Helmerich & Payne, Inc.

relentless focus on providing value to our customers. We also made significant progress on two key fronts of our international growth strategy during the quarter. First, as part of our organic growth plan, we completed the exportation of eight flex rigs into Saudi Arabia, where they will be drilling in unconventional natural gas plays. Second, after receiving the final regulatory approvals for the KCA DOITAG acquisition, We were able to close on the transaction a couple of weeks ago, which now makes H&P a global leader in providing onshore drilling solutions. I'll talk more about the significant attributes of this transaction in a few minutes, but we believe this deal positions us as the premier global drilling company with global scale, industry-leading technology, a fantastic group of customers, and best-in-class workforce. Collectively, these achievements in North America Solutions and international continue to demonstrate our ability to execute across multiple capital allocation goals investing in the business for the long term, providing shareholder returns and maintaining a strong financial position which prioritizes debt reduction. Throughout its long history, H&P has differentiated itself from competitors by developing distinct competitive advantages. In many ways, those distinctives revolve around the attributes of our rigs, our people, our processes, and our technology. But importantly, scale and managing through the cycles are also crucial differentiators. We have long been known as an industry leader in the U.S., with our super spec flex rig fleet having over 35% market share today. We have a strong presence in all major basins in the U.S., highlighted by our market-leading presence in the Permian, where we have around 100 rigs running today. The continued growth in market share of super spec rigs also benefits H&P, and we remain the market share leader with public E&Ps by a very wide margin in addition to our leading position with private E&P operators. Our market share leadership is a testament to our customer-centric approach, which allows us to align and execute in a manner that has all parties working together toward a common goal. Innovations like performance contracts have enabled the company to further accentuate its distinctive advantage by driving alignment around customer value creation while deploying cutting-edge performance technologies. This focus, coupled with our operating and technical performance, is why I believe our customer partnerships are stronger than they have ever been. Through these efforts and North America's solutions, we continue to earn returns in line with our cost of capital and demonstrate our ability to realize these results through the cycle. For example, in 2024, it was a second year in a row where our margins have remained at healthy levels and we accreted market share despite industry rate count declines. Our disciplined approach will continue to provide us the opportunity to provide strong and consistent margin generation and serve our customers in the best way possible. Turning attention towards our international solutions, for the past several years, we have spoken about the strategic importance of expanding our scale geographically, especially in the Middle East. The KCAD acquisition, along with the legacy H&P organic growth initiatives, provides us with a market-leading position in the Middle East. Let me quickly reiterate the merits of the transaction. The legacy KCAD's assets and operations will help accelerate that international growth strategy and establish H&P as a global leader in onshore drilling. Second, we will have a robust geographic and operational mix across the US and international crude oil and natural gas markets. This will diversify where and how we generate revenues. Third, we expect the transaction to generate attractive financial returns. The legacy KCA has a solid backlog of work totaling approximately $5.5 billion supported by Blue Chip customers. Now that we've closed the acquisition, we will be a more financially resilient company with cash flow diversification across leading global markets. The combined company will share our customer-centric approach safety focus, and commitment to providing exceptional performance and value. I'm encouraged by the excitement from customers over the past few weeks. I've been in Saudi, in Oman, and in Kuwait, and there is excitement to work with H&P. In addition, we're seeing multiple avenues of organic growth around these assets, as we've heard from numerous customers that are looking forward to working with H&P in their markets. The new company will bring these values forward and continue to operate in the H&P way. Now turning to the outlook for 2025, Kevin's going to hit on these in more detail, but there are some near-term headwinds surrounding our international growth plans, namely the rig suspensions related to the KCA acquisition and the startup costs associated with our organic growth in Saudi. I want to stress that we believe these are temporary short-term challenges often associated with this highly cyclical industry, and they don't reflect the significant value we believe will be created by H&P over time. Specifically regarding KCA's legacy operations in Saudi, the first rig suspension was last August, and those are one-year duration suspensions. So as of now, we're not planning for a significant contribution in direct margin from those rigs in the near term. With regards to direct margins in Q2 of 2025 for the North America solutions segment, we expect them to remain at healthy levels, but we do expect a modest decline due to fewer days in the quarter and the normal variability that we see with revenues and costs. One thing that strikes me as I look at our results across the last couple of years is the resilience of our margins in North America. accomplished because of the hard work our sales and operations teams have delivered. And while we may see some quarterly variation, our disciplined and customer-centric approach continues to generate consistent margins and free cash flow. In closing, we strongly believe there are transformational aspects of the KCAD acquisition. The new H&P has global scope and scale. with exposure to the best hydrocarbon basins in the world and the ability to profitably grow in multiple markets around the world. North America's solutions is resilient and continues to deliver strong and consistent margin generation while providing innovative solutions for our customers. We have an achievable plan to de-lever and maintain our investment-grade credit rating. which is another financial differentiation between us and our peers. Our international business has the means to quickly grow revenues from this lower starting point and we're already seeing numerous opportunities for synergies across the combined company. Our offshore and other business with manufacturing and technology solutions provide capital efficient free cash flow. Finally, the H&P team, which now includes those from legacy KCA, remains committed to continue delivering the drilling outcomes our customers desire in a safe and efficient manner. H&P will also remain disciplined and committed to prudent capital allocation for our shareholders, like we have for over 60 years as a public company with a focus on maintaining a strong financial position balancing our significant free cash flow, growth CapEx opportunities, and returns to shareholders. And now I'll turn the call over to Kevin.

