Independence Contract Drilling, Inc. Reports Financial Results For The Third Quarter Ended September 30, 2019
HOUSTON, Oct. 31, 2019 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company") (NYSE: ICD) today reported financial results for the three months ended September 30, 2019.
Third Quarter 2019 Highlights
-- Net loss of $10.5 million, or $0.14 per share.
-- Adjusted net loss, as defined below, of $7.9 million, or $0.10 per
share.
-- Adjusted EBITDA, as defined below, of $7.7 million.
-- Net debt, excluding finance leases and net of deferred financing costs,
of $118.2 million.
-- Fleet utilization of 76%.
-- Fully burdened margin of $5,645 per day.
In the third quarter of 2019, the Company reported revenues of $45.1 million, a net loss of $10.5 million, or $0.14 per share, adjusted net loss (defined below) of $7.9 million, or $0.10 per share, and adjusted EBITDA (defined below) of $7.7 million. These results compare to revenues of $28.4 million, a net loss of $3.9 million, or $0.10 per share, adjusted net loss of $1.8 million, or $0.05 per share, and adjusted EBITDA of $6.8 million in the third quarter of 2018, revenues of $52.9 million, a net loss of $12.9 million, or $0.17 per share, an adjusted net loss of $5.5 million, or $0.07 per share, and adjusted EBITDA of $12.8 million in the second quarter of 2019.
Chief Executive Officer Anthony Gallegos commented, "Our reported results came in line with our preliminary release from two weeks ago. As mentioned in that press release, although market headwinds persist, we believe ICD is well positioned and currently expect to increase our contracted rig count with two rigs scheduled to re-enter our marketed fleet this quarter as well as contract discussions regarding our other idle rigs. In this regard, just this week we signed a contract to reactivate an idle rig to commence operations in November in the Permian basin."
Quarterly Operational Results
In the third quarter of 2019, the Company's fleet operated at 76% utilization and recorded 1,943 revenue days, compared to 99% utilization and 1,345 revenue days in the third quarter of 2018, and 84% utilization and 2,330 revenue days in the second quarter of 2019. During the third quarter, the Company removed three SCR rigs from its marketed fleet. These rigs will not re-enter the marketed fleet until their conversion to pad-optimal AC status is complete. The first conversion is scheduled for completion during the fourth quarter of 2019 and the remaining two conversions have been put on hold until market conditions improve.
Operating revenues in the third quarter of 2019 totaled $45.1 million, compared to $28.4 million in the third quarter of 2018 and $52.9 million in the second quarter of 2019. Revenues in the third quarter 2019 and second quarter of 2019 included early termination revenues of $0.3 million and $0.5 million, respectively. Excluding this early termination revenue, revenue per day in the third quarter of 2019 was $20,559, compared to $20,538 in the third quarter of 2018 and $20,868 in the second quarter of 2019. Sequential revenue per day declines were driven by lower dayrates on contract renewals.
Operating costs in the third quarter of 2019 totaled $34.2 million, compared to $18.4 million in the third quarter of 2018 and $37.5 million in the second quarter of 2019. Fully burdened operating costs were $14,914 per day in the third quarter of 2019, compared to $12,986 in the third quarter of 2018 and $14,155 in the second quarter of 2019. Sequential increases in per day operating cost were due to reduced operating days during the quarter and transitory personnel costs between rig contracts.
Fully burdened rig operating margins in the third quarter of 2019 were $5,645 per day, compared to $7,552 per day in the third quarter of 2018 and $6,713 per day in the second quarter of 2019.
Selling, general and administrative expenses in the third quarter of 2019 were $3.8 million (including $0.6 million of non-cash stock-based compensation), compared to $3.9 million (including $0.7 million of non-cash stock-based compensation) in the third quarter of 2018 and $3.0 million (including $0.4 million of non-cash stock-based compensation) in the second quarter of 2019. Sequential increases in selling general and administrative expenses were associated with minimal incentive compensation accruals during the second quarter of 2019 compared to the current quarter.
Drilling Operations Update
The Company exited the third quarter with 23 rigs earning revenues under drilling contracts. The Company's backlog of drilling contracts with original terms of six months or longer was $57.8 million as of September 30, 2019, representing 7.4 rig years of activity. Approximately 48% of this backlog is expected to be realized during the remainder of 2019. The Company also has seven rigs currently operating under short-term contracts not included in this reported backlog.
Capital Expenditures and Liquidity Update
The Company's capital expenditure budget for 2019, net of asset sales and recoveries, remains $29 million. During the third quarter of 2019, cash outlays for capital expenditures, net of asset sales and recoveries, were $7.7 million.
