News Releases

Independence Contract Drilling, Inc. Reports Financial Results For The Third Quarter Ended September 30, 2020 And Announces Additional Rig Reactivations

HOUSTON, Nov. 3, 2020 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three months ended September 30, 2020.

Third quarter 2020 Highlights

  • Net loss of $15.2 million, or $2.67 per share.
  • Adjusted net loss, as defined below, of $15.5 million, or $2.73 per share.
  • Adjusted EBITDA loss, as defined below, of $0.5 million.
  • Net debt, excluding finance leases and net of deferred financing costs, of $118.3 million.
  • Marketed fleet utilization of 17%.
  • Fully burdened margin of $3,923 per day.

In the third quarter of 2020, the Company reported revenues of $10.2 million, a net loss of $15.2 million, or $2.67 per share, adjusted net loss (defined below) of $15.5 million, or $2.73 per share, and adjusted EBITDA loss (defined below) of $0.5 million.  These results compare to revenues of $45.1 million, a net loss of $10.5 million, or $2.80 per share, adjusted net loss of $7.9 million, or $2.09 per share, and adjusted EBITDA of $7.7 million in the third quarter of 2019, and revenues of $21.4 million, a net loss of $10.1 million, or $2.52 per share, an adjusted net loss of $11.0 million, or $2.73 per share, and adjusted EBITDA of $4.0 million in the second quarter of 2020. 

Chief Executive Officer Anthony Gallegos commented, "Undoubtedly, our third quarter results reflected the full effects of the unprecedented destruction in oil and gas demand caused by the COVID-19 pandemic.  However, ICD also began to reassemble the pieces during the third quarter.  We are a leader in the Haynesville and East Texas natural gas plays, and this is paying dividends as improving natural gas commodity pricing drove incremental demand and rig reactivations for us late in the quarter.  As a result, we exceeded expectations with respect to drilling rig contracting activity and overall cost control during the quarter.  Also, we continued to advance our drilling optimization initiatives, and on the ESG front I am very pleased that six of our eight rigs operating today are using or planning to use our ShaleDriller rigs' dual fuel capabilities.  Lastly, we improved our liquidity profile by completing our $11 million ATM offering, raising the final $3.6 million proceeds during the third quarter, and exited the quarter with total financial liquidity of $39 million, including $18.8 million in cash.

Operationally, we exited the third quarter with six rigs drilling and I am pleased to announce we have since reactivated two additional rigs that are now operating representing a 33% increase in our contracted rig count since June 30th.  Looking forward, based upon improving natural gas prices and stabilized to improving oil prices, as well as our current identified opportunity set, we expect to reactivate additional rigs during the remainder of the year and into the first half of 2021."

Quarterly Operational Results

In the third quarter of 2020, the Company's marketed fleet operated at 17% utilization and recorded 460 revenue days, compared to 76% utilization and 1,943 revenue days in the third quarter of 2019, and 32% utilization and 834 revenue days in the second quarter of 2020.

Operating revenues in the third quarter of 2020 totaled $10.2 million, compared to $45.1 million in the third quarter of 2019 and $21.4 million in the second quarter of 2020.  Included in operating revenues were $1.2 million and $2.2 million of early termination revenue recognized during the third and second quarters of 2020, respectively.  Excluding the impacts from early termination revenue, revenue per day in the third quarter of 2020 was $18,078, compared to $20,559 in the third quarter of 2019 and $19,741 in the second quarter of 2020.  Sequential declines in revenue per day were driven by the expiration of higher-dayrate legacy contracts during the quarter and a higher proportion of rigs drilling at prevailing spot dayrates.

Operating costs in the third quarter of 2020 totaled $8.7 million, compared to $34.2 million in the third quarter of 2019 and $14.1 million in the second quarter of 2020.  Fully burdened operating costs were $14,155 per day in the third quarter of 2020, compared to $14,914 in the third quarter of 2019 and $12,741 in the second quarter of 2020.  Sequential increases in operating costs per day were driven by inefficiencies associated with reduced operating days during the third quarter of 2020 as well as one-time items benefiting costs during the second quarter of 2020.

Excluding the impact from early termination revenues and decommissioning and reactivation costs, fully burdened rig operating margins in the third quarter of 2020 were $3,923 per day, compared to $5,645 per day in the third quarter of 2019 and $7,000 per day in the second quarter of 2020.

Selling, general and administrative expenses in the third quarter of 2020 were $2.8 million (including $0.7 million of non-cash stock-based compensation), compared to $3.8 million (including $0.6 million of non-cash stock-based compensation) in the third quarter of 2019 and $3.5 million (including $0.3 million of non-cash stock-based compensation) in the second quarter of 2020.  Sequential decreases in selling, general and administrative expenses were associated with cost cutting initiatives that impacted the entire third quarter.

