Independence Contract Drilling, Inc. Reports Financial Results For The Third Quarter Ended September 30, 2017
HOUSTON, Oct. 31, 2017 /PRNewswire/ -- INDEPENDENCE CONTRACT DRILLING, INC. (the "Company") (NYSE: ICD) today reported financial results for the three months ended September 30, 2017.
Third Quarter 2017 Highlights
-- Net loss of $6.0 million, or $0.16 per share.
-- Adjusted net loss, as defined below, of $5.1 million, or $0.13 per
share.
-- Adjusted EBITDA, as defined below, of $3.1 million.
-- Fleet utilization of 98.0%.
-- Record revenue days of 1,235.
-- Fully-burdened margin per day, excluding construction costs, of $4,521
per day. There were no reactivation expenses during the quarter.
-- Renewal of four term contracts adding three rig years to backlog.
-- Sequential backlog increase to $75 million at September 30, 2017.
-- Net debt, excluding capitalized leases, of $44.3 million, on a borrowing
base of $107.5 million.
In the third quarter of 2017, the Company reported revenues of $23.4 million, a net loss of $6.0 million, or $0.16 per share, an adjusted net loss (defined below) of $5.1 million, or $0.13 per share, and adjusted EBITDA (defined below) of $3.1 million. This compares to revenues of $21.3 million, a net loss of $6.3 million, or $0.17 per share, an adjusted net loss of $5.0 million, or $0.13 per share, and adjusted EBITDA of $3.2 million in the second quarter of 2017, and revenues of $14.5 million, a net loss of $7.2 million, or $0.19 per share, an adjusted net loss of $6.5 million, or $0.17 per share, and adjusted EBITDA of $1.0 million in the third quarter of 2016.
Chief Executive Officer Byron Dunn commented, "The third quarter represented a significant milestone for ICD as we generated record revenue days and completed our final rig conversion. We entered the fourth quarter with 100% of our fleet contracted and utilized, a level we expect to maintain for the foreseeable future as commodity prices have stabilized. Dayrates for pad optimal rigs have improved to the high-teen to low-$20,000 per day range. We recently signed four contract extensions that added three rig years of backlog and rerated these contracts' dayrates up $2,000 to $3,000 per day from prior levels."
Quarterly Operational Results
In the third quarter of 2017, the Company's fleet operated at 98.0% utilization and recorded 1,235 revenue days compared to 93.9% utilization and 1,111 revenue days in the second quarter of 2017 and 64.7% utilization and 774 revenue days in the third quarter of 2016. There were no revenue days earned on a standby-without-crew basis in the third or second quarter of 2017, compared to 222.0 days in the third quarter of 2016.
Hurricane Harvey and weather-related impacts during the third quarter of 2017 included a reduction in revenue days compared to expectations as well as modest increases in operating costs during the quarter. In addition, the Company's corporate offices suffered water-related damage that is currently the subject of an insurance claim.
Operating revenues in the third quarter of 2017 totaled $23.4 million, compared to $21.3 million in the second quarter of 2017 and $14.5 million in the third quarter of 2016. On a revenue-per-day basis, revenues were $18,034 per day in the third quarter of 2017, compared to $18,201 in the second quarter of 2017 and $17,420 in the third quarter of 2016. The decrease in revenue per day compared to prior quarters resulted primarily from a reduction in revenue days earned under higher dayrate legacy contracts.
Operating costs in the third quarter of 2017 totaled $18.2 million, compared to $15.8 million in the second quarter of 2017 and $11.2 million in the third quarter of 2016. Third quarter 2017 operating costs included $0.4 million in rig construction costs. Second quarter 2017 operating costs included $0.4 million of reactivation costs, and third quarter 2016 operating costs included $2.5 million of reactivation costs and $0.3 million in rig construction costs. Fully-burdened operating costs, excluding reactivation and rig construction costs, were $13,513 per day in the third quarter of 2017, compared to $12,926 in the second quarter of 2017 and $9,614 in the third quarter of 2016. The sequential increase in cost per day related to a decrease in revenue days earned on a standby-without-crew basis, where revenue is recognized without an operating cost offset, as well as Hurricane Harvey and weather-related costs, increased costs for repair and maintenance, new hire mentoring initiatives and increased rig level safety-related incentive compensation.
