Good day, everyone and welcome to today's Helmerich & Payne Fiscal Third Quarter Earnings Call. At this time all participants are in a listen only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded and I will be sending by should you need any assistance. It is now my pleasure to turn today's call over to Vice President of Investor Relations, Dave Wilson, please go ahead.

Thank you, Ashley, and welcome everyone to Helmerich & Payne Conference Call Webcast for the Third Quarter of Fiscal Year 2022. With us today are John Lindsey, President and CEO; and Mark Smith, Senior Vice President and CFO. Both John, and Mark will be sharing some comments with us afterwards, we'll open the call for questions. Before we begin our prepared remarks today, I'll remind everyone that this call will include forward looking statements as defined under the securities laws. Such statements are based upon current information and management's expectations as of this date, and they're not guaranteed the future performance. Reporting statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such are actual outcomes and results could differ materially. You can learn more about these risks in our annual report on Form 10-K, or quarterly reports on Form 10-Q and or other SEC filings. You should not place undue reliance on forward looking statements and we undertake no obligation to publicly update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as segment direct margin and other operating statistics. You'll find the GAAP reconciliation, comments and calculations in yesterday's press release. With that said, I'll now turn the call over to John Lindsay.

Thank you, Dave. Good morning, everyone. And thank you for joining our call today. I'm pleased with our performance during the quarter. The operational and financial results continue to reflect the benefits of our strategic initiatives we've been working on for several years now. In particular, the efforts by our sales and operations teams to improve pricing and margin growth in our North America solutions segment. On our earnings call last February, and again in April, we discussed how rig pricing needed to reach $30,000 per day. And in our third fiscal quarter, we had roughly 20% of our fleet average revenue per day at or above that level. This is a great start. But we also recognize that pricing needs to move further to achieve gross margins of 50% or greater to generate returns that fully reflect the value we deliver to customers with our flex fleet rigs complementary technology solutions. As intended, we saw a modest growth in rig count and exited the quarter with 175 rigs contracted in our North American solution segment. Fiscal discipline and contractual churn allowed us to re contract rigs without incurring additional reactivation costs and to redeploy them at significantly higher rates. Our rapidly improving contract economics are driven by both H&P’s value proposition to customers as well as a market that's very tight for available super spec rigs. We believe the drilling solutions and outcomes we provide are increasingly being recognized and coveted by customers. It's encouraging to seek capital discipline in our industry. And when combined with the supply chain and labor constraints, we expect this could put a damper on the industry's ability to reactivate idled super spec rigs at significant scale during the buying season. By the last two years that has been in calendar Q4, and Q1.…

Thanks, John. Today, I will review our fiscal third quarter 2022. operating results provide guidance for the fourth quarter of a full fiscal year ‘22 guidance is appropriate. Look forward a bit to fiscal year 2023. And comment on our financial position. Let me start with highlights for the recently completed third quarter ended June 30 2022. The company generated quarterly revenues of $550 million versus $468 million in the previous quarter. As expected, the quarterly increase in revenue was due primarily to increase revenue per day in North America solutions segment. As we have continued to increase pricing for drilling activity. Total direct operating costs incurred were $377 million for the third quarter versus $341 million for the previous quarter. The sequential increase is attributable in part to the higher average North American solutions segment to recap and compare it to the second quarter. General and Administrative expenses totaled approximately $45 million for the third quarter, lower than our previous quarter but still in line with our expectations. During the third quarter, we incurred losses of $17 million related to the fair market value of our add non drilling investment, which is reported as a part of gains and losses on investment securities in our consolidated statement of operations. Our fiscal year to date gains on the NOC investment are approximately $48 million. To summarize this quarter's results, due in part to the execution of our strategies to align pricing with value delivered, as well as disciplined cost management we had our first positive net income quarter in 10 quarters. Agency earned a profit of $0.16 per diluted share versus incurring a loss of $0.05 in the previous quarter. Third quarter earnings per share were negatively impacted by net $0.11 per share of select items as highlighted in our…

[Operator Instructions] And we'll take our first question from Derek Podhaizer with Barclays. Please go ahead Your line is open.

Hey, good morning, guys. Just wanted to get more of a sense on how many rigs you could add to the market next year. I know your conversations with your customers. You mentioned in the skidding to walking conversion program in the breakdown of the CapEx about one per month call that 12. Just what else do you think you can add to the market just based on your conversations and based on the demand that they're all within keeping in your framework of generating the returns based on the amount of CapEx and OpEx needs to be to deploy to player. I just love a little more color on that.

