Helmerich & Payne, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• The KCAD acquisition is complete, positioning H&P as a global leader with the largest active rig count. Integration is progressing well.
• North America Solutions remains resilient with a steady rig count and better-than-expected margins. Performance-based contracts and technology solutions are critical components of the contracting strategy.
• International Solutions is integrating operations, facing challenges in Saudi but benefiting from KCAD's expertise in the region. Teams are working to resolve start-up delays and integrate resources.
• Offshore Solutions produces strong cash flows and has a large backlog from the KCAD acquisition, contributing to steady performance.

Segment Performance

• North America Solutions: Averaged 149 contracted rigs during the quarter, with revenues of $600 million, essentially unchanged from the first quarter. Segment direct margin was approximately $266 million, a bit stronger than the first quarter. Over 50% of customers prefer performance-based contracts, and technology solutions drive greater efficiency, safety, and reliability for customers.
• International Solutions: Reflects inclusion of KCA Deutag operations, with 76 rigs working and approximately $4 billion of contracted drilling backlog. Experienced challenges in Saudi operations with start-up delays and rig suspensions, but direct margin was $27 million. The team is working to integrate international operations and expects improvement in results sequentially.
• Offshore Solutions: Generated $26 million in direct margins, with a current backlog of $2.5 billion. It is the largest global offshore operation and maintenance partner, with business acquired through the KCAD acquisition.

Guidance

• Fiscal Q3 2025 North America Solutions: Expect to average between 143 and 149 contracted rigs, with direct margins ranging between $235 million and $260 million.
• Fiscal Q3 2025 International Solutions: Direct margins expected to be between $25 million and $35 million, exclusive of foreign exchange gains/losses, with average rig count 85 to 91 and 68 to 74 rigs generating revenue.
• Fiscal Q3 2025 Offshore Solutions: Expected direct margin between $22 million and $29 million, with average management contracts and contracted platform rigs around 30 to 35.
• Full year 2025: Capital expenditures estimated between $360 million and $395 million, depreciation around $595 million, general and administrative expenses ~$280 million, cash tax range $190 million to $240 million, and interest expense ~$50 million.

Risks

• Industry headwinds from OPEC+ production increases and U.S. tariff initiatives creating global economic uncertainty.
• Challenges in Saudi operations with start-up delays for legacy H&P Flex rigs and additional rig suspensions in the legacy KCA fleet impacting international segment results.

Question and Answer

Q: Keith Mackey asks about the Saudi market and suspension cycle.

A: John Lindsay and Kevin Vann discuss uncertainty around when suspended rigs will resume work, noting a track record of rigs going back to work but no clear timeline. They expect improvement in results in fiscal Q4 as integration progresses.

Q: Marc Bianchi asks about the contribution of FlexRigs in Saudi.

A: Kevin Vann states the historical expected contribution of the 8 rigs is around $25 million annually, with potential for increase due to synergies.

Q: Eddie Kim asks about rig count decline and KCA Deutag suspensions.

A: John Lindsay and Kevin Vann discuss uncertainty on rig count decline due to oil price volatility and no clear timeline for resumed work of suspended rigs.

Q: David Smith asks about full year SG&A guidance.

A: Kevin Vann mentions SG&A full year guidance and synergy estimates, with potential $50 million to $75 million in 2026 run rate savings.

Q: Waqar Syed asks about international rig performance and domestic day rates.

A: John Lindsay and Kevin Vann discuss differences in international and domestic markets, supply/demand fundamentals, and utilization rates of super-spec rigs.

Q: Doug Becker asks about offshore rig relocation and performance-based contracts.

A: John Lindsay discusses potential offshore rig relocation and continued focus on performance-based contracts to drive efficiency for customers.

Q: Jeff LeBlanc asks about pricing concessions.

A: John Lindsay and Kevin Vann discuss market-based pricing, performance-based contracts, and ongoing discussions with customers to balance margins and market share.