Third quarter 2017 fully-burdened rig operating margins, excluding reactivation and rig construction costs, were $4,521 per day, compared to $5,275 per day in the second quarter of 2017 and $7,806 per day in the third quarter of 2016.
Selling, general and administrative expenses in the third quarter of 2017 were $2.9 million (including $0.9 million of non-cash stock-based compensation), compared to $3.4 million (including $1.2 million of non-cash stock-based compensation) in the second quarter of 2017 and $3.2 million (including $1.0 million of non-cash stock-based compensation and severance expense of $0.1 million) in the third quarter of 2016. The sequential decrease in selling, general and administrative expenses compared to the second quarter of 2017 related primarily to a reduction in incentive compensation expense and professional fees, partially offset by costs for expanded new hire training programs. Non-cash stock-based compensation declined sequentially due to vesting of equity awards originally granted in connection with the Company's initial public offering.
Drilling Operations Update
All 14 of the Company's ShaleDriller® rigs are contracted and operating under term contracts.
At September 30, 2017, the Company's backlog of revenues from contracts with original terms of six months or more was $75 million. Approximately $23.8 million of this backlog is expected to be realized during the remainder of 2017.
Capital Expenditures and Liquidity Update
Aggregate cash outlays for capital expenditures in the third quarter of 2017, net of disposals, were $9.6 million including $4.7 million of payments for second quarter deliveries. The Company's expects cash outlays, before disposals, for capital expenditures for the remainder of 2017 to be approximately $3.5 million. At September 30, 2017, the Company had $5.7 million of assets classified as held for sale.
As of September 30, 2017, the Company had drawn $47.0 million on its $85.0 million revolving credit facility and had net debt, excluding capital leases, of $44.3 million. The borrowing base under the Company's credit facility was $107.5 million as of September 30, 2017.
Conference Call Details
A conference call for investors will be held today, October 31, 2017, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter 2017 results. Hosting the call will be Byron A. Dunn, President and Chief Executive Officer, and Philip A. Choyce, Executive Vice President and Chief Financial Officer.
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 10113262. The replay will be available until November 7, 2017.
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)
BALANCE SHEETS
September 30, 2017 December 31, 2016
------------------ -----------------
Assets
Cash and cash equivalents $2,652 $7,071
Accounts receivable, net 15,811 11,468
Inventories 2,627 2,336
Assets held for sale 5,739 3,915
Prepaid expenses and other current assets 3,978 3,102
----- -----
Total current assets 30,807 27,892
Property, plant and equipment, net 272,003 273,188
Other long-term assets, net 1,503 1,027
Total assets $304,313 $302,107
======== ========
Liabilities and Stockholders' Equity
Liabilities
Current portion of long-
term debt (1) $510 $441
Accounts payable 8,365 10,031
Accrued liabilities 6,477 7,821
Total current liabilities 15,352 18,293
Long-term debt (2) 47,630 26,078
Deferred income taxes 506 396
Other long-term
liabilities 105 88
Total liabilities 63,593 44,855
------ ------
Commitments and contingencies
Stockholders' equity
380 376
Common stock, $0.01 par
value, 100,000,000 shares
authorized; 38,239,713
and 37,831,723 shares
issued, respectively; and
37,981,534 and 37,617,920
shares outstanding,
respectively
Additional paid-in capital 326,097 323,918
Accumulated deficit (83,900) (65,347)
Treasury stock, at cost,
258,179 and 213,803
shares, respectively (1,857) (1,695)
Total stockholders' equity 240,720 257,252
------- -------
Total liabilities and
stockholders' equity $304,313 $302,107
======== ========
(1) Current portion of long-term
debt relates to the current
portion of vehicle capital lease
obligations.
