Good day everyone and welcome to the Helmerich & Payne Fiscal Fourth Quarter Earnings Call. [Operator Instructions] It is now my pleasure to turn today's conference over to the Vice President of Investor Relations, Dave Wilson. Please go ahead.

Thank you, David and welcome everyone to Helmerich & Payne's conference call and webcast for the fourth quarter and fiscal year ended 2023. With us today are John Lindsay, President and CEO and Mark Smith, Senior Vice President and CFO. Both John and Mark will be sharing some comments with us after which we'll open the call for questions. Before we begin our prepared remarks, I'll remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based on current information and management's expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on 10-Q and our 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 also make reference to certain non-GAAP financial measures such as segment operating income, 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 turn the call over to John Lindsay.

Thank you, Dave. Good morning everyone. Thank you for joining us today. Our fiscal 2023 did not unfold as originally planned, but I want to underscore three noteworthy items that standout in my mind as being pivotal for the company going forward. First, we continue to demonstrate that we are approaching the business differently with a heightened focus on contract economics versus market share. This was evident in fiscal 2022 when the rig count was increasing. In fiscal 2023, the challenges were different as the rig count was only declined much of the year. Yet we still maintained our economic focus and did not revert back to the historical habits of cutting price to maintain market share. Second was the ability of the company to quickly pivot and adapt to a more challenging market while still achieving much of what we set out to do. We generated healthy margins and a reasonable rate of return for stakeholders. Lastly, we returned approximately 10% of our market capitalization to shareholders through base and supplemental dividends and share repurchases, all of this while maintaining a strong balance sheet. Turning to the details of fiscal 2023, rig demand was negatively impacted by geopolitical and economic uncertainties that influenced the global oil market, as well as warmer than expected winter weather which suppressed pricing in the U.S. natural gas market. Again, we quickly adapted to the market conditions and maintained focus on achieving economic returns above our cost of capital with evidence of coming to traditional focus on market share. Despite the adversity, H&P delivered differentiated commercial value to its customers in return for compelling contract economics. Even though the industry super-spec rig count declined during much of 2023, we expect activity will increase in 2024 but at levels below the highs seen last year.…

Thanks, John. Today, I will review our fiscal fourth quarter and full year 2023 operating results, provide guidance for the first quarter and full fiscal year 2024 as appropriate and comment on our financial position. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30th, 2023. The company generated quarterly revenues of $660 million versus $724 million in the previous quarter. The decrease in revenue was primarily due to the expected reduction in active rig count for the North America Solutions fleet. Correspondingly, total direct operating costs incurred were $410 million for the fourth quarter versus $430 million for the previous quarter. The sequential decrease was driven by the aforementioned reduction in activity. But this decline was somewhat muted by lower-fixed cost absorption and maintenance and supply expense intensity, which ended up being on the higher end of the range this quarter. General and administrative expenses totaled $56 million for the fourth quarter and $207 million for fiscal 2023, which is generally in line with our expectations. The fiscal '23 effective tax rate was approximately 27%, which is within the previously guided range. To summarize fourth quarter's results, H&P earned a profit of $0.77 per diluted share versus $0.93 in the previous quarter. Earnings per share were positively impacted by a net $0.08 gain per share of select items, which was primarily made up of gains on investment securities and settlements of outstanding claims, partially offset by a blue chip swap transaction. Absent these select items, adjusted diluted earnings per share was $0.69 in the fourth fiscal quarter compared with an adjusted $1.09 during the third fiscal quarter. Capital expenditures for the fourth quarter were $114 million, with full fiscal 2023 totaling $395 million, which was generally in line with our expectations from…

[Operator Instructions] We will take our first question from David Smith with Pickering Energy Partners. Please go ahead. Your line is open.

Hi, good morning. If you can indulge me for just a second --

David. We can barely hear you. If you can speak up a bit.

Okay. Is this any better?

Yes, that's much better, David. Thank you.

Okay, sorry about that. If you could indulge me for just a second so I can properly frame the question. I wanted to acknowledge the impressive leadership and success on the pricing discipline, the strong shareholder returns generated. Not many companies returning almost 50% of EBITDA to shareholders in '23. But then I look at the international CapEx program, which I think was around $100 million to $110 million in fiscal '23. I think it looks closer to $150 million, $160 million for fiscal '24. I see a segment that generated $25 million of direct margin this last fiscal year. And just wanted to ask if you can kind of remind us what the investment is targeting in terms of what kind of activity levels you're ultimately targeting, the timing to get there. Any other you might want to bring to the international growth aspirations?

