Independence Contract Drilling, Inc. Reports Financial Results For The Third Quarter Ended September 30, 2018
HOUSTON, Nov. 6, 2018 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company") (NYSE: ICD) today reported financial results for the three months ended September 30, 2018.
Third Quarter 2018 Highlights
-- Record quarterly revenues of $28.4 million.
-- Net loss of $3.9 million, or $0.10 per share.
-- Adjusted net loss, as defined below, of $1.8 million, or $0.05 per
share.
-- Adjusted EBITDA, as defined below, of $6.8 million.
-- Fleet utilization of 99.0%.
-- Record revenue days of 1,345.
-- Fully-burdened margin per day of $7,552 per day.
In the third quarter of 2018, the Company reported record quarterly revenues of $28.4 million, a net loss of $3.9 million, or $0.10 per share, an adjusted net loss (defined below) of $1.8 million, or $0.05 per share, and adjusted EBITDA (defined below) of $6.8 million. This compares to revenues of $25.8 million, a net loss of $3.3 million, or $0.09 per share, an adjusted net loss of $3.2 million, or $0.08 per share, and adjusted EBITDA of $5.0 million in the second quarter of 2018, and revenues of $23.4 million, a net loss of $6.0 million, or $0.16 per share, an adjusted net loss of $5.1 million, or $0.13 per share, and adjusted EBITDA of $3.1 million in the third quarter of 2017.
Chief Executive Officer Anthony Gallegos commented, "Demand for pad-optimal rigs remains strong and contracts continue to roll to market dayrates. With what we see as robust demand for pad-optimal rigs for the foreseeable future, we are placing orders for the long-lead time items necessary to complete the conversion of our three operating, and one idle, SCR rigs to AC, full pad-optimal status. These converted rigs will be marketed with enhanced '300 series' capabilities, including 25,000+ ft. racking capacity, one million lbs. hook-load, 2,000 HP drawworks, 7,500 psi mud systems, three mud pumps, and drilling optimization software and controls making them the highest specification rigs in our fleet and amongst the highest specification rigs in the industry. We plan to have all of these conversions complete by the end of 2019, and the final specifications for each rig will be determined based on the contracts we secure.
On the integration front, the harmonization of systems and processes is in full gear and on schedule. These efforts have already led to the identification of additional transaction synergies, which we now expect to exceed $10 million once the integration process is complete.
Following the closing of the Sidewinder combination on October 1, 2018, we are now operating 31 rigs. We are contracting our remaining marketed but idle rig, which we expect to commence drilling operations by year end, and we have begun optimizing rig placements across our customer base with the signing of three additional term contracts at market dayrates."
Quarterly Operational Results
Operating results for third quarter of 2018 did not include any benefits from the Sidewinder combination, which closed subsequent to quarter end on October 1, 2018.
In the third quarter of 2018, the Company's fleet operated at 99.0% utilization and recorded 1,345 revenue days, compared to 99.3% utilization and recorded 1,265 revenue days in the second quarter of 2018, and 98.0% utilization and 1,235 revenue days in the third quarter of 2017.
Operating revenues in the third quarter of 2018 totaled $28.4 million, compared to $25.8 million in the second quarter of 2018 and $23.4 million in the third quarter of 2017. Revenue per day in the third quarter of 2018 was $20,538, compared to $19,411 in the second quarter of 2018 and $18,034 in the third quarter of 2017. Sequential revenue-per-day improvements were driven by increased pricing on contract renewals and introduction of the Company's 15(th) ShaleDriller® rig into the fleet.
Operating costs in the third quarter of 2018 totaled $18.4 million, compared to $18.0 million in the second quarter of 2018 and $18.2 million in the third quarter of 2017. Fully-burdened operating costs, excluding reactivation and rig construction costs, were $12,986 per day in the third quarter of 2018, compared to $13,034 in the second quarter of 2018 and $13,513 in the third quarter of 2017. The sequential decrease in cost per day related primarily to increased absorption of support group costs across the rig fleet.
Fully-burdened rig operating margins, excluding reactivation and rig construction costs, in the third quarter of 2018 were $7,552 per day, compared to $6,377 per day in the second quarter of 2018 and $4,521 per day in the third quarter of 2017. Sequential improvements of 18% in rig margin per day resulted from significant flow through associated with increasing contractual dayrates and lower costs per day.
