Independence Contract Drilling, Inc.

Good day, and welcome to the Independence Contract Showing Second Quarter 2023 Financial Results 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 zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Philip Choice, EDP and CFO. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss ICD's second 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 complete discussion of these risks, we encourage you to read the company's earnings release and our documents on file at the SEC. In addition, we refer to non-GAAP measures during the call. Please refer to the earnings release and our public filings for our full reconciliation of net income and loss to adjust to net income and 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.

Hello, everyone. Thank you for joining us for our second quarter 2023 earnings conference call. During my remarks today, I want to talk about the following. First, I want to highlight some significant steps we took during the second quarter toward important strategic initiatives. Second, I want to update you on the transition efforts around our Hainesville fleet, which are essentially complete. Third, I want to talk about the current market for SuperSpec pad optimal rigs and how ICD is performing. Lastly, I want to close out talking about some things we're doing to position ICD for the future. First, just a few comments on the quarter. Overall, ICD second quarter results came in ahead of expectations in terms of revenues, margin per day, and adjusted EBITDA. I'm particularly pleased with how reported margin per day held up in the face of market headwinds driven primarily with our Hainesville market, buoyed by sequential improvement in reported cost per day. Overall adjusted EBDA came in at $18.7 million. During the second quarter, we took the first step in the most important strategic initiative for our company, which is delivering our balance sheet. I feel this way because in addition to delivering industry-leading service and professionalism to our customers, Reducing the debt level of our company is the most impactful action we can undertake. During the quarter, we redeemed $5 million of convertible notes at par and also reduced revolver borrowings while at the same time improving our net working capital position. I'm pleased that we were in a position for our lenders to accept our offer to redeem $5 million of our convertible notes at par at the end of the second quarter. Also during the second quarter, we essentially completed our fleet geographic rebalancing process. As a reminder, ICD started 2023 with 10 rigs working in the Hainesville market and 10 rigs working in the Permian. We were more levered than any other drilling contractor to the Hainesville, and in light of the softening we saw early this year, we made the decision to relocate several rigs from the Hainesville to the Permian. The choppier Permian market we experienced in the second quarter impacted the pace at which we were able to recontract ICD rigs relocated from the Hainesville. As of today, we have four rigs remaining in the Hainesville, and three of those are currently contracted. Although it is possible that we relocate additional rigs from the Hainesville, depending on how the markets develop over the next 12 months, for the time being, our rig transition program is complete. Overall transition costs, including trucking and crew transition costs, totaled approximately $2.8 million during the second quarter and $3.4 million in aggregate, below our initial estimates of $4 million total. Now turning to market conditions in our target markets. The overall U.S. land rig count is down 105 rigs year-to-date through the end of the second quarter. Although the Permian market has remained strong, consistent with our expectations at the beginning of this year, we have seen some softness resulting in an overall Permian rig count decline of about 11 rigs caused by weaker commodity prices early in the second quarter and the recent banking issues. These factors resulted in some reshuffling of rigs by EMP operators and more rig-on-rig competition. In spite of all this, ICD increased its Permian contracted rig count by 20% year-to-date in the face of numerous competitive pressures. I think that speaks to the quality of our people and equipment and our strong brand. We remain optimistic about market momentum re-accelerating in the back part of this year, primarily in the Permian, based on recent moves in commodity prices our customers having better access to credit, current customer inquiries and discussions we are having, and our expectation that WTI will continue to strengthen in the back half of 2023, rolling into 2024. I also think the effects of recharged EMP capital budgets next year will provide additional boost to our Permian market. While we expect some rigs to go back to work in the Hainesville, we believe that gas-driven gas markets will remain challenged for at least the rest of this year. We have, however, seen inquiries for work in the Hainesville pickup over the last couple of weeks. In addition, permitting activity for the Permian in June increased 25% month-to-month and overall permits for U.S. land year-to-date compared to 2022 are up slightly in spite of the softer commodity prices we saw early second quarter. Based on all this, we believe U.S. land rig counts is finding a bottom as we speak and will begin increasing in the coming months. On the day rate front, Current leading edge super spec day rates in the Permian are coalescing in the low to mid $30,000 range, including adders. Right now, there are minimal data points for spot day rates in the Haynesville, but I would expect they are just a little bit lower, maybe $1,000 to $2,000 a day compared to the Permian. In terms of enhancing our fleet, we are planning some 200 to 300 series conversions in the back half of this year, one of which is in process in connection with a contract extension into mid-2024. which we just executed for a rig working in the Permian Basin at a mid-$30,000 day rate, including the adders. In this arena, we are seeing customer interest in high-torque top drives, iron roughnecks, and drill strings increase as a function of ENPs increasing well-lateral lengths and their unrelenting focus on drilling efficiencies. These are trends we expect will continue, and our investors should feel good knowing that the majority of our working rigs already have these capabilities embedded and the rest can be outfitted to have these capabilities with very modest amounts of capex. As I close out my prepared remarks, I want to mention our efforts regarding our technology rollout, which we call ICD Impact, which accelerated during the second quarter. Our strategy in this arena has been to leverage ICD's youngest rig fleet in the industry and the years of effort and investment made by our third-party partners by working with their professionals, collaborating with our customers, and applying the knowledge, skills, and insight of our employees. We have technology systems deployed on approximately 30% of our active rigs today with objectives to improve this percentage over time as customer demand warrants. We're excited about what ICD impact means for our customers and other stakeholders going forward. I'll make some additional concluding remarks before opening the call up for questions, but right now I'd like to turn the call over to Philip to discuss our financial results and outlook in a little more detail.