Thank you, David. That's, that's a great question. I did want to mention that we do have a lot of aspirational growth internationally. I also wanted to be clear that there are multiple tender bids that are going on, multiple countries really. And so at this stage of the game, we're really not in a position where we want to give out a lot of information related to that as far as just the details, just for competitive advantages - competitive reasons. I think in the next couple of months, we'll be able to get quite a bit more color on that. But suffice it to say, our intention is to continue to invest in the FlexRig fleet that's here in the U.S. and look to export that capacity international.

I might just add a couple of footnotes Dave. Over the long term, obviously, our goal is to grow the percentage of the corporation's consolidated EBITDA in international by exporting some of these rigs that are suited for unconventional emerging markets overseas. But we're not giving any specifics related to those targets. It's a long process and we had a couple of key wins that John mentioned in the prepared remarks, Saudi Arabia and Australia that will happen this year, but we're trying to do these investments, obviously generating returns, like a double-digit ROIC that we achieved in fiscal 2003 through time. And as John said, we want to be, for competitive reasons, we don't want to talk a lot about specifics with these. Suffice it to say, that we have some ongoing current bids and some others that we anticipate coming down the pipeline and in the near term we can put some rigs to work in the U.S. for short-term contracts having these available for longer-term export opportunities. I'm confident that we will generate returns on the investments made.

Great. I appreciate all the color and look forward to the announcements when you're able to make them. If I could sneak a quick follow-up in there, and sorry if I missed this. But just thinking about the fiscal Q1 guidance for North America Solutions with margins. I think the implied daily margin flat to slightly up. I was just wondering if you could share your view on how the daily OpEx is impacting the Q1 guidance?

Yes, David, I appreciate the question. Costs were higher as we mentioned in the fiscal fourth quarter. And I would just put it into three buckets really for simplification. I think we're over 1,000 to 1,100 versus a lot of analyst estimates. And I would say call it 300 of that was related to labor absorptions. So with increasing rigs, that will come down. Another 200 or so related to the higher materials and supplies consumption and intensity, which appears to be with us for a bit. But the balance - the rest, really, are a hodgepodge of other items that should not reoccur.

Okay, great color, I appreciate that. I will turn it back.

David. Thank you.

We'll take our next question from Kurt Hallead with Benchmark. Please go ahead. Your line is open.

Hi, good morning.

Morning, Kurt.

I appreciate the color and the commentary. So I'm kind of curious, right, as to the - you mentioned expectation for improved activity out into 2024 and those levels of activity will not quite get back to the highs that were reached in 2023. And then you kind of provided incremental color around 80% plus utilization for super-spec rigs. So just kind of curious as to what you're hearing from the E&P client base. Until recently, I guess, it's just kind of bled rigs lower and what - what's kind of providing the impetus for them maybe to turn things back on going into 2024?

Well, I think if you look at the activity levels during the course of the year, obviously early on a lot of the activity declines were related directly to natural gas, natural gas pricing. As we've gone through the year, what we've seen is a lot of a lot of churn associated with a lot of different reasons, but whether it's budget driven, whether it's production driven. A lot of this goes, Kurt, goes back to the capital discipline that the industry is showing, E&Ps, our customers are showing, which again I think is healthy for the industry. So in many cases, we're seeing somewhat of a reset in their capital budgets for the next year, is largely what we're seeing. I mean I think in general I think consensus has 40 to 60 rigs on average being added for 2024. And I think that's a reasonable expectation. And if you look at it as it relates to our current market share, I think it really fits in with what we're describing for our first quarter fiscal Q4.

Okay, I appreciate that. Now maybe follow up is, as you indicated, right, the substantial efficiency gains, FlexRig drills and so on, leading to fewer, I guess, ultimately leading to fewer number of rigs needed by the industry, at least in the U.S. market kind of going forward. So in that context, it seems to me like part of that is playing into your strategy to pursue some of these international opportunities. Am I reading too much into that?