Thanks, John. Today I will review our fiscal first quarter 2025 operating results, provide guidance for the second quarter, which will include a partial quarter of our expanded international business resulting from the closing of the KCAD acquisition, update remaining full year fiscal 25 guidance as appropriate and comment on our financial position. Let me start with a few highlights for the first fiscal quarter into December 31st, 2024. The company generated quarterly revenues of $677 million versus $693 million from the previous sequential quarter. The quarterly decrease in revenue was due primarily to slightly lower revenues in our North American solutions segments. Total direct operating costs were $413 million for the first quarter versus $409 million for the previous quarter. This increase is primarily attributable to our startup costs associated with our commencement of legacy unconventional operations in Saudi Arabia. General and administrative expenses were approximately $63 million for the first quarter, a decrease of approximately $4 million on a sequential basis. Still, these costs were higher than expectations but primarily attributable to the payout on our annual incentive plan rather than a recurring increase. Our reported net income per diluted share during the quarter was 54 cents versus 76 in the previous quarter. As highlighted in our press release, first quarter earnings were negatively impacted by a net 17 cent loss per share of select items consisting primarily of transaction and integration cost and the change in fair value of our equity investments during the quarter. Absent the select items, adjusted diluted earnings per share was 71 cents in the first quarter versus an adjusted 76 during the fourth fiscal quarter. Capital expenditures for our first quarter were 106 million, which was consistent with the spend in the previous quarter. This amount is in line with our original expectations with regards to timing and amounts for our historical legacy business. I will comment later on our new fiscal 25 capital guidance, expenditure guidance, which will include guidance for expected CapEx for expanded international business resulting from the closing of the acquisition. Q1 cash flow from operations remains strong and resilient at $158 million versus $169 million during our fiscal Q4. Now turning to our three segments, beginning with North American Solutions. We averaged 149 contracted rigs during the first quarter, which is down slightly from the fourth quarter of fiscal 24. The exit rig count was 148, which was within our guided range of 147 to 153. Revenues of $598 million were sequentially lower by $20 million, primarily due to the lower average rig count and a slight reduction in daily recognized rig revenue. Segment direct margin was approximately $266 million. down from the last quarter of $274 million. As John mentioned earlier, our customer alignment through the utilization of performance-based contracts has never been stronger. These contracts continue to make up a large portion of our total contracted rigs, and total segment expenses were relatively flat at $19,300 per day. As of today, approximately half of the U.S. active fleet is on a term contract. Now to our international solutions activity during the first fiscal quarter or ended the first fiscal quarter with 20 rigs on contract. Of those 20 rigs, 15 were generating revenue and we have five rigs in Saudi that have yet to commence operations. The financial results of International Solutions were below our guided range as the new activity in Saudi was a little slower in catching its stride. We expect that all of the lessons learned with the activation of these rigs will help expedite the remaining rigs that have yet to begin operations. We expect one more rig to come online before the end of the quarter with the remaining shortly thereafter. Finally, to our offshore Gulf of Mexico segment, we have three offshore platform rigs contracted. We also have management contracts on three customer-owned rigs. The offshore segment generated a direct margin of $6.5 million during the quarter, which was just below our guide range due in part to the timing of some material and supply expenses. Now looking ahead to the second quarter of fiscal 2025 for North American Solutions, we have 148 rigs contracted. We expect to end our second fiscal quarter with between 146 and 152 working rigs. And revenue backlog from our North American Solutions fleet is roughly 700 million for rigs under term contract. Average pricing per day should remain relatively flat in North American solutions, and we expect direct margin in fiscal Q2 to range between $240 and $260 million. There are a few factors influencing the lower quarter to quarter expectation, including a couple less days during the quarter and the normal quarter to quarter variations on the amount of realized revenues from performance contracts. Based on the current market conditions and the current commodity pricing environment, we expect North American solutions to generate at least a billion dollars of direct margin on an annual basis. As John mentioned, there are going to be some quarters that generate a little more or a little less based on that variability across the quarters. However, in the current economic environment, that rate is a good rule of thumb. As we look toward the second quarter of fiscal 25 for international, as we had mentioned in the press release, we expect margins from our legacy H&P international solutions to be between a loss of seven and three million. As I mentioned earlier, we currently have all eight flex rigs in country, and three have begun contributing revenue. Further, we have continued to improve our rig acceptance time for each rig as we move up the learning curve. For KCAD's legacy land operations, we are