Independence Contract Drilling, Inc. Reports Financial Results For The First Quarter Ended March 31, 2019
HOUSTON, May 2, 2019 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company") (NYSE: ICD) today reported financial results for the three months ended March 31, 2019.
First Quarter 2019 Highlights
-- Net loss of $2.4 million, or $0.03 per share.
-- Adjusted net income, as defined below, of $2.9 million, or $0.04 per
share.
-- Adjusted EBITDA, as defined below, of $15.8 million.
-- Net debt, excluding finance leases, of $122.4 million.
-- Fleet utilization of 94.8%.
-- Fully-burdened margin of $7,453 per day.
In the first quarter of 2019, the Company reported revenues of $60.4 million, a net loss of $2.4 million, or $0.03 per share, adjusted net income (defined below) of $2.9 million, or $0.04 per share, and adjusted EBITDA (defined below) of $15.8 million. This compares to revenues of $25.6 million, a net loss of $4.1 million, or $0.11 per share, an adjusted net loss of $4.3 million, or $0.11 per share, and adjusted EBITDA of $3.9 million in the first quarter of 2018 and revenues of $62.8 million, a net loss of $8.6 million, or $0.11 per share, an adjusted net income of $1.0 million, or $0.01 per share, and adjusted EBITDA of $16.0 million in the fourth quarter of 2018.
Chief Executive Officer Anthony Gallegos commented, "I am quite pleased with our financial results and the resiliency of our operations in a very choppy first quarter market. We reported adjusted net income for the second consecutive quarter following the strategic combination with Sidewinder. Our results were driven by continued strong utilization of our pad-optimal rig fleet and continued realization of SG&A and operational efficiencies resulting from the successful integration, which continues to progress smoothly towards completion at the end of the second quarter as planned."
"U.S. land-rig market dynamics continue to play out as we expected. Customer budget reductions in response to year-end oil price declines resulted in reduced drilling activity, and their increased focus on free cash flow and returns has tempered their response to the recent commodity price recovery. Nevertheless, utilization of our pad-optimal ShaleDriller® fleet remains robust, experiencing only transitory idle time as we redistribute affected rigs across our customer base. Towards the end of the first quarter and beginning of the second quarter, we have dealt with a handful of rigs being released, but re-contracting efforts continue to progress, inquiries are increasing as a result of the recent oil price recovery, and we expect these transitory issues to resolve as we exit the second quarter of 2019."
Quarterly Operational Results
In the first quarter of 2019, the Company's fleet operated at 94.8% utilization and recorded 2,728.1 revenue days, compared to 100.0% utilization and 1,259.4 revenue days in the first quarter of 2018, and 95.7% utilization and 2,817.5 revenue days in the fourth quarter of 2018.
Operating revenues in the first quarter of 2019 totaled $60.4 million, compared to $25.6 million in the first quarter of 2018 and $62.8 million in the fourth quarter of 2018. First quarter 2019 and fourth quarter 2018 revenues include $1.0 million and $2.0 million, respectively, of non-cash intangible revenue associated with the Sidewinder merger that closed on October 1, 2018. Excluding this non-cash revenue, revenue per day in the first quarter of 2019 was $20,755, compared to $19,055 in the first quarter of 2018 and $20,433 in the fourth quarter of 2018. Sequential increases were driven by higher dayrates from recontracting of older legacy contracts.
Operating costs in the first quarter of 2019 totaled $39.3 million, compared to $18.9 million in the first quarter of 2018 and $39.9 million in the fourth quarter of 2018. Fully-burdened operating costs were $13,302 per day in the first quarter of 2019, compared to $13,414 in the first quarter of 2018 and $12,932 in the fourth quarter of 2018. Sequential increases in per day operating costs were primarily the result of seasonal payroll matters.
Fully-burdened rig operating margins, excluding reactivation and rig construction costs, in the first quarter of 2019 were $7,453 per day, compared to $5,641 per day in the first quarter of 2018 and $7,501 per day in the fourth quarter of 2018.
Selling, general and administrative expenses in the first quarter of 2019 were $4.5 million (including $0.4 million of non-cash stock-based compensation), compared to $3.5 million (including $0.6 million of non-cash stock-based compensation) in the first quarter of 2018 and $5.0 million (including $0.2 million of non-cash stock-based compensation) in the fourth quarter of 2018. Sequential decreases in SG&A were primarily associated with continued synergy realization as integration efforts continued during the quarter.
A tax benefit of $2.5 million ($0.03 per share) was recorded in the current quarter as a result of applying the Company's estimated annual tax rate to the year-to-date results. The expected annual tax expense for 2019 consists of Louisiana and Texas tax.
Drilling Operations Update
The Company is currently marketing 32 drilling rigs and had a backlog from contracts with original terms of six months or greater of $102.4 million at March 31, 2019. Approximately 85% of this backlog is expected to be realized during the remainder of 2019.
Capital Expenditures and Liquidity Update
The Company's capital expenditure budget for 2019, net of asset sales and recoveries remains $29 million. During the first quarter of 2019, cash outlays for capital expenditures, net of asset sales and recoveries, was $9.3 million.