No, I think that's fair. I mean there's no doubt that we have a desire to grow our international footprint. As we all know when you talk about U.S. activity and U.S. production and what's currently going on, as we know, production levels are not necessarily directly aligned with the current rig count that we're experiencing. And we've seen it previously, but we have capacity here in the U.S. to export FlexRigs into international markets. So that's been one of our strategies for the last couple of years and we're starting to see, as I said earlier, we are starting to see a lot more activity, a lot more bids out there to participate in. And so again, we're encouraged by that. But I think it's also important to recognize that it's very, very hard to predict rig counts and activity out multiple years, much less a couple of quarters as you know. We had fully intended to get our rig count to 191 during 2023 and we got up to around 187 or so and then of course we had a market - the market correction that we've all experienced. And so that can happen out of left field. Who knows what happens when natural gas prices strengthen in 2024 or 2025 timeframe. So it's a - there's a lot of time left ahead of us, but clearly to your original point, we're definitely planning to grow internationally.

Got it. That's great. Really appreciate it. Thank you.

Thanks, Kurt.

We'll take our next question from Waqar Syed with ATB Capital Markets. Please go ahead. Your line is open.

Thank you for taking my question and good morning. Your performance-based contracts been running for a while, good to see the basket has gone up. If you look back over the last year, year and a half, how much do you think the performance-based contracts have added to the underlying data driven margins?

Uh, 1,000 to 2,000 per day on average when those bonuses are added in and average back.

That's average out on a per rig.

Yes.

So it's double that on the rigs that are - that actually have performance-based contracts.

Oh, okay, okay. So it's been pretty in line with what your expectations were going in?

Waqar, you know, we're pleased with where we are. We think we have additional progress to make on the performance-based contracts. I think it makes - that model really makes too much sense for what's going on in our market in unconventional wells and the need to be more reliable and drill longer laterals, all of that I think it makes a lot of sense, and particularly when you're deploying additional technology and capacity and automation and things like that. So I think there's still further growth in terms of a percentage of our rigs, and I think there's the potential growth on the additional margin that we're delivering just based on how we continue to improve and how that compares to competitor performance. So I've said this before, do I think we're going to have ever have 100% of our rigs on performance? No, I don't necessarily think that. But it wasn't that long ago that we were at, oh gosh, probably 10% to 15% of our fleet and today we're at 52, and we're starting to see some additional growth with performance-based contracts. So we're encouraged by the opportunity.

Okay, and then your capital allocation framework that you've mentioned in your supplemental dividends, regular dividends and CapEx guidance, so if we reverse engineer from there to the expectations of EBITDA, I think consensus right now for fiscal year 2024 is about $872 million. So you feel comfortable with that consensus range and maybe upside a little bit there as well in your guidance, your capital allocation guidance?

Waqar, really, no further comments to the numbers we put out to do the math.

You're leaving the hard work to us then.

Yes, sir.

Okay. And then just finally, the U.S. offshore, anything kind of out there which could increase the active count further?

Well, as we mentioned, offshore we had the one rig --

Right.

That demobilized the stack as expected and our sales team does have a line of sight to a couple of potential opportunities that could occur in the back half of the fiscal year, but nothing definitive on that.

Okay, thank you very much. Thanks for taking my questions.

Thanks, Waqar.

We'll take our next question from Keith Mackey with RBC Capital Markets. Please go ahead. Your line is open.

Hi, good morning. Just looking back over the last year, certainly in the U.S. rig counts have come down, day rates came off of the, you know, leading edge peak that we saw late last year, early this year. But I think things have probably held in, you know, from a rate perspective, more stable than a lot would have expected given the amount of rigs that have come out of the industry for now. So I guess the first part of the question is, you know, would you agree with that? And the second part is, what if anything has surprised you about how the industry has responded to decrease in demand over the last year? Would you have expected things to be, you know, yourselves to be much worse than this or much better or, or any comments around that would be appreciated?

Well, I'll start with the last part of your question. You know, I think when you consider - and I mentioned this earlier, the pullback in gas prices and the activity associated with that, I don't think that part is a surprise to us or really to anyone and I think there's an opportunity of course for that to improve going forward. I think the oil side of the equation is probably a little - maybe a little bit more surprising, but it goes back to that theme that we mentioned related to churn. It's amazing the amount of, whether it's private or public, mostly I think related to private, but there's just a consistent - a continuous churn of rigs getting released and getting put back to work. Our sales force is doing a great job with that and that leads into the pricing. And at the end of the day, we work very hard to partner with our customers to deliver the highest level of efficiency value as possible and doing it in a very consistent way. And that's worth a lot, and we hear that from customers day in and day out that reliability, being able to drill those wells effectively and efficiently is worth a lot. And so again, it starts with, as I said earlier, it starts with our customers and that's being more disciplined in terms of their spending and that really puts the requirement on us to do the same thing and just making certain that we're getting a return for the capital that we're investing. As you know, it's a high capital-intensive business, drilling is. And we're investing a lot of money and we have great people and great technology and we've got to get paid for that.

