Good day, everyone, and welcome to the Independence Contract Drilling Fourth Quarter and Year-End 2017 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] And please note that today's event is being recorded. I would now like to turn the conference over to Philip Choyce, Executive Vice President and Chief Financial Officer. Please go ahead.

God morning everyone and thank you for joining us today to discuss ICD’s fourth quarter and year end 2017 results. With me today is Byron Dunn our President and Chief Executive Officer. Before we begin I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. A number of factors and uncertainties can cause actual results in future periods to differ materially from what we talk about today. For a complete discussion of these risks, we encourage you to read the Company’s earnings release and our documents on file with the SEC. Ina addition we will refer to non-GAAP measures during the call, please refer to the earnings release and our public filings for a full reconciliation of net loss to adjusted net loss, EBITDA and adjusted EBITDA and for definitions of our non-GAAP measures. And with that turning it over to Byron for opening remarks.

Thanks Phil. Good morning everyone and thank you for joining us today. As usual I will first review ICD’s fourth quarter 2017 operations and update our outlook for 2018. Philip will provide details on our fourth quarter financials and then we will take questions from call participants. In the fourth quarter ICD generated record revenue on operating days as our fleet reached and maintained 100% utilization. Higher day rates came into effect later in the quarter on four contract extensions we discussed on our previous conference call which will benefit future quarters. Substantial market momentum has continued into the first quarter of 2018 with ICD signing four additional contract extensions at materially higher day rates over expiring terms. We believe demand in data rates will continue to grow throughout 2018 for pad optimal rigs as the impact of several years of under investments and declined curve accelerations manifests. Because we strategically staggered contract explorations during 2017, we are poised to capture additional day rate improvement during 2018. We have three contracts that we will rerate during the second quarter, five in the third quarter and three in the fourth quarter of 2018. At year end, backlog stood at 75 million with all available revenue days contracted through the first quarter of 2018 and approximately 80% through the second quarter. Demand for pad optimal land drilling rigs is greater than the U.S. fleet can deliver and continues to grow, because our clients the top-tier players in the shale expand wellbore manufacturing principles and design successively more complex pad drilling programs, programs that only pad optimal rigs can economically execute. As 2018 unfolds it’s become more common to ShaleDriller to be drilling 22,000 foot wells to have four more wells on a pad and much more common to have complex pad drilling programs which require rigs to walk in an angle rather than merely X, Y. ICD currently has four rigs employed on complex pads that are walking two directions or diagonally consistently. These complex well patterns are no issue for pad optimal ShaleDriller rigs, but are not feasible to economically execute by skidding or other upgraded X,Y and legacy equipment. So as I mentioned, we believe the U.S. fleet of pad optimal rigs is fully utilized, as a result, we are seeing a couple of things in the industry. One is that operators are trying to increase contract tenures on pad optimal rigs and we also see a lot of lower spec equipment coming back into the market is higher quality range or unavailable. Obsolete range are being upgraded and put back to work and no work at least in the near-term. This is creating the new market tiering with true pad optimal equipment at the top of the pyramid and the base occupied by upgraded AC’s skidding rigs with upgraded equipment packages and improved foot limited moving systems. This lower tier was previously held by DC and AC skidding rigs during the last cycle. Given the robust and improving market for pad optimal equipment ICD’s Board of Directors approved the construction of our next newbuild rig, we expect that rig to be completed to mobilized through operations early to mid third quarter 2018. The incremental cash cost to construct this rig as a fully pad optimal 200 Series with the VFT that can accommodate for gensets and three pumps running simultaneously is approximately $10 million and Phil will get into some more detail on that at his March comments. The newbuild will be financed by our existing ABL with a commitment of $85 million in our borrowing base of approximately $107 million. At December 31, 2017, we had net debt of $46 million, so there is plenty of room in the ABL to complete this fill this rig. So wrapping up, our rigs have reached full effective utilization, day rates are improving and we are returning to growth mode with newbuild approval by our Board of Directors. ICD continues to build the strategically staggered backlog and higher day rates with customers having long-term complex well bore manufacturing programs requiring pad optimal equipment. Our recent term contracts have provided an additional forward-looking visibility at our ABL availability and borrowing base remains strong. With that, I will turn the call over to Phil.