Selling, general and administrative expenses in the third quarter of 2018 were $3.9 million (including $0.7 million of non-cash stock-based compensation), compared to $3.5 million (including $0.7 million of non-cash stock-based compensation) in the second quarter of 2018 and $2.9 million (including $0.9 million of non-cash stock-based compensation) in the third quarter of 2017. Sequential increases in SG&A were primarily associated with higher incentive compensation expense.
In the third quarter of 2018, merger expenses directly associated with the strategic combination with Sidewinder Drilling LLC were $1.9 million, compared to $0.4 million in the second quarter of 2018, consisting primarily of legal and other professional fees.
Drilling Operations Update
Following completion of the Sidewinder combination, the Company is operating 31 drilling rigs and is in the process of reactivating an idle rig that is expected to commence drilling operations by the end of 2018.
The Company's September 30, 2018 pro forma backlog of revenues from contracts, with original terms of six months or more, including rigs acquired in the Sidewinder combination, was $154.6 million. Approximately $56.8 million of this backlog is expected to be realized during the remainder of 2018.
Capital Expenditures and Liquidity Update
Aggregate cash outlays for capital expenditures in the third quarter of 2018, net of disposals, were $11.4 million, including $9.0 million of payments for second quarter 2018 deliveries. The Company's aggregate capital expenditure budget for the fourth quarter of 2018 is $6.0 million, including approximately $3.0 million associated with the reactivation of the Company's remaining marketed but idle rig and down payments on long lead-time items required to complete the conversion of the Company's three operating, and one idle, SCR rigs to AC, pad-optimal status in 2019.
In connection with closing of the Sidewinder combination on October 1, 2018, the Company received net proceeds of $127.4 million associated with the funding of a $130 million term loan. Net proceeds from this term loan were utilized to repay in full all of ICD's outstanding bank debt as well as $58.5 million of debt assumed pursuant to the Sidewinder combination. The Company also entered into a new $40 million revolving credit facility, with an initial receivables-based borrowing base of $35.1 million. Approximately $5.0 million was advanced under this credit facility at closing to fund transaction costs due at closing.
Conference Call Details
A conference call for investors will be held today, November 6, 2018, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter 2018 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 10124941. The replay will be available until November 13, 2018.
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, 2018
December 31, 2017
Assets
Cash and cash equivalents $2,965 $2,533
Accounts receivable, net 23,728 18,056
Inventories 3,087 2,710
Assets held for sale 3,898 4,637
Prepaid expenses and other current
assets 4,188 2,957
37,866 30,893
Total current
assets
Property, plant and equipment, net 277,978 272,388
Other long-term assets, net 1,763 1,364
$317,607 $304,645
Total assets
Liabilities and Stockholders' Equity
Liabilities
Current portion of
long-term debt
(1) $575 $533
Accounts payable 12,573 11,627
Accrued liabilities 8,912 6,969
22,060 19,129
Total current
liabilities
Long-term debt (2) 68,631 49,278
Deferred income
taxes, net 563 683
Other long-term
liabilities 632 73
91,886 69,163
Total
liabilities
Commitments and contingencies
Stockholders' equity
Common stock, $0.01
par value,
100,000,000 shares
authorized; 383 380
38,597,447 and
38,246,919 shares
issued,
respectively; and
38,252,765 and
37,985,225 shares
outstanding,
respectively
Additional paid-in
capital 328,598 326,616
Accumulated deficit (101,041) (89,645)
Treasury stock, at
cost, 344,682 and
261,694 shares,
respectively (2,219) (1,869)
225,721 235,482
Total
stockholders'
equity
$317,607 $304,645
Total
liabilities
and
stockholders'
equity
(1) Current portion of long-term
debt relates to the current
portion of vehicle capital lease
obligations.