Drilling Operations Update

The Company exited the third quarter of 2020 with six rigs earning revenues under drilling contracts. As of October 31, 2020, the Company has reactivated two additional rigs that commenced operations.  The Company's backlog of drilling contracts with original terms of six months or longer was $12.7 million as of September 30, 2020, representing 2.22 rig years of activity.  Approximately 56% of this backlog is expected to be realized during the remainder of 2020.

Capital Expenditures and Liquidity Update

Cash outlays for capital expenditures in the third quarter of 2020 were $0.6 million, offset by asset sales and recoveries of $1.4 million.

As of September 30, 2020, the Company had cash on hand of $18.8 million, an undrawn revolving line of credit with availability of $5.2 million based upon eligible accounts receivable, $130 million principal amount outstanding under its term loan, and $10 million outstanding under a loan issued under the Payroll Protection Program ("PPP") under the CARES Act.  The term loan includes a committed $15 million accordion that remains undrawn.

During the third quarter of 2020, the Company completed its at-the-market ("ATM") common stock offering and issued 1,163,611 shares of common stock pursuant to this program at a weighted average gross selling price of $3.13 per share, resulting in gross proceeds to the Company of $3.6 million.

Conference Call Details

A conference call for investors will be held today, November 3, 2020, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter 2020 results. 

The call can be accessed live over the telephone by dialing (855) 239-3115 or for international callers, (412) 542-4125.  A replay will be available shortly after the call and can be accessed by dialing (877) 344-7529 or for international callers, (412) 317-0088.  The passcode for the replay is 10148733.  The replay will be available until November 10, 2020.

Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company's website at www.icdrilling.com in the Investor Relations section.  A replay of the webcast will also be available for approximately 30 days following the call.

About Independence Contract Drilling, Inc.

Independence Contract Drilling provides land-based contract drilling services for oil and natural gas producers in the United States. The Company constructs, owns and operates a fleet of pad-optimal ShaleDriller rigs that are specifically engineered and designed to accelerate its clients' production profiles and cash flows from their most technically demanding and economically impactful oil and gas properties. For more information, visit www.icdrilling.com.

Forward-Looking Statements

This news release contains certain forward-looking statements within the meaning of the federal securities laws. Words such as "anticipated," "estimated," "expected," "planned," "scheduled," "targeted," "believes," "intends," "objectives," "projects," "strategies" and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to Independence Contract Drilling's operations are based on a number of expectations or assumptions which have been used to develop such information and statements but which may prove to be incorrect. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, and there can be no assurance that actual outcomes and results will not differ materially from those expected by management of Independence Contract Drilling. For more information concerning factors that could cause actual results to differ materially from those conveyed in the forward-looking statements, please refer to the "Risk Factors" section of the Company's Annual Report on Form 10-K, filed with the SEC and the information included in subsequent amendments and other filings. These forward-looking statements are based on and include our expectations as of the date hereof. Independence Contract Drilling does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Independence Contract Drilling becomes aware of, after the date hereof.

 

 

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except par value and share data)


CONSOLIDATED BALANCE SHEETS



September 30, 2020


December 31, 2019

Assets




Cash and cash equivalents

$

18,813



$

5,206


Accounts receivable, net

9,316



35,834


Inventories

1,162



2,325


Assets held for sale

1,700



8,740


Prepaid expenses and other current assets

3,725



4,640


Total current assets

34,716



56,745


Property, plant and equipment, net

418,557



457,530


Other long-term assets, net

2,444



2,726


Total assets

$

455,717



$

517,001


Liabilities and Stockholders' Equity




Liabilities




Current portion of long-term debt (1)

$

3,141



$

3,685


Accounts payable

3,595



22,674


Accrued liabilities

10,438



16,368


Merger consideration payable to an affiliate



3,022


Current portion of contingent consideration



2,814


Total current liabilities

17,174



48,563


Long-term debt (2)

143,440



134,941


Merger consideration payable to an affiliate

2,902




Deferred income taxes, net

568



652


Other long-term liabilities

1,912



1,249


Total liabilities

165,996



185,405


Stockholders' equity




Common stock, $0.01 par value, 50,000,000 shares authorized; 6,245,298 and 3,876,196 shares issued, respectively, and 6,166,720 and 3,812,050 shares outstanding, respectively

62



38


Additional paid-in capital

517,540



505,831


Accumulated deficit

(223,968)



(170,426)



Treasury stock, at cost, 78,589 shares and 64,146 shares, respectively

(3,913)



(3,847)


Total stockholders' equity

289,721



331,596


Total liabilities and stockholders' equity

$

455,717



$

517,001



(1)  As of September 30, 2020 and December 31, 2019, current portion of long-term debt includes $3.1 million and $3.7 million, respectively, of finance lease obligations.