Thanks, Byron. In the fourth quarter, ICD reported a net loss of $5.7 million or $0.15 per share, excluding non-cash charges summarized in our press release our just a net loss of $4.6 million or $0.12 per share. Based on 1,289 revenue days in the fourth quarter a 4% sequential increase in the third quarter, total revenue was $25 million including pass through revenue of $1.4 million. Average revenue per day of $18,338 came in line with our guidance. Approximately 5% of third quarter revenue days are on a higher day rate legacy contract that did not extend into the fourth quarter of 2017. Cost per day of $13,094 came in slightly higher than our guidance primarily related to higher repair and maintenance expense. Overall, gross margin per operating day came in on the lower range of our guidance as a result of these items. SG&A expenses were $3.8 million during the quarter including $500,000 of non-cash compensation expense. Cash SG&A expenses of $2.6 million increased 30% sequentially as a result of higher incentive compensation expense compared to the prior quarter. Non-cash compensation expense declined 44% sequentially due to the completed vesting of equity awards originally granted at the time of the Company’s Initial Public Offering. Depreciation expense and the interest expense came in line with our prior guidance, tax expense was slightly higher, this related to non-cash deferred to the Louisiana State Income Tax Accrual. At year-end, we had net debt excluding capitalize leases of $46 million, our borrowing base under our credit facility was a $107 million exceeding the $85 million of commitments under the facility. Cash outlays for capital expenditures in the quarter, net of disposals of $4.2 million of which $2.5 million related to deliveries occurred during the third quarter of 2017. Accounts payable at year-end included approximately $5.0 million related to the fourth quarter deliveries. At December 31, 2017, pro forma for four contract extensions, our contract backlog was approximately $75 million of this backlog 88% is expected to be realized during 2018 and the remainder in 2019. As lower day rate contracts rerate for the current day rate environment, we expect to see continual revenue per day improvement throughout 2018. For example, our average day rate in backlog during the first quarter of 2018 is approximately $19,000 per day compared to $19,700 per day during the second quarter of 2018. Byron provides an overview of our contract renewal schedule which will provide an additional opportunities for revenue per day improvement in addition to what we already in our backlog as we move forward into 2018. 2018 annual and quarterly guidance. Before I move onto specific first quarter guidance, some items related to our full fiscal year 2018 expectations. We expect corporate SG&A to be approximately $13.3 million of which $3.0 million will be non-cash stock based compensation expense. We expect the annual depreciation expense to be approximately $24.5 million, but will increase by approximately $500,000 per quarter above this level, when our plan newbuild deploys. Galayda Yard construction expenses will be approximately $1.4 million that will be fully absorbed in quarter when our new rig build has been constructed. We expect tax expense to remain flat overall at 2017 levels. Our 2018 capital budget is $21 million composes of the following; $10 million in complete the announce newbuild rig and $10 million in maintenance and potential additional equipment purchases as required. CapEx on the newbuild could increase by up to $2 million depending on the required equipment specification of the customer. Most of this CapEx will be weighted towards the back half of the year and we also expect several million dollars to flow through our cash flow statement related to the fourth quarter equipment deliveries that we had not yet paid for year-end. Moving on to first quarter guidance. We expect our range will be 100% utilized with revenue per day ranging between $18,800 and $19,000 per day as we begin to realize some benefits from improving day rate and their contract extensions. We do not expect day rate improvements for our four recently signed extension to kick in until the second quarter of 2018. We expect fully burden operating cost per day to range between $13,300 and $13,500 per day with a sequential increase above the targeted levels primarily relating to cyclical first quarter matters. This per day expectations exclude pass through revenues and expenses and our cost per day also exclude rig construction expenses. Rig construction expenses are expected to be approximately $450,000 during the first quarter. First quarter SG&A should approximate $3.3 million of which $700,000 will be non-cash. Depreciation expense should approximate $6.7 million, interest expense should approximate $950,000 and tax expense should be around $50,000. And with that, I will turn the call back over to Byron.