estimating direct margin between $35 and $50 million. Now recognize, we will not be adding a complete quarter of the consolidated effect of the acquisition given the date of close. Also, as we expand our international scale and presence, we will be evaluating projects and returns based on our historical H&P approach of return hurdles and risk evaluation. The opportunity set is promising, and we're looking forward to the increase in customer interest that we have heard post-close from both IOC and NOCs. As we look toward the second quarter of fiscal 2025 for the offshore Gulf of Mexico segment, we expect to be roughly flat and generate between $6 million and $8 million in direct margin again. For KCAD's legacy offshore solutions business, we believe it will contribute between 18 and 25 million of direct margin. Collectively, we will exit the quarter between 35 and 39 management contracts and contracted rig platforms. Outside of our core operating segments, we do have some business that generates additional direct margin. Collectively, those businesses are expected to contribute between 4 and 6 million of margin in the second fiscal quarter. Now let me update full fiscal year 2025 guidance as appropriate. We expect the timing of our capex spend to vary from quarter to quarter with the inclusion of our expanded international business resulting from the close of the acquisition capital expenditures for the full fiscal 2025 year expected to be between 360 and 395 million. As previously discussed, our historical guidance prior to the close of KCAD was substantially lower than 2024 as post-COVID maintenance costs descended to more normal ranges of approximately $1 million per rig. In addition, the 2024 CAPEX was heavily impacted by costs associated with converting idle U.S. rigs to walking, recertifying cert equipment to like new, and conducting required rig modifications, and purchasing specific equipment for Middle East contract opportunities. Some costs associated with this activity was included in fiscal 2025. However, we believe that substantially all of the necessary capital for that project has been incurred. As far as expectations for general and administrative expenses, with the addition of the KCAD numbers, we now expect the full 2025 year to be approximately $280 million. We are already capturing some synergies post-close of the acquisition and have identified additional cost savings That will put us in excess of the original $25 million by 2026 that we discussed in July last year. As we get deeper into integration, the opportunities not only for commercial opportunity expansion but for cost reduction continue to materialize. We are now projecting a fiscal year 2025 cash tax range of $190 to $240 million, which includes the additional taxes resulting from the expanded international business. Depreciation expense for our legacy business is still projected to be around $400 million. We have not completed the allocation of the purchase price for the acquisition, which will impact the depreciation projected for the balance of the year. Lastly, the new debt incurred to pay for the expanded international footprint results in about $75 million of interest expense for the balance of 2025. This amount is inclusive of over $35 million in interest savings for the combined company because of the rates achieved in our bond deal versus those historically paid by KCAD. Now looking at our financial position, H&P had cash and short-term investments of approximately $526 million at December 31, 2024. As a reminder, we had sold our equity investment in ad-not drilling for proceeds of approximately $190 million. These proceeds, together with our September bond issuance and the occurrence of the two-year term loan funded the KCA acquisition. With our undrawn credit facility of $950 million and the remaining cash on hand, we have adequate liquidity to not only cash efficiently fund the 25 operations, but continue to generate ample cash to fund our base dividend and pay back the term loan of $400 million over the next 18 months. H&P maintains an investment-grade credit rating. As the rating agencies have stated, our rating is supported by our large-scale and globally diversified rig operations following the KCAD acquisition, in addition to a significant contracted backlog that provides stability in a cyclical industry and our long history of prudently balancing debt holder and shareholder interest. With the closing of the acquisition, we have significantly enhanced our scale and diversification, and overall business risk profile. As we have stated previously, we are committed to quick debt reduction with the goal to reduce our long-term net leverage to or below one term. And let me close with one other data point that I think is important as we think about our guidance for the expanded international opportunities. KCAD's last fully completed quarter in which results were made public was the third calendar quarter of 2024. During this quarter, where there was minimal impact Saudi rig suspensions, KCAD showed total EBITDA of right around 80 million, which equates to roughly 320 million on an annual basis. So although our second quarter guidance is experiencing a bit of an air pocket because of the full impact of the rig suspensions and some general softness in the market, it does not reflect our ability to fully optimize our pro forma cost structure, does not reflect any of the commercial upside we expect to see in the business going forward, And it's not inclusive of any material synergy capture. And with that, I'd like to turn it back over to the operator to open it up for questions.

Certainly. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star 2. Once again, that's star 1 to ask a question. We will take our first question from David Smith with Pickering Energy Partners.