(2) As of September 30, 2017, long-
term debt includes $630K of
long-term vehicle capital lease
obligations. As of December 31,
2016, long-term debt included
$326K of long-term vehicle
capital lease obligations.
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands, except per share amounts)
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, June 30, September 30,
------------- -------------
2017 2016 2017 2017 2016
---- ---- ---- ---- ----
Revenues $23,445 $14,464 $21,285 $64,966 $52,074
Costs and expenses
Operating costs 18,247 11,246 15,808 48,953 31,211
Selling, general and
administrative 2,948 3,242 3,435 10,101 11,868
Depreciation and
amortization 6,529 6,010 6,335 19,120 17,651
Asset impairment, net 899 - 546 1,574 -
Loss on disposition of
assets, net - 676 745 1,573 588
Total cost and expenses 28,623 21,174 26,869 81,321 61,318
Operating loss (5,178) (6,710) (5,584) (16,355) (9,244)
Interest expense (772) (456) (686) (2,088) (2,492)
---- ---- ---- ------ ------
Loss before income taxes (5,950) (7,166) (6,270) (18,443) (11,736)
Income tax expense 30 32 34 110 67
--- --- --- --- ---
Net loss $(5,980) $(7,198) $(6,304) $(18,553) $(11,803)
======= ======= ======= ======== ========
Loss per share:
Basic and Diluted $(0.16) $(0.19) $(0.17) $(0.49) $(0.37)
=================
Weighted average number of common shares outstanding:
Basic and Diluted 37,839 37,387 37,679 37,688 31,670
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands)
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
2017 2016
---- ----
Cash flows from operating activities
Net loss $(18,553) $(11,803)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and
amortization 19,120 17,651
Asset impairment, net 1,574 -
Stock-based
compensation 3,036 3,336
Stock-based
compensation -
executive retirement - (67)
Loss on disposition
of assets, net 1,573 588
Deferred income taxes 110 68
Amortization of
deferred financing
costs 344 408
Write-off of
deferred financing
costs - 504
Changes in operating assets and liabilities
Accounts receivable (4,343) 9,275
Inventories (257) (227)
Prepaid expenses and
other assets (1,037) 244
Accounts payable and
accrued liabilities 655 (3,325)
Net cash provided by
operating activities 2,222 16,652
----- ------
Cash flows from investing activities
Purchases of
property, plant and
equipment (26,975) (17,331)
Proceeds from
insurance claims - 188
Proceeds from the
sale of assets 1,088 864
Net cash used in
investing activities (25,887) (16,279)
------- -------
Cash flows from financing activities
Borrowings under
credit facility 38,410 42,391
Repayments under
credit facility (17,162) (82,129)
Public offering
proceeds, net of
offering costs - 42,920
Purchase of treasury
stock (162) (345)
RSUs withheld for
taxes (853) -
Financing costs paid (538) (217)
Payments for capital
lease obligations (449) (425)
Net cash provided by
financing activities 19,246 2,195
------ -----
Net (decrease)
increase in cash and
cash equivalents (4,419) 2,568
Cash and cash equivalents
Beginning of period 7,071 5,344
End of period $2,652 $7,912
====== ======
Supplemental disclosure of cash flow information
Cash paid during the
period for interest $1,865 $1,758
Cash (received) paid
during the period
for income taxes $ - $(133)
Supplemental disclosure of non-cash investing and financing activity
Change in property,
plant and equipment
purchases in
accounts payable $(3,648) $(1,537)
Additions to
property, plant and
equipment through
capital leases $822 $1,256
The following table provides various financial and operational data for the Company's operations during the three months ending September 30, 2017 and 2016 and June 30, 2017 and the nine months ending September 30, 2017 and 2016. 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, 2017 September 30, 2016 June 30, 2017 September 30, 2017 September 30, 2016
------------------ ------------------ ------------- ------------------ ------------------
Number of completed rigs end
of period 14 14 14 14 14