Thanks, Phil. At this time, operator if you could open the lines for questions and answers.

Thank you. [Operator instructions]. And our first questioner today will be Kurt Hallead with RBC Capital Markets. Please go ahead.

Good morning. So Byron, we will finally get some momentum enough in the marketplace to add another rig to the fleet, kind of long awaited process. I was wondering if you might be able to give able to give us some insight as to the kind of contract terms that you are now seeing that are giving you this conviction to move forward with this newbuild?

It depends how we configure, Kurt, but in general we are talking over five people right now, we are looking at anything from a regular 200 series to a 200 series with some additional equipment and the day rates been range depending on what we do out of the box from low 20s and mid 20s.

And what kind of term are they willing to commit to?

I personally will prefer a year, we will see where they come back, but I would like to keep it long enough that we have visibility in our ABL, I wouldn’t want to go out two or three years necessarily, because I think we are in a very robust day rate environment.

Okay. Now from that, if I not mistaken Bryan, please correct me, which I know you will, and I do think you had some parts or other things laying around for a second rig that you could potentially get out into the system as well. What do you think that through, what do you think the prospects are for getting the second rig out to the marketplace this year?

Really high, and the issue this; as we go and build this second rig, the nature or the very top tier of the market is changing and I don’t think that the requirements have coalesced. So we are in conversations again with multiple large players about what they are looking for from mega pad development and it’s not consistent and I don’t want to under build, but also I don’t want to over bill. And in general what are you seeing is a general desire for additional raking capacity, you are looking at general desire for a heftier mask and sub, because fast moves are less relevant in that application and a couple other things. So it hasn’t coalesced, we are in conversations and again I want to make sure that when we do pull the trigger on this, we are pulling the trigger on a piece of equipment that’s going to be broadly applicable, so that’s where we are in the second one right now. I don’t think at this point it will be a regular 200 series really.

Okay, got it. Thanks.

And our questioner today will be from Daniel Burke, with Johnson Rice. Please go ahead.

Hey Good morning guys. Byron just more broadly, when you talked about your day rate expectation for the rig, you will bring out just past mid this year. Cane we use the same day rate range as a discussion point for what you are seeing throughout the rest of your fleet, or any distinctions you draw?

The only distinction I draw would be equipment package and there will be some spread between the day rates based on a number of pumps and number of pumps that can operate simultaneously but otherwise its broadly similar.

Got it. And then when you think about this year’s CapEx, Philip you are pretty clear on the 10 for the rig and 10 for kind of other you mentioned the additional purchases, but to be clear that 20 and some doesn’t include a partial plug for the next partially completed rig?

It does not include that, no.

Okay. And then I’m moving pretty quick here. But, there has been wage pressures out there and alike and a grant that’s a pass through but any change looking pass the payroll impacts that you all see in Q1 in terms of where you think you are fully burden operating costs are going to end up?

From a wage perspective, no. I think we are a preferred place to work, I think that we have got upward mobility possibilities for the people that work for us. So, we really haven’t had a lot of troubleshooting skilled labor. As I mentioned in the past, entry level folk you can get them, but there is some additional training requirements that we didn’t see in the last cycle. So, there is an additional cost that Phil can quantify surrounding, bringing the man, training them, mentoring them, the yellow hat program, because the folks we are getting in right now don’t have the base electrical hydraulic mechanical skill sets that we saw previously. So, if there is any pressure, it’s not necessarily total compensation its costs associated with the bringing those folks on. Now, we do have initiatives in place to bring in our overall operating costs per day down by several hundred dollars to get a broader initiatives that has to do with efficiency and structure efficiencies and rental utilization. We expect contract terms to changed to a degree as we go through this process and collectively all of that will bring our cost down somewhat, but right now wages aren’t an issue.

