023 and then in the first half of this year.
And two things have occurred since then one the rig count has been flat and there's all kinds of reasons for that and then I think also the churn that's being created with as a function of the M&A that's happening among our customers does those two things are flat rig count and then the churn.
Anthony Gallegos: One, the rig count has been flat, and there are all kinds of reasons for that. And then there is also the churn that's being created as a function of the M&A that's happening among our customers. Those two things, the flat rig count and then the churn, have created a situation where we thought more of our smaller competitors' rigs might get soaked up in an increase. Obviously, that hasn't happened, so it's still there.
<unk>.
Created a situation, where we're we thought more of our smaller competitors rigs might get soaked up and an increase obviously thats not happened. So it's still there.
Good news is.
Anthony Gallegos: The good news is you do see a bifurcation in pricing. You've got the big three that are doing a really good job of standing their ground, and it gets a little bit more competitive below that.
You do see a bifurcation in pricing you've got the big three that are doing a really good job.
Standing their ground.
It gets a little bit more competitive.
Below that but.
Anthony Gallegos: You know, we seem to have landed at a floor in terms of pricing. We've not seen any real movement on spot market pricing among that group in the last few months. But where you see that impact ICD in our margin per day is that as these rigs have rolled off of legacy contracts at higher day rates, they've had to reprice into a spot market that, you know, is a few thousand dollars a day less. And that's what you're seeing reflected in kind of how we're thinking about the first half of this year. And then just one more from a more macro level. Are you seeing any demand fluctuations in relation to the Canadian Trans Mountain Pipeline and the impact that it is expected to have on the North American energy sector? Not in the lower 48.
We have seen to have landed at a floor in terms of pricing, we've not seen any real movement on spot market pricing among that group last few months.
But where you see that.
Impact ICD and our margin per day is that as these rigs or rigs that rolled off of legacy contracts at higher day rates, they've had to reprice into the spot market.
Dollar state less and Thats, what youre seeing reflected in kind of how we're thinking about the first half of this year.
Yeah.
Understood very helpful. And then just one more from a more macro level are you seeing any demand fluctuations in relation to the Canadian Trans mountain pipeline and the impact that's expected to have on the North American energy segment.
Not not in the lower 48.
Anthony Gallegos: You know, I don't follow the Canadian market very closely, but my understanding is they're busier up there than they've been in a long time. It's very good for them, but I'm not aware of any impact. We're not working in the bucket anymore, so I don't have a good feel for what's happening up there. That would be an area where maybe they might see some uplifts and benefit from them. But in the lower 48, especially in our target markets, I'm not aware of any impact.
Follow the Canadian market, but my understanding is they're busy are out there than they've been in a long time, it's very good for them, but I'm not aware of any impact we're not working in the Bakken anymore. So I don't have a good feel for what's happening up there that that would be an area, where maybe they might see some uplift some benefit from it but in the lower 48, especially in our target.
I'm not aware of any impact.
Anthony Gallegos: That's perfect. Thank you for taking my question, Burke. This concludes our question and answer session. I would like to turn the conference back over to Anthony Guyagas for any closing remarks. Okay, great.
That's perfect. Thanks for taking my questions.
Sure.
This concludes our question and answer session I would like to turn the conference back over to Anthony Guy I guess for any closing remarks.
Anthony Gallegos: Thank you, sir. I'd like to close out the call. I want to say thank you to our many employees at ICD for their hard work and dedication. Also, I want to say thank you to our customers for their business, and we'd like to thank you for taking the time today to participate in this call. With that, we'll sign off from here. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Okay, great. Thank you, Sir I'd like to close out the call I want to say, thank you to our many employees at ICD for their hard work and dedication also want to say, thank you to our customers for their business and we'd like to thank you for taking the time today to participate in this call with that we'll sign off from here. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.