Rig operating days (1) 1,234.7 774.0 1,111.2 3,418.9 2,449.4
Average number of operating
rigs (2) 13.4 8.4 12.2 12.5 8.9
Rig utilization (3) 98.0% 64.7% 93.9% 94.6% 72.0%
Average revenue per operating
day (4) $18,034 $17,420 $18,201 $18,061 $20,209
Average cost per operating day
(5) $13,513 $9,614 $12,926 $12,825 $10,118
Average rig margin per
operating day $4,521 $7,806 $5,275 $5,236 $10,091
(1) 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. For the three
months ended September 30 and June
30, 2017 there were zero operating
days in which the Company earned
revenue on a standby basis. For the
three months ended September 30,
2016 there were 236.0 operating days
in which the Company earned revenue
on a standby basis including 222.0
standby-without-crew days. For
the nine months ended September 30,
2017 and 2016 there were 77.9 and
790.1 operating days in which the
Company earned revenue on a standby
basis, respectively, including 69.0
and 747.0 standby-without-crew
days, respectively.
(2) 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.
(3) Rig utilization is calculated as rig
operating days divided by the total
number of days our drilling rigs are
available during the applicable
period. During the third quarter of
2015, we elected to remove our two
100 Series non-walking rigs from
the marketed fleet pending
completion of their planned rig
conversions to 200 Series, pad-
optimal status. The conversion of
the first 100 series rig was
completed during the second quarter
of 2016 and the rig re-entered the
marketed fleet in June 2016. The
conversion of the second 100 series
rig was completed in the second
quarter of 2017 and the rig began
operating in July 2017.
(4) 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 out-of-pocket
costs paid by customers of $1.2
million, $1.0 million and $1.1
million for the three months ended
September 30, 2017 and 2016 and June
30, 2017, respectively, and $3.2
million and $2.6 million for the
nine months ended September 30, 2017
and 2016, respectively. Included in
calculating average revenue per
operating day for the nine months
ended September 30, 2016 was $1.8
million of early termination
revenues associated with a contract
termination at the end of the first
quarter of 2016. The third quarter
of 2017 and 2016 and the second
quarter of 2017 did not include any
early termination revenues.
(5) Average cost per operating day
represents total direct 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 reimbursed by customers
of $1.2 million, $1.0 million and
$1.1 million for the three months
ended September 30, 2017 and 2016
and June 30, 2017, respectively, and
$3.2 million and $2.6 million for
the nine months ended September 30,
2017 and 2016, respectively, (ii)
new crew training costs of zero,
$0.4 million and $0.1 million for
the three months ended September 30,
2017 and 2016 and June 30, 2017,
respectively, and $0.1 million and
$0.4 million for the nine months
ended September 30, 2017 and 2016,
respectively, (iii) construction
overhead costs expensed due to
reduced rig construction activity of
$0.4 million, $0.3 million and zero
for the three months ended September
30, 2017 and 2016 and June 30, 2017,
respectively, and $0.6 million and
$1.3 million for the nine months
ended September 30, 2017 and 2016,
respectively, (iv) rig reactivation
costs for the three months ended
September 30, 2017 and 2016 and June
30, 2017 of zero, $2.1 million and
$0.3 million, respectively,
(excluding zero, $0.4 million and
$0.1 million of new crew training
costs (included in (ii) above),
respectively), and $1.0 million and
$2.1 million for the nine months
ended September 30, 2017 and 2016,
respectively, (excluding $0.1
million and $0.4 million of new crew
training costs (included in (ii)
above), respectively), and (v) out-
of-pocket expenses of $0.1 million,
net of insurance recoveries,
incurred as a result of damage to
one of our rig's mast during the
nine months ended September 30,
2017.