Okay, great. And yes I think that’s pretty helpful. I will leave it there. Thank you guys.

Yep.

And our next questioner will be James West with Evercore ISI. Please go ahead.

Hey, guys this is Alex for James.

Hi, Alex. How are you?

Good. Thanks. I was curious if operators have begun to make the distinction with respect to day rates between the upgrade skidding rigs and the pad optimal ShaleDriller and rigs of that category or if it’s at this point they are being still pretty price sensitive?

It depends on the application. So, if you take a look at a retrofitted skidding that locks, there is a market for them and the market for that in the Permian at least and some others there is going to be small pads or pads with straight wellbores, in line wellbores. And what you have done is you have taken a skidding rig improved it’s moving capability. But let me just step back for a second, because anything there is a lot of conversion that’s scrolling around upgrades and spec and so I would suggest you look at it in as two general buckets of capabilities. \ The first bucket of capability would be the equipment on the rig and that’s 7,500 PSI systems and top drives, hydraulic cap-locks, three pumps and so on. And the second bucket of capability is going to be focused on the delivery of that equipment to the wellbore and that’s the substructure in mass moving capabilities. So, you can take a rig that got sub spec equipment and you can pretty easily upgrade that. You can add pumps, with money you can do a lot of stuff and you can get it off to snuff from the standpoint of pumps cap-locks so on and so forth. The more difficult issue is the moving issue, because now you are taking a piece of equipment that was designed to do a very specific task very well, and they are asking to do something different. And in that case, its tradeoffs and the tradeoffs around center gravity, lake spacing, flow line, grasshoppers which is the mechanism that moves cables and hoses around and there is the limitations there. When you take non-walking equipment and make it walk, you got floor plates or floor beams you have to burry everything on the pad. So you have something that I think is supplanting the old skidding system with something different and there is a market for that and there is a day rate for that market, there is a lot of that around. So the day rate for that market is a quite a bit different than the day rate for the pad optimal market. So I would say it’s not necessarily the rig Alex, it’s the application and I would encourage you think about it in terms of kit and in terms of the delivery mechanism.

Got it, so I guess at this point, would you say the market for the pad optimal applications are large enough or demand is high enough to kind of drive a significant disparity between the two applications?

Okay, so I don’t participate in net other markets, so I hear things that are anecdotal, I can tell you that the day rate market for pad optimal equipment is very robust and moving up.

Understood. Thank you.

And our next questioner today will come from Marc Bianchi with Cowen. Please go ahead.

Okay, thank you, hey guys. First on the newbuild here in the five customers you are talking to, is this a replacement for that, or is it an incremental rig add to your knowledge?

Both, it depends on the customers, there is probably a little bit more weighted incremental, but there are replacement as well. So where they are displacing equipment or customers are expanding their drilling. I think they are expanding their drilling programs in any case, but some is incremental and some is replacement.

Okay and I guess, so you have got a newbuild opportunity here, there is some others that are out in the market, it seems like the high-end pad optimal market is pretty much fully utilized, maybe there is a few more upgrades here and there, but what do you think it really chase from a demand perspective and day rate perspective to see a lot of newbuilds here in the market, and let’s say we fast forward six months and there is a certain amount of rig count increase that you think needs to occur in a certain amount of day rate, what does that look like in your mind for the market?

Yes, I think actually the rig counts cloud decrease and we could still see an increase in wells drilled and footage drilled, this equipment becomes more effective, so I wouldn’t necessarily look over the longer term for rig count increases. But I think to answer your question, you are going to need day rates in the mid to high 20s with two to three year contracts before you are going to do something from scratch.

Alright, okay. And then just one that’s a little bit different on drill pipe, can you guys remind us or do you own your own drill pipe or is it usually the customer, in your…

We typically provide a string of drill pipe and if they need something different than the stack, we provide no mill up or help provide that but each one of our rigs comes with a full string of drill pipe.

