Helmerich & Payne, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• North America Solutions: Continued strong execution with market-leading position in the US, particularly in the Permian with around 100 rigs. Customer-centric approach with performance contracts has strengthened partnerships, and the company maintained healthy margins despite industry rig count declines.
• International Growth: Completed export of 8 FlexRigs to Saudi for unconventional natural gas plays. Closed the KCA Deutag acquisition, making Helmerich & Payne a global leader in onshore drilling. The acquisition brings global scope, scale, industry-leading technology, and a strong customer base. The combined company has a robust geographic and operational mix with a $5.5 billion backlog from blue-chip customers.
• KCA Deutag Acquisition: Positions the company as a premier global drilling company with global scale, industry-leading technology, and a best-in-class workforce. The new company shares customer-centric approach, safety focus, and commitment to performance and value, with excitement from customers in the Middle East.

Segment Performance

• North America Solutions: Averaged 149 contracted rigs in the first quarter, down slightly from the prior quarter. Revenues were $598 million, sequentially lower by $20 million. Segment direct margin was approximately $266 million, down from the previous quarter. Approximately half of the US active fleet is on a term contract.
• International Solutions: Had 20 rigs on contract in the first quarter, with 15 generating revenue and 5 in Saudi yet to commence operations. Financial results were below guidance due to slower startup in Saudi.
• Offshore Gulf of Mexico: Three offshore platform rigs contracted, and management contracts on three customer-owned rigs. Offshore segment generated a direct margin of $6.5 million during the quarter, below the guide range.

Guidance

• Q2 2025: North America Solutions direct margin expected to range between $240 million and $260 million. For International, legacy Helmerich & Payne Intl margins expected to be between a loss of $7 million and $3 million, KCAD legacy land direct margin $35 million to $50 million. Offshore Gulf of Mexico expected to generate between $6 million and $8 million in direct margin, KCAD legacy offshore direct margin $18 million to $25 million.
• Full Year 2025: Capital expenditures expected to be between $360 million and $395 million. General and administrative expenses expected to be approximately $280 million. Cash tax range projected $190 million to $240 million. Depreciation expense for legacy business projected around $400 million. Interest expense from new debt ~$75 million.

Risks

• International Growth Headwinds: Rig suspensions related to the KCA acquisition and startup costs in Saudi are temporary short-term challenges. The cyclical nature of the industry poses uncertainties regarding the timing of rig reactivations and their impact on margins.
• Cyclical Industry Challenges: Impact of rig suspensions on financial results, and the need to manage through cycles while maintaining financial resilience and debt reduction goals.

Question and Answer

Q: Could you talk about the range for the international onshore margin for KCA?

A: Between 35 and 50 million, with factors including market softness, timing of acquisition close, rig suspension timing, and operating cost adjustments.

Q: How do the startup costs relate to legacy Helmerich & Payne International operations?

A: Startup costs relate to learning curve with FlexRigs in country, including labor and rentals, with costs expected to decrease as learnings progress.

Q: What's the outlook for direct margin generation in the legacy International division?

A: Anticipates margins to improve as rigs come online, with potential for significant contribution once all rigs are operational.

Q: Thoughts on natural gas driven activity in North America in 2025?

A: Bullish on long-term fundamentals, but timing uncertain; reactivation of idle rigs would require significant capital, maintaining pricing discipline and customer value proposition.