Sign in

    Helmerich & Payne (HP)

    Q3 2024 Earnings Summary

    Reported on Apr 10, 2025 (After Market Close)
    Pre-Earnings Price$41.06Last close (Jul 25, 2024)
    Post-Earnings Price$41.77Open (Jul 26, 2024)
    Price Change
    $0.71(+1.73%)
    • Immediate Accretion & Strong Cash Flow: The acquisition is immediately accretive to both cash flow and free cash flow per share, with management expecting double-digit free cash flow accretion as soon as 2025. This indicates a near-term boost in the company’s profitability and operational performance.
    • Enhanced Geographic Diversification: The merger significantly expands international exposure, growing pro forma international land operations from around 1% to 19% and offshore from 3% to 7% of operating EBITDA. This diversification reduces dependency on the North American market and stabilizes revenue streams.
    • Strong Capital Discipline and Deleveraging Plan: H&P is focused on reducing its net debt to operating EBITDA ratio from 1.7x to near 1x over the next 1 to 2 years, demonstrating a robust commitment to a conservative balance sheet and enhanced financial flexibility.
    • Deleveraging Risks: The plan to reduce the net debt-to-EBITDA ratio from 1.7x to 1x within 1–2 years post-close could prove challenging if projected cash flows fall short, especially in a volatile market environment.
    • Cost Creep and Integration Challenges: Despite expectations of double‐digit free cash flow accretion as early as 2025, there is concern that unforeseen post-acquisition costs or delays—common in mergers—could erode these benefits.
    • Underutilized Asset Base: The mention of having between 70 and 80 idle super‑spec rigs suggests potential underutilization of capacity, which might pressure margins should market conditions not improve as anticipated.
    1. Free Cash Flow
      Q: Accretive free cash flow next year?
      A: Management expects double-digit free cash flow accretion by 2025 with transaction returns exceeding the cost of capital by 2026, reflecting strong due diligence and robust cash generation.

    2. Deleveraging Timeline
      Q: When will leverage drop from 1.7x?
      A: They plan a focused deleveraging process to reduce the net debt to operating EBITDA ratio from 1.7x to about 1x within 1–2 years post-close.

    3. Acquisition Multiple
      Q: Why is the deal 5.4x multiple?
      A: The acquired business is valued at an attractive 5.4x transaction multiple, lower than peers due to stable, visible cash flows and lower volatility.

    4. Asset Quality
      Q: How do KCA assets compare?
      A: Management is comfortable with the well-maintained, conventional fleet that delivers attractive per asset EBITDA multiples, underpinned by strong customer relationships.

    5. CapEx Perspective
      Q: What is KCA’s recurring CapEx?
      A: KCA’s CapEx run rate is roughly $22 million on a recurring basis, similar in per active rig maintenance to H&P, ensuring balanced capital intensity.

    6. ROI Prospects
      Q: What drives growth post-merger?
      A: The merger is expected to boost EBITDA by leveraging operational synergies and the broader international footprint, enhancing overall ROI.

    7. Global Exports
      Q: Will exports outside the U.S. change?
      A: The acquisition expands the international footprint, enabling increased rig export opportunities and providing scale in key Middle Eastern markets.

    8. FlexRig Potential
      Q: Is there demand for FlexRigs abroad?
      A: Management sees strong potential to introduce FlexRigs internationally, leveraging KCA’s established global relationships to tap new markets.

    9. Performance Contracts
      Q: What percentage is performance-based?
      A: Approximately 50% of the U.S. fleet operates on performance-based contracts, with anticipated increases as churn declines.

    10. Rig Count
      Q: What’s driving rig count uptick?
      A: An uptick is being driven by a mix of high-grade opportunities and a reset in customer budgets, indicative of an improved market outlook.

    11. Customer Relations
      Q: How is KCA viewed by key clients?
      A: KCA is well-regarded, enjoying strong customer relationships—including with players like Aramco—which supports a seamless integration and future growth.

    Research analysts covering Helmerich & Payne.