Can you talk to what you are seeing there, in terms of changes in customer preference, maybe what your requirements are now for investing or replacing any of that and what the lead times might look like?

We typically buy five inch drill pipe for our rigs, if they want something different, sometime they might want a smaller string, 4.5 depending on what they want to do they will provide that. I don’t think we have seen materially different lead count as far as drill pipe as of right now.

Okay. And there isn’t a major component of your CapEx this year that’s allocated towards drill pipe that’s unusual?

We will bring in a string in, the CapEx the $10 million aside, half of that maintenance item related items and the other half really earmarked for that Byron mentioned about engines and pumps and things like that. If we put those rigs and our customers are going to increase our day rates then we will spend that CapEx so that’s what the other kind of half is for.

Right. Okay, well thanks Phil. I will turn it back.

And our next questioner today will be Ryan Pfingst with B. Riley, FBR. Please go ahead.

Hi, guys. I’m in for Tom Curran this morning. Thanks for taking my call.

Hey, Ryan.

On the second rig, I know you said there is a high chance to get out in the marketplace this year. Is there kind of the floor that you want to see in terms of day rate or length to get that out in 2018?

Again it depends on the design, so the designs we are looking at vary anywhere from $10 million incremental to $17 million or $18 million incremental. So, it depends, there is a day rate requirement for any of those cost points, but more importantly I want to get it right. And again if you think back to when we started Independence Contract Drilling, before we leave in rays or plus capital, we went out to the majors and the larger Independence and ask them given the change in the market and the change in your drilling campaigns and what we believe to be the wide usage of pads and the short comings of the existing U.S. fleet, what do you want. And the things that we got back from them were very consistent and they formed the underpinning of a 200 series design. And we are trying to do something similar as we go forward, but we are not getting a consistent message. So, I think more important, once we get the message clear, the cost will fall out and the day rate will fall out and given the demand for the equipment, I’m not worried about those dominos falling. I can’t tell you when they will fall, but that’s the process we are going through.

Got you. And do you still think the highest demand right now for these rigs will be either the Haynesville or the Permian?

Yes.

Okay, great. And then just generally, could you share an update on some of the your technology initiatives?

Well, because we have AC computer controlled equipment, we capture all the data clients wants. So, to one degree or another we are working for the people who want to get at that data capture and use it. So, I wouldn’t say it’s homogenous, but that process is ongoing and we are working with a major technology company right now about integrated software systems for employment on our rigs. Something broadly similar to what you see with other drilling contractors in the market. And I believe we will have a pilot program up in running next quarter and depending on how that works out we will have more to say and more to do with the rigs. But, broadly its data capture and automation and better control of the directional drilling process.

Great. Thank you guys.

You bet.

And our next questioner today will be [Indiscernible] Please go ahead.

Hello. Thank you for taking my call. So, the two rigs that you have completed were for about $22 million and then you are upgrading one for about $10 million. Were they both equally completed and I guess the question is total build costs for the rig that you are spending the CapEx on this year about $21 million just by doing the math you have given us?

Yes, okay, so when I say they half completed, there was a little bit of a short hand, what it basically meant was the long lead time items which are a major component of the rig costs has been procured and these have been procured sometime in the past and as went through the downturn we didn’t build those rigs. So we farther ourselves in a vastly improved market with the long lead time items for two rigs and the first one we are building, yes it’s a traditional 200 series, it has an incremental costs of $10 million. So for all the…

It’s probably consistent with what we have done in the past $21 million or so dollar plus or minus.

So the sunk plus the incremental.

Okay that was my assumption. So, I’m a little newer the company, but if you just look at your 14 rigs that you have out there that is maybe 2.8 year, three year life right now tons 21 million, you are about a $300 million asset value, a substantial discount through the enterprise value and I guess my question is the market compliance that you have just not going to get a return on this capital which feeds back to the day rate question. So, out of 21000, 22000, 23000 day rate question on this new capital - what sort of return on assets, return on capital are we looking for to justify this build and how far is that off of your corporate goals over a three year period?