I might just add to that, Keith that the way I - another way to think about it is if you - I can't speak to our competitors. I can only speak for H&P. But if you go back to the beginning of calendar '22, we said we were going to limit the amount of rigs we were putting out. We were going to focus on our pricing so that we could get the returns John just mentioned. And the reverse has happened this year. We've been focused on the pricing and we've taken the decision to idle rigs to maintain that. So that is really a different way of operating the last couple of years, both in the scenario of rigs going up and then this year with rigs going down, but the same laser focus on what we need to do to generate returns for our shareholders.

Yes. I appreciate that. Just secondly on the international tenders. Now I know you're not going to want to disclose too much here, but is there anything you can share with respect to the magnitude of tenders, what potential amount of rig activity in terms of a range you could see from the amount of tenders you're participating in or whether the amount of tenders are - appear to be speeding up or slowing down? Any commentary around that would be helpful.

Steve, I think - you know, I was thinking through this last night, not an exact number. But I mean there - there's, you know, 15 to 20, 25 rigs worth of tenders that we're aware of. And I know there's probably more, but we also know firsthand that growth internationally tends to be pretty slow. So we're sure not putting any number out there on a percentage of that rig count or the number of rigs that we might be successful with. There's a lot of work. Our teams are working really hard to make this to make this happen. So hopefully more to come in the upcoming quarters, we're announcing some success. But at this stage, there's really not a whole lot more than that I can say, Mark, unless you have any other?

No and what you're referencing is just current thing that we're in active discussions --

Active discussions with multiple countries. So it's not just one country, it's multiple countries. And the bid processes take quite some time. And then the rigs actually go to work is another 6 or 12 or 14 months even past that. So just - it's very hard to put any sort of a number to it.

So to that last point, John, I would just footnote that we would expect to see this positively in our P&L in more likely fiscal 2025.

'25, yes.

Got it. Okay, that's it from me. Thank you very much.

All right, thank you.

We'll take our next question from Marc Bianchi with TD Cohen. Please go ahead. Your line is open.

Thanks. I think Mark, in your remarks, you mentioned that there were some lower-priced rigs in the backlog of your current contract book. Could you help us understand what the opportunity is to reprice those maybe if we were to mark everything to the leading edge today, what that would mean for revenue per day?

No. But there is some - I think in the tables at the back of the press release, you can see a bit about what's under term and get some indication of that. We have some pricing now which will help us more in fiscal Q2, frankly. Then I think we have another batch of rollovers in Q2.

Okay. And the press release made a comment about not taking much of an increase for utilization to get really tight. And I think, John, you had sort of thought that the 40 to 60 rig add for 2024 is reasonable. It would seem like less than that number would be required for utilization to get really tight and we could start to see some pricing power. Any thoughts on more specifically how many rigs it's going to take and when we might start to see some upward movement in leading edge?

Marc, again, I would argue that the market is pretty tight right now. And again, we tend to got be focused only on the super-spec fleet. That's the rig fleet that we have working, and so that is already really tight. So I agree with you. The 40 to 60 reference is really not necessarily super-spec, that's kind of an industry rig count increase. Although we continue to see as an industry more and more super-spec capacity requirement, less of the non-super-spec. So we think that's going to trend. So I would - quite frankly, I would say there's pricing power in the market right now just based on what we see. So any additional net adds is just going to make that a tighter, a tighter market. Which is again why we had that, just to make that clear.

Yes. Okay, that's great. If I could just sneak one more in for Mark. The cash tax outlook implies quite a bit higher than what it looks like your book tax ought to be. Is this level of cash taxes something we should be assuming going forward or should we be assuming that your cash tax is quite a bit above your book tax for several more years here?

No, I think we have - it's around $25 million or so of 2023 taxes that are going to be actual payable in '24.

Okay. So that was driving --

So that cash tax amount is not purely related to '24. We're expecting the same - as you saw from the range, we had 27% effective tax rate this year and that's really, that's the midpoint of next year's range as well.