(2)  As of September 30, 2020 and December 31, 2019, long-term debt includes $6.3 million and $7.5 million, respectively, of long-term finance lease obligations.  As of September 30, 2020, long-term debt also includes $10.0 million related to the PPP Loan.

 

 

 

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except par value and share data)


CONSOLIDATED STATEMENTS OF OPERATIONS



Three Months Ended


Nine Months Ended


September 30,


June 30,


September 30,


2020


2019


2020


2020


2019











Revenues

$

10,224



$

45,073



$

21,381



$

70,099



$

158,310


Costs and expenses










Operating costs

8,663



34,246



14,095



52,987



111,032


Selling, general and administrative

2,796



3,755



3,544



10,101



11,308


Severance and merger-related expenses



320





1,076



2,688


Depreciation and amortization

10,767



11,154



11,055



33,338



33,838


Asset impairment, net



1,966





16,619



9,839


(Gain) loss on disposition of assets, net

(326)



265



(836)



(1,208)



3,503


Other expense



122







377


Total costs and expenses

21,900



51,828



27,858



112,913



172,585


Operating loss

(11,676)



(6,755)



(6,477)



(42,814)



(14,275)


Interest expense

(3,554)



(3,560)



(3,654)



(10,812)



(10,913)


Loss before income taxes

(15,230)



(10,315)



(10,131)



(53,626)



(25,188)


Income tax (benefit) expense

(31)



232



(11)



(84)



590


Net loss

$

(15,199)



$

(10,547)



$

(10,120)



$

(53,542)



$

(25,778)












Loss per share:










Basic and diluted

$

(2.67)



$

(2.80)



$

(2.52)



$

(11.91)



$

(6.82)












Weighted average number of common shares outstanding:










Basic and diluted

5,703



3,770



4,018



4,495



3,780


 

 

 

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except par value and share data)


CONSOLIDATED STATEMENTS OF CASH FLOWS



Nine Months Ended September 30,


2020


2019

Cash flows from operating activities




Net loss

$

(53,542)



$

(25,778)


Adjustments to reconcile net loss to net cash provided by operating activities




Depreciation and amortization

33,338



33,838


Asset impairment, net

16,619



9,839


Stock-based compensation

1,554



1,385


(Gain) loss on disposition of assets, net

(1,208)



3,503


Deferred income taxes

(84)



590


Amortization of deferred financing costs

709



610


Bad debt expense (recovery)

16



(42)


Changes in operating assets and liabilities




Accounts receivable

26,985



9,265


Inventories

(7)



(586)


Prepaid expenses and other assets

660



3,330


Accounts payable and accrued liabilities

(17,948)



(8,786)


Net cash provided by operating activities

7,092



27,168


Cash flows from investing activities




Purchases of property, plant and equipment

(12,688)



(34,974)


Proceeds from the sale of assets

2,445



7,806


Proceeds from insurance claims



1,000


Collection of principal on note receivable

145




Net cash used in investing activities

(10,098)



(26,168)


Cash flows from financing activities




Borrowings under Revolving Credit Facility

11,038



2,511


Repayments under Revolving Credit Facility

(11,038)



(5,077)


Borrowings under PPP Loan

10,000




Proceeds from issuance of common stock

10,978




Common stock issuance costs

(721)



(177)


Purchase of treasury stock

(66)



(328)


RSUs withheld for taxes

(79)




Financing costs paid under Term Loan Facility



(5)


Financing costs paid under Revolving Credit Facility



(22)


Payments for finance lease obligations

(3,499)



(1,003)


Net cash provided by (used in) financing activities

16,613



(4,101)


Net increase (decrease) in cash and cash equivalents

13,607



(3,101)


Cash and cash equivalents




Beginning of period

5,206



12,247


End of period

$

18,813



$

9,146




Nine Months Ended September 30,


2020


2019

Supplemental disclosure of cash flow information




Cash paid during the period for interest

$

10,275



$

10,496


Supplemental disclosure of non-cash investing and financing activities




Change in property, plant and equipment purchases in accounts payable

$

(7,488)



$

(1,320)


Additions to property, plant and equipment through finance leases

$

3,326



$

2,181


Extinguishment of finance lease obligations from sale of assets classified as finance leases

$

(1,504)



$

(141)


Transfer of assets from held and used to held for sale

$



$

(5,327)


Transfer from inventory to fixed assets

$



$

(357)


The following table provides various financial and operational data for the Company's operations for the three months ending September 30, 2020 and 2019 and June 30, 2020, and the nine months ending September 30, 2020 and 2019.  This information contains non-GAAP financial measures of the Company's operating performance.  The Company believes this non-GAAP information is useful because it provides a means to evaluate the operating performance of the Company on an ongoing basis using criteria that are used by our management.  Additionally, it highlights operating trends and aids analytical comparisons.  However, this information has limitations and should not be used as an alternative to operating income (loss) or cash flow performance measures determined in accordance with GAAP, as this information excludes certain costs that may affect the Company's operating performance in future periods.