As of March 31, 2019, the Company had cash on hand of $12.5 million, $5 million drawn on its $40 million revolving credit facility and a $130 million term loan outstanding. The term loan includes a fully-committed $15 million accordion that remains undrawn and fully available to the Company.
Conference Call Details
A conference call for investors will be held today, May 2, 2019, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's first quarter 2019 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 10131167. The replay will be available until May 9, 2019.
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
March 31, 2019
December 31, 2018
Assets
Cash and cash equivalents $12,549 $12,247
Accounts receivable, net 42,137 41,987
Inventories 2,738 2,693
Assets held for sale 19,369 19,711
Prepaid expenses and other current
assets 5,667 8,930
---
Total current assets 82,460 85,568
Property, plant and equipment, net 488,472 496,197
Goodwill 1,627 1,627
Deferred tax assets 1,766
Other long-term assets, net 2,582 1,470
Total assets $576,907 $584,862
Liabilities and Stockholders' Equity
Liabilities
Current portion
of long-term
debt (1) $905 $587
Accounts payable 16,174 16,312
Accrued
liabilities 21,095 29,219
Total current liabilities 38,174 46,118
Long-term debt
(2) 132,610 130,012
Contingent
consideration 15,558 15,748
Deferred income
taxes, net 774
Other long-term
liabilities 1,195 677
Total liabilities 187,537 193,329
Commitments and contingencies
Stockholders' equity
Common stock,
$0.01 par
value,
200,000,000
shares
authorized;
77,598,806
shares issued
and 77,078,252
shares
outstanding 771 771
Additional paid-
in capital 503,656 503,446
Accumulated
deficit (112,011) (109,638)
Treasury stock,
at cost,
520,554 shares (3,046) (3,046)
Total stockholders' equity 389,370 391,533
Total liabilities and
stockholders' equity $576,907 $584,862
(1) Current portion of long-term
debt relates to the current
portion of vehicle finance and
capital lease obligations.
(2) As of March 31, 2019, long-term
debt includes $0.7 million of
long-term vehicle finance lease
obligations. As of December 31,
2018, long-term debt included
$0.6 million of long-term
vehicle capital lease
obligations.
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
December 31,
2019 2018 2018
Revenues $60,358 $25,627 $62,789
Costs and expenses
Operating costs 39,333 18,926 39,908
Selling, general
and
administrative 4,545 3,479 5,030
Merger-related
expenses 1,081 11,270
Depreciation and
amortization 11,313 6,591 10,890
Asset impairment
(insurance
recoveries), net 2,018 (35) (371)
Loss (gain) on
disposition of
assets, net 3,220 (82) (65)
Total cost and expenses 61,510 28,879 66,662
Operating loss (1,152) (3,252) (3,873)
Interest expense (3,761) (943) (4,513)
Loss before income taxes (4,913) (4,195) (8,386)
Income tax (benefit) expense (2,540) (49) 211
Net loss $(2,373) $(4,146) $(8,597)
Loss per share:
Basic and Diluted $(0.03) $(0.11) $(0.11)
Weighted average number of common shares outstanding:
Basic and Diluted 75,692 38,124 75,692
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2019 2018
---
Cash flows from operating activities
Net loss $(2,373) $(4,146)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and
amortization 11,313 6,591
Asset impairment
(insurance
recoveries), net 2,018 (35)
Stock-based
compensation 387 644
Loss (gain) on
disposition of
assets, net 3,220 (82)
Deferred income taxes (2,540) (49)
Amortization of
deferred financing
costs 203 90
Bad debt (recovery)
expense (45) 22
Changes in operating assets and liabilities
Accounts receivable (105) 1,790
Inventories (45) (56)
Prepaid expenses and
other assets 843 (386)
Accounts payable and
accrued liabilities (5,271) (2,371)
Net cash provided by
operating activities 7,605 2,012
---
Cash flows from investing activities
Purchases of
property, plant and
equipment (10,832) (6,259)
Proceeds from
insurance claims 1,000
Proceeds from the
sale of assets 536 146
Net cash used in
investing activities (9,296) (6,113)
---
Cash flows from financing activities
Borrowings under ABL
Credit Facility 2,403
Borrowings under CIT
Credit Facility 13,779
Repayments under CIT
Credit Facility (9,100)
Common stock issuance
costs (177)
Purchase of treasury
stock (350)
RSUs withheld for
taxes (95)
Financing costs paid
under Term Loan
Facility (5)
Financing costs paid
under ABL Credit
Facility (12)
Payments for finance
and capital lease
obligations (216) (163)
Net cash provided by
financing activities 1,993 4,071
---
Net increase
(decrease) in cash
and cash equivalents 302 (30)
Cash and cash equivalents
Beginning of period 12,247 2,533
End of period $12,549 $2,503
Supplemental disclosure of cash flow information
Cash paid during the
period for interest $3,514 $848
Supplemental disclosure of non-cash investing and
financing activity
Change in property,
plant and equipment
purchases in
accounts payable $(1,753) $(739)
Additions to
property, plant and
equipment through
capital leases $520 $70
Transfer of assets
from held and used
to held for sale $(2,285)
$ -
The following table provides various financial and operational data for the Company's operations the three months ending March 31, 2019 and 2018 and December 31, 2018. 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
March 31, March 31,
December 31,
2019 2018 2018
Number of marketed rigs end
of period(1) 32 14 32
Rig operating days(2) 2,728.1 1,259.4 2,817.5
Average number of operating
rigs(3) 30.3 14.0 30.6
Rig utilization (4) 94.8% 100.0% 95.7%
Average revenue per
operating day (5) $20,755 $19,055 $20,433
Average cost per operating
day(6) $13,302 $13,414 $12,932
Average rig margin per
operating day $7,453 $5,641 $7,501
(1) Number of marketed rigs as of March
31, 2019 and December 31, 2018
increased by 18 rigs as compared to
the number of marketed rigs as of
March 31, 2018. Our 15th
ShaleDriller rig was completed and
commenced operations during the
third quarter of 2018 and we
acquired 17 marketed rigs and two
idle non-operating rigs requiring
upgrade as a result of the
Sidewinder merger in the fourth
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.