As of September 30, 2019, the Company had cash on hand of $9.1 million, no amounts drawn on its $40 million revolving credit facility, and $130 million principal amount outstanding under its term loan. 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, October 31, 2019, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third 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 10135676. The replay will be available until November 7, 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
September 30, 2019
December 31, 2018
Assets
Cash and cash equivalents $9,146 $12,247
Accounts receivable, net 32,765 41,987
Inventories 2,618 2,693
Assets held for sale 3,153 19,711
Prepaid expenses and other current assets 2,469 8,930
Total current assets 50,151 85,568
Property, plant and equipment, net 485,869 496,197
Goodwill 1,627
Other long-term assets, net 2,525 1,470
Total assets $538,545 $584,862
Liabilities and Stockholders' Equity
Liabilities
Current portion
of long-term
debt (1) $1,012 $587
Accounts payable 19,313 16,312
Accrued
liabilities 14,199 29,219
Merger
consideration
payable to an
affiliate 3,078 -
Current portion
of contingent
consideration 3,153 -
Total current liabilities 40,755 46,118
Long-term debt
(2) 128,560 130,012
Contingent
consideration 15,748
Deferred income
taxes, net 1,364 774
Other long-term
liabilities 1,231 677
Total liabilities 171,910 193,329
Commitments and contingencies
Stockholders' equity
Common stock,
$0.01 par
value,
200,000,000
shares
authorized;
77,469,233 and
77,598,806
shares issued,
respectively,
and 76,661,782
and 77,078,252
shares
outstanding,
respectively 767 771
Additional paid-
in capital 504,656 503,446
Accumulated
deficit (135,416) (109,638)
Treasury stock,
at cost,
807,451 and
520,554 shares,
respectively (3,372) (3,046)
Total stockholders' equity 366,635 391,533
Total liabilities and
stockholders' equity $538,545 $584,862
(1) Current portion of long-term
debt relates to the current
portion of vehicle finance and
capital lease obligations.
(2) As of September 30, 2019, long-
term debt includes $1.3 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 Nine Months Ended
September 30,
June 30, September 30,
2019 2018 2019 2019 2018
Revenues $45,073 $28,439 $52,879 $158,310 $79,820
Costs and expenses
Operating
costs 34,246 18,420 37,453 111,032 55,312
Selling,
general and
administrative 3,755 3,903 3,008 11,308 10,877
Merger-
related
expenses 320 1,933 1,287 2,688 2,376
Depreciation
and
amortization 11,154 6,831 11,371 33,838 20,001
Asset
impairment,
net 1,966 431 5,855 9,839 396
Loss (gain) on
disposition
of assets,
net 265 (260) 18 3,503 (675)
Total cost and expenses 51,706 31,258 58,992 172,208 88,287
Operating loss (6,633) (2,819) (6,113) (13,898) (8,467)
Interest expense (3,560) (1,168) (3,592) (10,913) (3,049)
Other expense (122) (255) (377)
Loss before income taxes (10,315) (3,987) (9,960) (25,188) (11,516)
Income tax expense (benefit) 232 (50) 2,898 590 (120)
Net loss $(10,547) $(3,937) $(12,858) $(25,778) $(11,396)
Loss per share:
Basic and
Diluted $(0.14) $(0.10) $(0.17) $(0.34) $(0.30)
Weighted average number of common
shares outstanding:
Basic and
Diluted 75,405 38,253 75,692 75,597 38,210
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2019 2018
---
Cash flows from operating activities
Net loss $(25,778) $(11,396)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and
amortization 33,838 20,001
Asset impairment, net 9,839 396
Stock-based
compensation 1,385 2,080
Loss (gain) on
disposition of
assets, net 3,503 (675)
Amortization of
deferred rent 60
Deferred income taxes 590 (120)
Amortization of
deferred financing
costs 610 290
Bad debt (recovery)
expense (42) 22
Changes in operating assets and liabilities
Accounts receivable 9,265 (5,694)
Inventories (586) (116)
Prepaid expenses and
other assets 3,330 (1,212)
Accounts payable and
accrued liabilities (8,786) 2,535
Net cash provided by
operating activities 27,168 6,171
---
Cash flows from investing activities
Purchases of property,
plant and equipment (34,974) (24,804)
Proceeds from
insurance claims 1,000 257
Proceeds from the sale
of assets 7,806 487
Net cash used in
investing activities (26,168) (24,060)
---
Cash flows from financing activities
Borrowings under
Revolving Credit
Facilities 2,511 50,526
Repayments under
Revolving Credit
Facilities (5,077) (31,150)
Common stock issuance
costs (177)
Purchase of treasury
stock (328) (350)
RSUs withheld for
taxes (95)
Financing costs paid
under Term Loan
Facility (5)
Financing costs paid