 

OTHER FINANCIAL & OPERATING DATA

Unaudited



Three Months Ended


Nine Months Ended


September 30,


June 30,


September 30,


2020


2019


2020


2020


2019











Number of marketed rigs end of period (1)

29



29



29



29



29


Rig operating days (2)

460



1,943



834



3,032



7,001


Average number of operating rigs (3)

5.0



21.1



9.2



11.1



25.6


Rig utilization (4)

17

%


76

%


32

%


38

%


85

%

Average revenue per operating day (5)

$

18,078



$

20,559



$

19,741



$

19,536



$

20,738


Average cost per operating day (6)

$

14,155



$

14,914



$

12,741



$

14,049



$

14,034


Average rig margin per operating day

$

3,923



$

5,645



$

7,000



$

5,487



$

6,704



(1)  Marketed rigs exclude idle rigs that will not be reactivated until upgrades or conversions are complete.


(2)  Rig operating days represent the number of days our rigs are earning revenue under a contract during the period, including days that standby revenues are earned.


(3)  Average number of operating rigs is calculated by dividing the total number of rig operating days in the period by the total number of calendar days in the period.


(4)  Rig utilization is calculated as rig operating days divided by the total number of days our marketed drilling rigs are available during the applicable period.


(5)  Average revenue per operating day represents total contract drilling revenues earned during the period divided by rig operating days in the period.  Excluded in calculating average revenue per operating day are revenues associated with the reimbursement of (i) out-of-pocket costs paid by customers of $0.8 million, $4.8 million and $2.7 million during the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively, and $7.5 million and $11.2 million during the nine months ended September 30, 2020 and 2019, respectively, (ii) revenues associated with the amortization of intangible revenue acquired in the Sidewinder merger of $1.1 million during the nine months ended September 30, 2019, and (iii) early termination revenues of $1.2 million, $0.3 million and $2.2 million during the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively, and $3.3 million and $0.8 million during the nine months ended September 30, 2020 and 2019, respectively.  The three and nine months ended September 30, 2020 and the three months ended September 30, 2019 and June 30, 2020 did not include any intangible revenue.


(6)  Average cost per operating day represents operating costs incurred during the period divided by rig operating days in the period.  The following costs are excluded in calculating average cost per operating day: (i) out-of-pocket costs paid by customers of $0.8 million, $4.8 million and $2.7 million during the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively, and $7.5 million and $11.2 million during the nine months ended September 30, 2020 and 2019, respectively, (ii) overhead costs expensed due to reduced rig upgrade activity of $0.5 million, $0.2 million and $0.4 million during the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively, and $1.5 million and $1.3 million during the nine months ended September 30, 2020 and 2019, respectively, (iii) new crew training costs of $0.1 million during the three months ended September 30, 2019 and $0.2 million and $0.1 million during the nine months ended September 30, 2020 and 2019, respectively, (iv) rig de-commissioning costs associated with stacking deactivated rigs of $0.2 million, $0.1 million and $0.3 million during the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively, and $0.5 million and $0.2 million during the nine months ended September 30, 2020 and 2019, respectively, and (v) rig reactivation costs of $0.8 million during the three and nine months ended September 30, 2020.

 

Non-GAAP Financial Measures

Adjusted net (loss) income, EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies.  In addition, adjusted EBITDA is consistent with how EBITDA is calculated under our credit facility for purposes of determining our compliance with various financial covenants.  We define "adjusted net (loss) income" as net (loss) income before: asset impairment, net; (gain) loss on disposition of assets, net; intangible revenue; severance and merger-related expenses; and other adjustments.  We define "EBITDA" as earnings (or loss) before interest, taxes, depreciation, and amortization, and we define "adjusted EBITDA" as EBITDA before stock-based compensation, non-cash asset impairments, gains or losses on disposition of assets, and other non-recurring items added back to, or subtracted from, net income for purposes of calculating EBITDA under our credit facilities.  Neither adjusted net (loss) income, EBITDA or adjusted EBITDA is a measure of net income as determined by U.S. generally accepted accounting principles ("GAAP").