Yes, so I think we are talking about a deep cyclical enterprise, deep cyclical part of the markets, I am not sure I agree with your market assessment, generally what we look at is how do we capture breakeven. So how long is our capital exposed before we recapture all of it and the other thing, because this is a deep cyclical industry, you have to build into the market, when the market is beginning to improve because of the long time it takes to put equipment into the market. So definitionally when you are adding new equipment, you are at part of the market that has a day rate environment which isn’t going to get you to your breakeven goals, but the expectation is we are moving into a much more robust and prolonged long part of the market where those goals will be met. So, I think, I would be happy to talk with you about this offline, I think it’s a longer conversation but in general we look for five year cost recovery.

So, I didn’t I mean to imply that that you are not going to get at completely agree with what you said and I will take the offline, but it’s a founding how undervalued your Company is in a rising environment fully utilized, putting new assets out there, best-in-class assets and trading under that asset value at the bottom of this cycle. So I just wanted to ask kind of what the normalized return on capital might be over a cycle. I understand we are not going to earn it today?

Okay, give me a ring offline, I can walk through, again this is a longer conversation and we can go through some of these on how we can get it, what we get, but we fully intend to capture our cost-to-capital and more.

Thank you.

[Operator instructions]. And our next questioner today will be Connor Lynagh with Morgan Stanley. Please go ahead.

Yes, thanks. I just wanted to follow-up on a comment you were making, in that you are getting in consistent feedback from your customer base as to what they want to see in any rig. So I was wondering if you could just expand that on a little bit and say like where do you see agreement, where do you see the biggest points of divergence in terms of what companies are looking for. And does it vary depending on whether operating or just generally where are you seeing this divergence?

Yes. It’s not in the kit Connor, so everybody is clear on what they want in terms of mud pumps and so all that bucket particularly I talked about earlier where you are going to find some divergence is what kind of a mass do they want, what the design look like, what is it capability and there is some software system nuances here as well, what kind of a sub structure and you wanted to move faster, is it going to be on location for two or three years and moving fast doesn’t matter. And then it gets back to their pad design and so, what is their well spacing, to the extent that they are using concrete coffins what those look like. So, I think what we have are differences in pad design driving differences in preference for mass and sub with broad agreement on kit is the where I think we are.

I mean I guess I would say that the general theses for your initial design was that pad size that’s going to continue moving higher and you are going to use a lot more drilling on dense pad. So, if that trend continues, I guess the first question is, do you see it continuing. And then if you do see that, do you think that you are more likely to build the more expensive version of the rigs that you were highlighting earlier. Or is it more likely you are going to push on another 200 for use or moving on the 300 design?

Well, I think there is a broad and growing demand for ICD ShaleDriller, so that market is probably going to be the largest component of the market going forward. We are looking at the next level of the market which again is going to be a little bit heavier. But if you are going to drill four mile laterals in the Wolfcamp D, you are not going to do that with a ShaleDriller or really with much of anything that’s available right now. So, to the extent laterals become much, much, much longer or you are doing cube development. I think in Encana just put a press release out recently about cube development of its shale. If you are going to do things like that then you need to maintain the flexibility to walk diagonally or at some kind of an angle. And at the same time, we need have your equipment and again I don’t want to under-build, and I don’t want to over-build and I’m not comfortable that we have call last coalesced the industry is really going to need going forward. So, we are going to nail that down before we start spending money. And then of course unless we get the day rate we need for that particular design, we will wait for that happen as well, which I think is inevitable given the development plans that we are hearing. So, I think it’s coming to us.

Make sense. Thanks, thanks for the thoughts.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Byron Dunn for any closing remarks.

Well, once again thank you all for joining us. We appreciate the questions, the support, the interest in our Company and we look forward to moving back to a growth phase for Independence and talking to you on our next quarter. Thanks very much.

And the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.