(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 out-of-pocket
costs paid by customers of $2.7
million, $1.6 million and $3.2
million during the three months
ended March 31, 2019 and 2018, and
December 31, 2018, respectively and
revenues associated with the
amortization of intangible revenue
acquired in the Sidewinder merger of
$1.0 million and $2.0 million during
the three months ended March 31,
2019 and December 31, 2018,
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
$2.7 million, $1.6 million and $3.2
million during the three months
ended March 31, 2019 and 2018, and
December 31, 2018, respectively,
(ii) new crew training costs of
zero, $25 thousand and zero during
the three months ended March 31,
2019 and 2018, and December 31,
2018, respectively, and (iii)
construction overhead costs expensed
due to reduced rig construction
activity of $0.3 million, $0.4
million and $0.3 million during the
three months ended March 31, 2019
and 2018, and December 31, 2018,
respectively.
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 Income (Loss):
(Unaudited)
Three Months Ended
March 31, March 31, December 31,
2019 2018 2018
Amount
Per Amount
Per Amount
Per
Share Share Share
---
(in thousands)
Net loss $(2,373) $(0.03) $(4,146) $(0.11) $(8,597) $(0.11)
Add back:
Asset impairment
(insurance
recoveries), net
(1) 2,018 0.03 (35) (371) (0.01)
Loss (gain) on
disposition of
assets, net(2) 3,220 0.04 (82) (65) -
Intangible
revenue(3) (1,033) (0.01) (2,044) (0.03)
Merger-related
expenses(4) 1,081 0.01 11,270 0.15
Write-off of
deferred
financing
costs(5) - 856 0.01
Adjusted net
income (loss) $2,913 $0.04 $(4,263) $(0.11) $1,049 $0.01
===
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:
(Unaudited)
Three Months Ended
March 31, March 31,
December 31,
2019 2018 2018
(in thousands)
Net loss $(2,373) $(4,146) $(8,597)
Add back:
Income tax (benefit)
expense (2,540) (49) 211
Interest expense 3,761 943 4,513
Depreciation and
amortization 11,313 6,591 10,890
Asset impairment
(insurance
recoveries), net(1) 2,018 (35) (371)
EBITDA 12,179 3,304 6,646
Loss (gain) on
disposition of
assets, net(2) 3,220 (82) (65)
Stock-based
compensation 387 644 240
Intangible revenue(3) (1,033) (2,044)
Merger-related
expenses(4) 1,081 11,270
Adjusted EBITDA $15,834 $3,866 $16,047
===
(1) In the first quarter of 2019, we
recorded an impairment to
assets held for sale of $2.0
million to reflect the proceeds
received when these assets were
sold at auction in April 2019.
In the fourth quarter of 2018,
we recorded insurance
recoveries, net of impairments
of $0.6 million on the Galayda
facility water damage incurred
during Hurricane Harvey after
receiving a proof of loss
letter from our insurance
carrier, offset by an increased
impairment of $0.2 million
related to increased estimated
costs to sell the Galayda
facility.
(2) In the first quarter of 2019 we
recorded a loss on the
disposition of assets of $3.2
million primarily related to
the sale of certain surplus
assets, acquired in the
Sidewinder merger, at auctions
during the quarter.
(3) For the three months ended March
31, 2019 and December 31, 2018,
we amortized intangible revenue
related to an unfavorable
contract liability acquired in
the Sidewinder merger.
(4) For the three months ended March
31, 2019 and December 31, 2018
we incurred costs directly
associated with the Sidewinder
merger. These costs were
primarily comprised of
severance, professional fees
and other integration related
expenses.
(5) For the three months ended
December 31, 2018, we wrote-
off $0.9 million of unamortized
deferred financing costs
associated with the CIT Credit
Facility, which was terminated
upon the closing of the
Sidewinder merger.
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.