Yes, Derek. I can give you some sense of that, as Mark said, we're really not in a position other than to just mentioned the 12 walking conversions, assuming the demand and the margins returns are there. One way to think about it is what you expect the rig count to do and the super spec space. Next year and really, I would say starting in calendar Q4 of this year, because again, as I said earlier, that that's kind of been the buying season over the last two years. So if you think about if you make an assumption that 75 rigs to 100 rigs get added over, that 12 month period starting in Q4, if you look at our 25% market share, that would be a reasonable range to think about. But again, I think the main point I want to get across is we're not making decisions based on market share. We're making decisions based on the returns that we can generate from these rigs and just making certain that we're getting reasonable rates of returns over a long period of time. So Derek, that answer your question?

Yes, no, that's helpful. And then the -- you mentioned that 30,000 per day at or above that level 20% of your fleets on that. Based on the visibility you had and the rigs coming up on term in the contract turn, how can we double that to 40%? Explain that just cadence and how long it would take to get the whole fleet up to that 30 at 30 or above on our blog day rate?

Yes. And if it's not clear in, in prepared remarks, but that 20% was effective the end of our fiscal Q3, that's not where we are today, necessarily. So that's our Q3 fiscal Q3 number, we don't have we have pretty, pretty clear insight into that it does take, a couple of quarters to get there. And so, I don't think they've really said anything about what that timing would be. I think, reasonably speaking over, two or three, two or three quarter, probably process wise wouldn't would enable us to get to that, to that level of pricing, low, low 30 pricing. I think that's exactly right, couple more quarters, because as you said, that was in June 30, number you gave in prepared remarks. And in here, we are not far beyond that. And we're already seeing meaningful accretion to that number a month later.

Got it. That's very helpful. Appreciate the color guys sort of back.

Thanks, Derek.

And we'll pick a next question from the Douglas Becker with Benchmark Research. Please go ahead. Your line is open.

Thanks. John, wanted to get your thoughts on a conceptual question. Investors historically have thought about gain rates reaching a soft ceiling, when it comes back to reactivation costs or upgrade costs? It seems like spot rates are getting above some of those levels. We've done a leading-edge basis, but just want to get your thoughts on, is that a still a relevant framework to think about pricing? Or have we moved into a different dynamic?

Yes, I think the historical pricing the context there. It's really different today for a lot of reasons. But, I think, when you consider the investments that we have in specifically in the super spec capacity fleet. I think most people want to compare today versus a 2014 time period, as an example. And as we said, in our previous call that was last time we had 50% gross margins, but we didn't have 230 super spec rigs in the fleet at that time. So it's a much, much different situation.

Yes, John, I would just add to that. Doug, that as I mentioned, in 2014, we didn't have a super spec rig. So going into ‘16 and beyond, we invested a lot of money in this the upgrading of the fleet resulting in the industry's largest supersonic fleet, and also resulting in a lot of benefits for our customers. Along the way, we add in a very oftentimes, what we would consider to be sub optimal returns on invested capital compared to what are working or what our weighted average cost of capital is. So as we were just trying to get back to numbers that makes sense financially, and this 50% margin is what will get us there, we're on the journey to get to that. Separately, simultaneously, the rigs we built back then $20 million in fees, or even seven 20 million in 2014. Today, rough estimates say that somewhere between 30 million to 35 million. So a lot of capital still to be deployed to the idle assets that have been there two and a half, two years plus, which means that we get to the buying season at the end of this calendar year. At the beginning of calendar ’23, they've been sitting there two and a half years. So a lot of capital deployed for what we estimate to be nearly 150 super spec rigs in that two and a half year idle tenure by the time we get to the end of this calendar year. Have that else done.

Now that provides some good context, maybe more succinctly. It doesn't sound like you expect a meaningful increase in capacity if spot rates are 35,000 a day or higher because of the framework you've just laid out. Is that fair to say?

Then again, [indiscernible].

Sure, just trying to gauge it. rectification if we see $37,000 a day spa day rate? Do we see a big influx of capacity coming into the market?

Yes, I think the capacity that is that is out there, as we described, we're estimating around 130 super spec rigs. We know, there's other drillers that are looking at doing some upgrades to SER tech rigs. And in order to satisfy demand. Guy, I would be surprised personally to see all of those rigs reactivated in 2023 for a number of reasons that we've already talked about related to just the supply chain and the capability to be able to provide the equipment sets required to get those rigs back into working back to working condition, because we as an industry we've utilized equipment sets off of those rigs that have been idle now, as Mark said, rover will be for over two and a half years. And so I, personally, I don't think there's going to be a response we've had some people ask about new bills. And I just think that, based on what Mark just said in terms of a $30 million to $35 million price tag for a new rig. I don't think that's going to be the case, either.