Non-GAAP Financial Measures
Adjusted net loss, 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 revolving credit facility for purposes of determining our compliance with various financial covenants. 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 revolving credit facility. Neither adjusted net loss, 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, 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 revolving 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, 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, 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, EBITDA and adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's return of assets, cost of capital and tax structure. Our presentation of adjusted net loss, 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, 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, 2017 September 30, 2016 June 30, 2017 September 30, 2017 September 30, 2016
------------------ ------------------ ------------- ------------------ ------------------
Amount Per Amount Per Amount Per Amount Per Amount Per
Share Share Share Share Share
-----
(in thousands)
Net loss $(5,980) $(0.16) $(7,198) $(0.19) $(6,304) $(0.17) $(18,553) $(0.49) $(11,803) $(0.37)
Asset impairment,
net (1) 899 0.03 - - 546 0.02 1,574 0.04 - -
Loss on disposition
of assets, net (2) - - 676 0.02 745 0.02 1,573 0.04 588 0.02
Write-off of
deferred financing
costs - - - - - - - - 504 0.01
Stock-based
compensation -
executive
retirement - - - - - - - - (67) -
Executive retirement - - - - - - - - 1,552 0.05
Adjusted net loss $(5,081) $(0.13) $(6,522) $(0.17) $(5,013) $(0.13) $(15,406) $(0.41) $(9,226) $(0.29)
======= ====== ======= ====== ======= ====== ======== ====== ======= ======
Reconciliation of Net Loss to EBITDA
and Adjusted EBITDA:
(Unaudited) (Unaudited)
---------- ----------
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 2017 September 30, 2016 June 30, 2017 September 30, 2017 September 30, 2016
------------------ ------------------ ------------- ------------------ ------------------
(in thousands)
Net loss $(5,980) $(7,198) $(6,304) $(18,553) $(11,803)
Add back:
Income tax expense 30 32 34 110 67
Interest expense 772 456 686 2,088 2,492
Depreciation and
amortization 6,529 6,010 6,335 19,120 17,651
Asset impairment,
net (1) 899 - 546 1,574 -
--- --- --- ----- ---
EBITDA 2,250 (700) 1,297 4,339 8,407
Loss on disposition
of assets, net (2) - 676 745 1,573 588
Stock-based
compensation 867 976 1,157 3,036 3,336
Stock-based
compensation -
executive
retirement - - - - (67)
Executive retirement - - - - 1,552
Adjusted EBITDA $3,117 $952 $3,199 $8,948 $13,816
====== ==== ====== ====== =======
(1) In the third quarter of 2017, we
recorded a $0.6 million, or
$0.02 per share, non-cash
impairment of the Galayda
facility as a result of water-
related damage from the heavy
rainfall that occurred during
Hurricane Harvey in August
2017, as well as a $0.3
million, or $0.01 per share,
non-cash impairment
representing the estimated
damage to a piece of drilling
equipment, net of insurance
recoveries. In the second
quarter of 2017, we recorded a
$0.5 million, or $0.02 per
share, non-cash impairment
reflecting the estimated loss
from the expected sale of our
Galayda facility.
(2) In the third quarter of 2016, we
recorded a loss on disposition
of assets of $0.7 million, or
$0.02 per share, primarily due
to non-cash disposal of
equipment in connection with
the upgrade of rigs to 7,500
psi mud systems. In the second
quarter of 2017, we recorded a
loss on disposition of assets
of $0.7 million, or $0.02 per
share, primarily due a loss on
the sale of drilling equipment
previously designated as held
for sale.
INVESTOR CONTACTS:
Independence Contract Drilling, Inc.
E-mail inquiries to: Investor.relations@icdrilling.com
Phone inquiries: (281) 598-1211
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SOURCE Independence Contract Drilling, Inc.