(2) As of September 30, 2018, long-
term debt includes $714 thousand
of long-term vehicle capital
lease obligations. As of
December 31, 2017, long-term
debt included $737 thousand 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,
2018 2017 2018 2018 2017
Revenues $28,439 $23,445 $25,754 $79,820 $64,966
Costs and expenses
Operating costs 18,420 18,247 17,966 55,312 48,953
Selling, general
and administrative 3,903 2,948 3,495 10,877 10,101
Merger expenses 1,933 - 443 2,376 -
Depreciation and
amortization 6,831 6,529 6,579 20,001 19,120
Asset impairment,
net 431 899 - 396 1,574
(Gain) loss on
disposition of
assets, net (260) - (333) (675) 1,573
31,258 28,623 28,150 88,287 81,321
Total cost and
expenses
(2,819) (5,178) (2,396) (8,467) (16,355)
Operating loss
Interest expense (1,168) (772) (938) (3,049) (2,088)
---
(3,987) (5,950) (3,334) (11,516) (18,443)
Loss before
income taxes
Income tax (benefit) expense (50) 30 (21) (120) 110
---
$(3,937) $(5,980) $(3,313) $(11,396) $(18,553)
Net loss
Loss per share:
Basic and Diluted $(0.10) $(0.16) $(0.09) $(0.30) $(0.49)
Weighted average number of common shares outstanding:
Basic and Diluted 38,253 37,839 38,253 38,210 37,688
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands)
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2018 2017
---
Cash flows from operating activities
Net loss $(11,396) $(18,553)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and
amortization 20,001 19,120
Asset impairment, net 396 1,574
Stock-based
compensation 2,080 3,036
(Gain) loss on
disposition of
assets, net (675) 1,573
Amortization of
deferred rent 60
Deferred income taxes (120) 110
Amortization of
deferred financing
costs 290 344
Bad debt expense 22
Changes in operating assets and liabilities
Accounts receivable (5,694) (4,343)
Inventories (116) (257)
Prepaid expenses and
other assets (1,212) (1,037)
Accounts payable and
accrued liabilities 2,535 655
Net cash provided by
operating activities 6,171 2,222
---
Cash flows from investing activities
Purchases of
property, plant and
equipment (24,804) (26,975)
Proceeds from
insurance claims 257
Proceeds from the
sale of assets 487 1,088
Net cash used in
investing activities (24,060) (25,887)
---
Cash flows from financing activities
Borrowings under
Credit Facility 50,526 38,410
Repayments under
Credit Facility (31,150) (17,162)
Purchase of treasury
stock (350) (162)
RSUs withheld for
taxes (95) (853)
Financing costs paid (114) (538)
Payments for capital
lease obligations (496) (449)
Net cash provided by
financing activities 18,321 19,246
---
Net increase
(decrease) in cash
and cash equivalents 432 (4,419)
Cash and cash equivalents
Beginning of period 2,533 7,071
End of period $2,965 $2,652
Supplemental disclosure of cash flow information
Cash paid during the
period for interest $2,971 $1,865
Supplemental disclosure of non-cash investing and
financing activity
Change in property,
plant and equipment
purchases in
accounts payable $(264) $(3,648)
Additions to
property, plant and
equipment through
capital leases $515 $822
Additions to
property, plant and
equipment through
tenant allowance on
leasehold
improvement $694
$ -
Additions to deferred
financing costs in
accounts payable $423
$ -
The following table provides various financial and operational data for the Company's operations the three months ending September 30, 2018 and 2017 and June 30, 2018 and the nine months ending September 30, 2018 and 2017. 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,
September 30, June 30,
September 30,
September 30,
2018 2017 2018 2018 2017
Number of completed rigs end
of period(1) 15 14 14 15 14
Rig operating days(2) 1,345.1 1,234.7 1,264.7 3,869.2 3,418.9
Average number of operating
rigs(3) 14.6 13.4 13.9 14.2 12.5
Rig utilization (4) 99.0% 98.0% 99.3% 99.4% 94.6%
Average revenue per operating
day (5) $20,538 $18,034 $19,411 $19,687 $18,061
Average cost per operating
day(6) $12,986 $13,513 $13,034 $13,141 $12,825
Average rig margin per
operating day $7,552 $4,521 $6,377 $6,546 $5,236
(1) Our 15th ShaleDriller rig commenced
operations during the third quarter
of 2018.
(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. During the
three and nine months ended
September 30, 2018 and the three
months ended June 30, 2018 we did
not earn any revenue on a standby
basis. During the three and nine
months ended September 30, 2017,
there were zero and 77.9 operating
days, respectively, in which we
earned revenue on a standby basis,
including zero and 69.0 standby-
without-crew days, respectively.