Management believes adjusted net (loss) income, EBITDA and adjusted EBITDA are useful because they allow our stockholders to more effectively evaluate our operating performance and compliance with various financial covenants under our credit facility and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure or non-recurring, non-cash transactions. We exclude the items listed above from net income (loss) in calculating adjusted net (loss) income, EBITDA and adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. None of adjusted net (loss) income, EBITDA or adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss), the most closely comparable financial measure calculated in accordance with GAAP, or as an indicator of our operating performance or liquidity. Certain items excluded from adjusted net (loss) income, EBITDA and adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's return on assets, cost of capital and tax structure. Our presentation of adjusted net (loss) income, EBITDA and adjusted EBITDA should not be construed as an inference that our results will be unaffected by unusual or non-recurring items.  Our computations of adjusted net (loss) income, EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Reconciliation of Net Loss to Adjusted Net Loss:


(Unaudited)


(Unaudited)


Three Months Ended


Nine Months Ended


September 30,


June 30,


September 30,


2020


2019


2020


2020


2019


Amount


Per
Share


Amount


Per
Share


Amount


Per
Share


Amount


Per
Share


Amount


Per
Share

(in thousands)




















Net loss

$

(15,199)



$

(2.67)



$

(10,547)



$

(2.80)



$

(10,120)



$

(2.52)



$

(53,542)



$

(11.91)



$

(25,778)



$

(6.82)


Add back:




















Asset impairment, net (1)





1,966



0.52







16,619



3.70



9,839



2.60


(Gain) loss on disposition of assets, net (2)

(326)



(0.06)



265



0.07



(836)



(0.21)



(1,208)



(0.27)



3,503



0.93


Intangible revenue (3)

















(1,079)



(0.28)


Severance and merger-related expenses (4)





320



0.09







1,076



0.24



2,688



0.71


Other expense





122



0.03











377



0.10


Adjusted net loss

$

(15,525)



$

(2.73)



$

(7,874)



$

(2.09)



$

(10,956)



$

(2.73)



$

(37,055)



$

(8.24)



$

(10,450)



$

(2.76)


 

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:


(Unaudited)


(Unaudited)


Three Months Ended


Nine Months Ended


September 30,


June 30,


September 30,


2020


2019


2020


2020


2019

(in thousands)










Net loss

$

(15,199)



$

(10,547)



$

(10,120)



$

(53,542)



$

(25,778)


Add back:










Income tax (benefit) expense

(31)



232



(11)



(84)



590


Interest expense

3,554



3,560



3,654



10,812



10,913


Depreciation and amortization

10,767



11,154



11,055



33,338



33,838


Asset impairment, net (1)



1,966





16,619



9,839


EBITDA

(909)



6,365



4,578



7,143



29,402


(Gain) loss on disposition of assets, net (2)

(326)



265



(836)



(1,208)



3,503


Stock-based compensation

694



582



290



1,554



1,385


Intangible revenue (3)









(1,079)


Severance and merger-related expenses (4)



320





1,076



2,688


Other expense



122







377


Adjusted EBITDA

$

(541)



$

7,654



$

4,032



$

8,565



$

36,276



(1)  We did not record any asset impairment during the third quarter of 2020.  In the first quarter of 2020, we recorded an asset impairment of $16.6 million to reflect the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment, inventory and assets held for sale.  In the third quarter of 2019, we impaired 100% of the goodwill recorded in connection with the Sidewinder Merger.


(2)  In the third and second quarters of 2020, we recorded a gain on the disposition of miscellaneous drilling equipment.  In the third quarter of 2019, we recorded a loss on the disposition of miscellaneous drilling equipment.


(3)  In the first and second quarters of 2019, we amortized intangible revenue related to unfavorable contract liability acquired in the Sidewinder merger.


(4)  Severance and merger-related expenses were recorded in the third quarter of 2019 primarily comprised of severance, professional fees and other Sidewinder merger-related expenses.  Severance expenses of $1.1 million were recorded in the first quarter of 2020 in connection with our cost reduction measures instituted in response to the COVID-19 pandemic and current deteriorating market conditions.  We did not record any severance expense during the second or third quarter of 2020.

 

INVESTOR CONTACTS:

Independence Contract Drilling, Inc.
E-mail inquiries to: Investor.relations@icdrilling.com
Phone inquiries: (281) 598-1211

 

Independence Contract Drilling (PRNewsFoto/Independence Contract Drilling)

 

SOURCE Independence Contract Drilling, Inc.



Independence Contract Drilling was founded in 2011 as a provider of premium integrated onshore drilling services.