Yes, take midpoint $32.5 million, if you're making $15 a day margin, that's a six-year payback. Or if you're making 20,000 a day margin, that's a four-and-a-half-year payback. And then with the customer base today, that has little appetite to contract up beyond their fiscal budget year. So yes, I think the supply chain thing, as John mentioned is actually a significant hurdle. For any, we're working with our scale and leverage with our suppliers to make sure that we can put rigs back to work and also keep the active fleet in good working condition. And that's an effort that's a lot different today than it was at any time over the last 10 years.

Great. And Doug, it really goes back to just to capital discipline, we've talked about that that's really the rallying cry within the industry. Our customers are demonstrating it. The service industry is displaying that and there's no reason to rush, even if the supply chain was there, there's no reason to rush to try to capture all this, any additional market share that you might be able to capture, one of the things that that we experienced in this last quarter, and you heard us talk about churn, we actually had 18 rigs that were given back to us for various reasons. Customers, going through their budget too fast, acreage position, the list goes on and on. 18 rigs that were, 18 points of demand, that historically speaking as an industry, we would have tried to satisfy that demand for reactivating something. And so, last quarter, we said, we're going to 175. And in Q3, we're going to finish the year at 176, we're within our capital budget, that wouldn't have been the case in previous cycles, we would have continued to try to capture additional share. So I think that's a really distinct difference in our industry, which I think is really healthy, it's healthy on the operator side and healthy on the overall services side as well.

Thank you very much.

Thank you.

Next question is from the line of Keith Mackey with RBC, please go ahead. Your line is open.

Hi, good morning, and thanks for taking my questions. Just wanted to maybe start out with the contracting nature. Are you seeing any increased appetite for longer term contracts from customers that are not necessarily associated with conversion or upgrade or those hot rigs or whatever you'd like to call them still on shorter term durations?

Keith, I would say it's a mix. We have customers that are that are interested in terming up rigs or a portion of their fleet, particularly larger customers that may have 10 rigs or 15 rigs running. I'm making this up 10 rigs or 15 rigs running. They don't necessarily want to turn up every rig but they may want to turn up summary. From our perspective, as Mark said, we've got 60 rigs approximately that are rolling off term. Next couple of scholars. And, we'll be looking at those very, very closely in terms of whether those remain in term or rollover into spot, I would say most of those rigs are going to probably go into more of a spot, spot type market. But I think it's really a mix that we see customers across the board, some that want to lock up on term, some that would prefer to play the spot market.

Got it? Thanks for that.

I would just add for us at this time, with the upward momentum and pricing and the supply demand dynamics of the sector, trying to get to the returns that we have been discussing. Putting more of our market into the upward mobility of the spot pricing makes sense.

Got it, that's helpful. Just curious if you can give us a little bit more detail on the number of rigs you have that could be reactivated within that one to 4 million CapEx range. And maybe just your little more on your confidence in being able to get additional rigs to the market in early fiscal or calendar 2023 given the supply chain?

Well, we have from a reactivation standpoint, when we got into some of the supply chain work that we're doing in this fourth quarter to get ready for putting some rigs back to work. But it's too soon to know definitively how many will put into the market. As John mentioned, we're being very cognizant about capital discipline, one and two, we're not going to try to meet every demand point that comes our way because we know there will be the existence of churn in the market. In other words, rigs freeing up for whatever reason, whatever reason, it may be a contractor. I mean, an H&P running out of budget and the H&P running out of acreage. Many dynamics, we will meet every single demand for me to that makes sense. So we're still trying to balance. I don't know the last two years in the buying season at the end of the calendar year Q4 before the calendar Q1, 40 rigs and 44 rigs, these are the last two buying seasons for us to be at and we don't see that level of addition coming. You have to remember that in those two seasons, we were coming off from substantially low bottom through both the OPEC price change and the pandemic that began in March of 2020. So a substantial bottom to come back up from we're approaching numbers from March 1, 2020. Today from an activity level standpoint, so don't see the quantum of additions. So differently do not see the quantum of additions coming, that we had the last few buying seasons. So I don't know specifically what that'll be yet. We are working, though, to know what every single one of our approximately 54 remaining is in perspective takes. But not ready to comment on delineating the numbers for all for those.

Got it? No, that's helpful. Thanks very much. I'll turn it back.

Thank you.

