Helmerich & Payne Inc (HP) Q1 2025 Earnings Call Highlights: Navigating Challenges and ...

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Fri, Feb 7, 2025, 12:21 AM 4 min read

Revenue: $677 million for the fiscal first quarter, down from $693 million in the previous quarter.
Total Direct Operating Costs: $413 million, up from $409 million in the previous quarter.
General and Administrative Expenses: Approximately $63 million, a decrease of $4 million sequentially.
Net Income per Diluted Share: $0.54, negatively impacted by a net $0.17 loss per share from select items.
Adjusted Diluted Earnings per Share: $0.71, compared to $0.76 in the previous quarter.
Capital Expenditures: $106 million for the first quarter.
Cash Flow from Operations: $158 million, compared to $169 million in the previous quarter.
North American Solutions Revenue: $598 million, down $20 million sequentially.
North American Solutions Segment Direct Margin: $266 million, down from $274 million in the previous quarter.
International Solutions Rigs on Contract: 20 rigs, with 15 generating revenue.
Offshore Gulf of Mexico Segment Direct Margin: $6.5 million for the quarter.
Capital Expenditure Guidance for Fiscal 2025: Between $360 million and $395 million.
Cash and Short-term Investments: Approximately $526 million as of December 31, 2024.
Debt Reduction Goal: Reduce long-term net leverage to or below one turn.

Warning! GuruFocus has detected 8 Warning Signs with BKH.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Helmerich & Payne Inc (NYSE:HP) successfully completed the exportation of 8 FlexRigs into Saudi Arabia, enhancing their international growth strategy.
The acquisition of KCA Deutag positions Helmerich & Payne Inc (NYSE:HP) as a global leader in onshore drilling solutions, expanding their geographic and operational mix.
Helmerich & Payne Inc (NYSE:HP) maintains a strong market share in North America, particularly in the Permian Basin, with over 35% market share of super-spec rigs.
The company has a robust backlog of work totaling approximately $5.5 billion, supported by blue-chip customers, enhancing financial resilience.
Helmerich & Payne Inc (NYSE:HP) continues to generate strong and consistent margins in North America, demonstrating resilience despite industry rig count declines.

Negative Points

There are near-term headwinds in international growth plans due to rig suspensions related to the KCA acquisition and start-up costs in Saudi Arabia.
The financial results for International Solutions were below guidance due to slower-than-expected activity in Saudi Arabia.
Helmerich & Payne Inc (NYSE:HP) expects a modest decline in direct margins for North America Solutions in Q2 2025 due to fewer days in the quarter and normal revenue variability.
The company is experiencing increased operating costs, primarily due to start-up costs in Saudi Arabia and higher-than-expected general and administrative expenses.
The acquisition of KCA Deutag has led to increased debt, with $75 million of interest expense projected for 2025, impacting cash flow.

Q & A Highlights

Q: Can you discuss the range for the international onshore margin for KCA and key items affecting it? A: Kevin Vann, Senior Vice President and CFO, explained that the margin range of 35% to 50% is influenced by market softness outside of Saudi Arabia and rig suspensions. The team is working to reactivate rigs in other countries to restore EBITDA levels seen in the third quarter of 2024. The timing of the acquisition close and rig suspension costs are also factors.

Q: How does the Saudi rig deployment impact earnings and free cash flow? A: John Lindsay, President and CEO, noted that as the rigs become fully operational, they expect strong earnings and free cash flow. Kevin Vann added that once all rigs are operational, they anticipate close to $20 million in EBITDA and margin contribution annually.

Q: What are the startup costs for the legacy HP International Operations, and when will it break even? A: John Lindsay highlighted the learning curve associated with deploying FlexRigs in Saudi Arabia, which has incurred costs. Kevin Vann mentioned that labor and rentals are primary cost drivers, but as more rigs become operational, they expect to generate $15 million to $20 million in additional margin.

Q: What is the outlook for North American rig counts and natural gas-driven activity? A: John Lindsay expressed optimism about long-term energy fundamentals, particularly for natural gas. He noted that while it's challenging to predict exact timing, the fundamentals suggest significant future demand for super-spec rigs. Kevin Vann added that long lead-time projects will eventually drive demand, likely beyond 2025.

Q: How does the KCA Deutag acquisition affect operational efficiency and profitability in the Middle East? A: John Lindsay emphasized the long-term benefits of the acquisition, including accelerated international growth and exposure to key hydrocarbon basins. He noted positive feedback from customers and the potential for significant synergies. Kevin Vann added that early post-close learnings indicate opportunities for cost savings and operational improvements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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