Right. Okay.

Just timing differences as to when we actually make the payments.

Yes. Okay, thank you. I'll turn it back.

Yes. Thanks, Marc.

We'll take our next question from Tom Curran with Seaport Research. Please go ahead. Your line is open.

Good morning, guys. Just one left for me, but it's kind of a bigger open-ended one. So as you endeavor to remain the industry's technology and innovation leader, what role do you foresee M&A playing over say the next year or two? In the scale up cycle you did four acquisitions over 2017 through 2019, MOTIVE and MagVAR, AGC and Drill Scan, just what is your appetite and approach to M&A now and what specific capabilities or themes would you be prioritizing for a bolt-on, be it drilling optimization, software automation advancements, some other topic?

Tom, that's a great question and I feel really good about the acquisitions that we made and the value that we're delivering - helping to deliver for customers. And I don't really see a gap in our portfolio on what we have. I feel really good about it. There are lot of things that we continue to make advances on, the automated directional drilling is continuing to progress. There's other things that we're working on to automate and those skill sets and capabilities really lend themselves to being able to do more, not only downhole but also on the rig itself. So I feel really good about where we are and what we have and the team that we have. We've been very fortunate to retain a lot of that brainpower from the acquisitions that we made. So I feel really good about that and I don't know of any other gaps that we have.

So John, it sounds as if, if I'm hearing you correctly, that you would expect to be able to achieve this next chapter of development organically, you know, via R&D with the existing platform in place, technologically.

Yes. Yes, that's a good way to summarize it. I think we have the skill set and I think we have the capability in-house for what we're doing. Obviously, there are always opportunities to go out and do, you know, do things with other third parties. But I don't think that requires necessarily M&A in order to do that. I think that can be done with the relationships that we currently have.

Got it. Thanks for taking my questions.

All right, thank you.

And we'll take our next question from with Ati Modak with Goldman Sachs. Please go ahead. Your line is open.

Hi, good morning team. You mentioned some cost acceleration of equipment that was less visible and you gave some color there, so really appreciate that. But curious if that changes or is baked into your normalized margin expectations at 50% longer term? How should we think about that?

I'm sorry, could you repeat that question?

You broke up on us just a little bit. Can you try that again?

Yes, for sure. Hopefully this is better. Just on the cost acceleration of equipment, is that baked into your normalized margin expectations at 50% or does that change that expectation in the near term, longer term, how should we think about that?

I think you're talking about something in the international segment. That's the only thing that was accelerated that we mentioned, not North America. Is that what you're talking about?

I thought you mentioned some FlexRig equipment acceleration and inflation. I thought that was in North America.

Yes, your - we got it. I'm sorry for that. It's the service intensity. Yes, it is built in. It is very hard to determine exactly how that continues to progress because, you know, costs do continue to increase, not only because of inflation but because of service intensity and equipment running harder and longer and delivering more volume. So yes, there is, but that is baked into our margin.

It is, yes.

Okay thank you, that's helpful. And then you mentioned some tenders ongoing and I understand the color might be difficult there. But as you think about accelerating some of these deployment plans in the international markets or the international segment, how should we think about the cadence of the margin in '24?

Well, that's, it's just going to be - we don't know yet. You saw the guide for this quarter's international expectations. And if the countries hold flat, that's the level of margin we would anticipate throughout the year, notwithstanding the successful outcomes of any of these bidding processes, which would cause us to incur expenses for final re-commissioning and shipping charges. So it's just to be determined based on the processes for bidding, which as John stated earlier really sort of happen slowly and are very unique bid to bid.

So there - yes, if successful like Mark said, most of that will push into 2025. There are a few countries that we could have some rigs that would deploy in 2024, but it's going to probably be more towards the back half. So it's not going to have a large impact on 2024 and others.

Well, it won't have any revenue for '24 but expenses are incurred.

Incurred, exactly.

Appreciate that color. Thank you.

Thank you.

I'll now turn the call back to John Lindsay for any closing remarks.

Thank you, David and thanks again, everybody, for joining us today. As we said earlier, we remain optimistic about the long-term energy fundamentals. We think there's a lot of opportunities out there that H&P can take advantage of and use to create value for shareholders. So thank you again for joining us today and we'll sign off.

This does conclude today's program. Thank you for your participation and you may now disconnect.