And we'll take our next question from Andrew Herring with JP Morgan, please go ahead.

Thank you. Good morning. So I'm going to turn to the international outlook. So it sounds like in the near term, you're reactivating a few rigs or adding a few rigs in Argentina, and Colombia, and then transferring one into the Middle East. As many of you can comment on the outlook on some Middle East growth in activity. Do you think customers are looking for more demand before the end of calendar ‘22? And initial insights into what we might expect in 2023?

I'll start, John, if you want to chime in. I think little as we think about it, we're looking more over the next two to three years in our planning horizon. So if you think about we're always looking at a five year planning horizon, we consider the Middle East scale to be more mid cycle in that horizon. So we're preparing really our Middle East hub, which is to be able to if you just simply have an operating presence in the structure and the Gulf Coast countries so that we can respond to demand points that we see coming in at midcycle horizon. We are excited about several opportunities we have part and parcel to the brand presence that we that we've benefited from after the addenda I can bet in the last year. We're participating in many bid tenders in the region with NRCS and IOCs. alike. So it's a little too early to say if we might be successful in one of those tenders. And if we are, that sort of thing is say three rigs to six rigs per for bidding effort. So if we were fortunate enough to win to that might be 6 rigs to 12 rigs in the next couple of years is that the way to think about it. And in particular, the flex rigs that we have, are with our we've drilled more shale wells than anyone else has globally, frankly. And taking that expertise, especially in some of the burgeoning gas plays in the region, is a really good way to help the customer achieve their goals. So those are the sorts of things we're interested in. John, any, any other comments?

No, I think I think we've talked about unconventional opportunity for really, we've talked about it internationally for many years. We're starting to see evidence that we're hoping is going to come to fruition. So I would just add to that. And I think our fleet is really designed for unconventional work. The performance, reliability, and the technology solutions that we have all of those are really complementary to that opportunity set.

Great, thank you. That's very helpful. And as a follow up, then on the economics internationally, understanding it might be a little early to comment on the Middle East. But assuming these will be more creative contracts, you're talking about comparing the US to prior cycle. To what extent is that helpful in our modeling for internationally comparing to prior year margins you've been able to achieve on these risks? With a higher technology, can we see that exceed those levels, just any common you could, help us kind of gauge where we can see margins tend to be helpful?

Well, each one of these dinners, for example that were participating in the economics have to be to be right for us. Our own history over the last couple of years International is not a we're not looking to that as any sort of guidance because of the crazy volatility and actually a wind down to zero rigs working because of the pandemic. But as we move forward, these things have to be accretive and we look at the financial returns through time. We also look though, at the ability to build scale. So if we want an initial bid with three rigs, we will be looking beyond that singular bid as an as a potential new entry point for a new customer for H&P. And looking to see what the potential might be for that customer to scale that up. And, and really get better absorption rates like we do here in the US through our scale. So we're looking at a lot of different components. But I think, easy to say that it would have to be financially free.

Thanks. That’s all for me. I’ll turn in back.

Hi, we'll take our next question from Tom Carstairs with Stifel Research, please go ahead. Your line is open.

Good morning. I want to know when it comes to the remaining inventory of ITIL and redeploy able, super separating said, fleet of 54. There's been a lot of emphasis placed on what you're trying to achieve with regards to converting the psychology around pricing, hitting new levels for leading edge day rate and the associated gross margin. But on the terms and conditions side. Are you now expecting or do you think he might be able to get some minimal term or take or pay conditions may be an early termination provision, just wondering how good the remainder of the reactivation contracts might be that we could say?

Well, in the US, we will. As I mentioned earlier, we see a movement down from 65% to 40% to 50% to 60% range for term. And for everything we enter into in the US on in term, Tom, we do get that taker pay cancellation provision. Having said that, where we are today, financially is much different than where we were coming out of a couple of two or three of the more recent downturns. What I mean by that we have one death is due in 2031. We have a base dividend at 65 versus low lower than it was going into the pandemic. We have an substantial amount of cash on hand and look to a creep. So our capital structure requirements for such taker paper visions are less necessary than they might have been in prior cycles. But we still always like to have some defensiveness, which is why we're still going to remain within that 50% to 60% target range. But give up some term to try to capitalize on the supply demand dynamic that is creating this push up in pricing and therefore margins for us. John, any other.

Yes, it's always about balance. There will be some of our walking conversions, or probably most of our walking conversions that that we will have a term contract commitment. But as I said earlier, Mark mentioned we're going to have 60 rigs rolling off of term contract over the next couple of quarters. And I would imagine most of those are going to roll into a spot market. So we will have some certainty on returns on a larger recommission are the conversions. But as Mark said we're positioned really well to be able to manage through that.