(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 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 out-of-pocket
costs paid by customers of $0.8
million, $1.2 million and $1.2
million during the three months
ended September 30, 2018 and 2017
and June 30, 2018, respectively, and
$3.6 million and $3.2 million during
the nine months ended September 30,
2018 and 2017, respectively.
(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 reimbursed by customers of
$0.8 million, $1.2 million and $1.2
million during the three months
ended September 30, 2018 and 2017
and June 30, 2018, respectively, and
$3.6 million and $3.2 million for
the nine months ended September 30,
2018 and 2017, respectively, (ii)
new crew training costs of zero,
zero and $68.0 thousand during the
three months ended September 30,
2018 and 2017 and June 30, 2018,
respectively, and $0.1 million and
$0.1 million during the nine months
ended September 30, 2018 and 2017,
respectively, (iii) construction
overhead costs expensed due to
reduced rig construction activity of
$0.1 million, $0.4 million and $0.2
million during the three months
ended September 30, 2018 and 2017
and June 30, 2018, respectively, and
$0.7 million and $0.6 million during
the nine months ended September 30,
2018 and 2017, respectively, (iv)
rig reactivation costs associated
with the redeployment of previously
stacked rigs, excluding new crew
training costs (included in (ii)
above), of zero and $1.0 million
during the three and nine months
ended September 30, 2017,
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 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 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 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 on 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, September 30, June 30, September 30, September 30,
2018 2017 2018 2018 2017
Amount Per Share Amount Per Share Amount Per Share Amount Per Share Amount Per Share
---
(in thousands)
Net loss $(3,937) $(0.10) $(5,980) $(0.16) $(3,313) $(0.09) $(11,396) $(0.30) $(18,553) $(0.49)
Add back:
Asset
impairment,
net (1) 431 0.01 899 0.03 396 0.01 1,574 0.04
(Gain) loss on
disposition of
assets, net(2) (260) (0.01) (333) (675) (0.01) 1,573 0.04
Merger
expenses(3) 1,933 0.05 443 0.01 2,376 0.06 -
Adjusted net
loss $(1,833) $(0.05) $(5,081) $(0.13) $(3,203) $(0.08) $(9,299) $(0.24) $(15,406) $(0.41)
===
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:
(Unaudited) (Unaudited)
---
Three Months Ended Nine Months Ended
---
September 30,
September 30, June 30,
September 30,
September 30,
2018 2017 2018 2018 2017
(in thousands)
Net loss $(3,937) $(5,980) $(3,313) $(11,396) $(18,553)
Add back:
Income tax (benefit)
expense (50) 30 (21) (120) 110
Interest expense 1,168 772 938 3,049 2,088
Depreciation and
amortization 6,831 6,529 6,579 20,001 19,120
Asset impairment,
net(1) 431 899 396 1,574
EBITDA 4,443 2,250 4,183 11,930 4,339
(Gain) loss on
disposition of
assets, net(2) (260) (333) (675) 1,573
Stock-based
compensation 718 867 718 2,080 3,036
Merger expenses(3) 1,933 443 2,376 -
Adjusted EBITDA $6,834 $3,117 $5,011 $15,711 $8,948
===
(1) In the third quarter of 2018, we
recorded a $0.4 million, or $0.01
per share, charge to asset
impairments, net, reflecting a
$650 thousand estimated loss from
the expected sale of our Galayda
facility, offset by a $219
thousand insurance recovery
related to some damaged equipment.
In the third quarter of 2017 we
recorded a $0.9 million, or $0.03
per share, non-cash charge
consisting of a $0.6 million
impairment to our Galayda facility
as a result of damage associated
with Hurricane Harvey in August
2017, as well as a non-cash
impairment representing the
estimated damage to a piece of
drilling equipment, net of
estimated insurance recoveries
totaling $0.3 million.
(2) In the third and second quarters of
2018, we recorded a gain on
disposition of assets of $0.3
million and $0.3 million,
respectively, both primarily due
to gains on the sale or
disposition of miscellaneous
drilling equipment.
(3) In the third and second quarters of
2018, we incurred $1.9 million and
$0.4 million, respectively, of
costs directly associated with a
merger combination with Sidewinder
Drilling LLC.
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.