Got it helpful. Clarifications. And then I just wanted to get give us an update on auto slide, that the percentage of your average active rig fleet for the quarter of 174 rigs, what percentage of that count, used auto slide at any point over the course of the quarter?

I think we're around 25%. I believe that I believe that's right. And, we continue to have had uptake, it's been really well received in terms of providing automated directional drilling capacity. And as the rig count grows, it's even more important because we're bringing a lot of directional drillers back into the space. And obviously, they don't have, they don't have the experience that that a lot of operators would like to have. But just being able to automate that process, directional drilling processes is a huge win. And then we were also able to tie that into a commercial performance-based model. That's really a win, win situation for each, H&P, and for our customer.

And would you say that the 25% that used auto side at some point. Does that 25% contain the entirety of the 20% of the fleet for the quarter that realize average revenue per day 30,000 or greater?

We don't have. That's a great question. I don't have that that data. I do know that there is a portion of that is included in that. But I don't have the data for if it's only 20%, or some subset of that.

Right. I assume the overlap would be high. It's not a perfect Eclipse. But okay, thanks for taking my questions.

Another question from John Daniel of Daniel Energy Partners, please go ahead.

Guys, thanks for including me. John, and Mark, I think most of us have talked ourselves into believing this is a multi-year upcycle. And assuming and hoping that's right. I'm just curious as you look at the pricing, we keep hearing about the low mid 30s in terms of leading edge. But the rig count, if we actually, as an industry add, call it 50 to 100 range over the next 12 months. Where does pricing go to?

Well, John, obviously there's pricing has moved very, very quickly. It needed to move very, very quickly. There was a huge disconnect and in the value proposition that we provide the investments that we have and the margin generation. And if you just look at previous cycles, obviously we since 2014, we have not been able to get back to that. So, right now we're seeing leading edge mid-30s. Our goal, as we've already said, is to get to the get to the low 30s. And that's really our focus right now on getting to 50% gross margin. It's really hard to say past that, that John, I mean, we all read the same materials after that And, there's a lot of people that are surmising where it's going. And obviously, we've got a pretty good glimpse into that. But right now, we're just we're just sticking to, to, to the goals that we've laid out there. And we'll see. We'll see where it lands.

At this point, have you had any shareholders that have advocated pushing activity over price?

No, we haven't been unanimous.

Yes, got it.

We, I think there's some that, haven't didn't completely follow from our last call that we said, hey, we're recounts, going to be at the most 176 rigs this fiscal year. And that was called a quarter ago. And, but again, we're really pleased because at the beginning of the year, we thought that same 250 million to 270 million was 160 rigs, we're able to get 176 out of it. So created some great efficiencies there. But, expect to continue to see that from us. And I think that's what shareholders want. That's what investors want. Very much like, what are our customers are doing.

I got two quick ones. And I'll wrap up if you said this, I apologize, but kind of you have a range of where you might exit calendar Q4 in terms of a contracted read count calendar Q4.

Now, as we said, we're working on reactivations, it's a little too far out to know the definitive demand points. And as we alluded to earlier, we will not meet every one of them.

Right.

So still too early, John,

Fair enough, that you would expect to be above 176, I presume? And calendar Q4.

We would be. And it's again I think going back to the question as John a minute ago, I think some folks who were maybe not heard the 176 for the September 30 goal in holding rigs tight, in CapEx tight which is helping the dynamics of supply demand and helping pricing. I think that was more on the analyst side. But when we speak to investors and long-term investors, there's not a single one of them that we've talked to you that with any sort of share, over margin. So we're going to be very cognizant of that theme, as we think about your last question and figuring out how many rigs to put in the market and in our first fiscal quarter, to get to a 1231.

Yes. Okay. Well, I'm glad your shareholders are thinking wisely. You've been very generous with your time. It's coming up on the end of the hour, and I'll turn it over for anyone else and follow up with David afterwards. Thanks. Thank you.

Thanks, John.

No further questions, at this time. I'll turn the call back over to John Lindsay for any closing remarks.

Thank you, Ashley. And thanks to all of you for joining us today. We know there are a lot of earnings calls going on today, and we really appreciate your time. I will tell you the H&P team, we've already said it we're laser focused on delivering value to customers and to shareholders. We aim to deliver value to customers through top tier performance, safety and reliability and to our shareholders, continued improvement in our margin growth and our return. So thank you again for your time and have a great day.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect your lines.