under Revolving
Credit Facilities (22) (114)
Payments for finance
and capital lease
obligations (1,003) (496)
Net cash (used in)
provided by financing
activities (4,101) 18,321
---
Net (decrease)
increase in cash and
cash equivalents (3,101) 432
Cash and cash equivalents
Beginning of period 12,247 2,533
End of period $9,146 $2,965
Supplemental disclosure of cash flow information
Cash paid during the
period for interest $10,496 $2,971
Supplemental disclosure of non-cash investing and
financing activity
Change in property,
plant and equipment
purchases in accounts
payable $(1,320) $(264)
Additions to property,
plant and equipment
through capital
leases $2,181 $515
Transfer of assets
from held and used to
held for sale $(5,327)
$ -
Transfer from
inventory to fixed
assets $(357)
$ -
Extinguishment of
finance lease
obligations from sale
of assets classified
as finance leases $(141)
$ -
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 for the three months ending September 30, 2019 and 2018 and June 30, 2019, and the nine months ending September 30, 2019 and 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 Nine Months Ended
September 30,
September 30, June 30,
September 30,
September 30,
2019 2018 2019 2019 2018
Number of marketed rigs end
of period(1) 29 15 30 29 15
Rig operating days(2) 1,943 1,345 2,330 7,001 3,869
Average number of operating
rigs(3) 21.1 14.6 25.6 25.6 14.2
Rig utilization (4) 76% 99% 84% 85% 99%
Average revenue per
operating day (5) $20,559 $20,538 $20,868 $20,738 $19,687
Average cost per operating
day(6) $14,914 $12,986 $14,155 $14,034 $13,141
Average rig margin per
operating day $5,645 $7,552 $6,713 $6,704 $6,546
(1) Number of marketed rigs as of September
30, 2019 increased by 14 rigs as compared
to the number of marketed rigs as of
September 30, 2018 as a result of the
Sidewinder Merger. 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 $4.8
million, $0.8 million and $3.7 million
during the three months ended September
30, 2019 and 2018, and June 30, 2019,
respectively, and $11.2 million and $3.6
million during the nine months ended
September 30, 2019 and 2018,
respectively, (ii) revenues associated
with the amortization of intangible
revenue acquired in the Sidewinder Merger
of zero and $1.1 million during the three
and nine months ended September 30, 2019,
respectively, and $46 thousand during the
three months ended June 30, 2019 and
(iii) early termination revenues of $0.3
million and $0.8 million during the three
and nine months ended September 30, 2019,
respectively, and $0.5 million during the
three months ended June 30, 2019. The
three and nine months ended September 30,
2018 did not include any intangible or
early termination revenues.
(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 $4.8 million, $0.8
million and $3.7 million during the three
months ended September 30, 2019 and 2018,
and June 30, 2019, respectively, and
$11.2 million and $3.6 million during the
nine months ended September 30, 2019 and
2018, respectively, (ii) new crew
training costs of $0.1 million, zero and
zero during the three months ended
September 30, 2019 and 2018, and June 30,
2019, respectively and $0.1 million and
$0.1 million during the nine months ended
September 30, 2019 and 2018,
respectively, (iii) construction overhead
costs expensed due to reduced rig
construction activity of $0.2 million,
$0.1 million and $0.7 million during the
three months ended September 30, 2019 and
2018, and June 30, 2019, respectively,
and $1.3 million and $0.7 million during
the nine months ended September 30, 2019
and 2018, respectively, and (iv) rig de-
commissioning costs associated with
stacking deactivated rigs of $0.1 million
and $0.2 million during the three and
nine months ended September 30, 2019,
respectively, and $0.1 million during the
three months ended June 30, 2019. The
three and nine months ended September 30,
2018 did not include any de-
commissioning costs.
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 "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) Income:
(Unaudited)
(Unaudited)
---
Three Months Ended
Nine Months Ended
---
September 30, September 30, June 30, September 30, September 30,
2019 2018 2019 2019 2018
Amount Per Amount Per Amount Per Amount Per Amount Per
Share Share Share Share Share
---
(in thousands)
Net loss $(10,547) $(0.14) $(3,937) $(0.10) $(12,858) $(0.17) $(25,778) $(0.34) $(11,396) $(0.30)
Add back:
Asset
impairment,
net (1) 1,966 0.04 431 0.01 5,855 0.08 9,839 0.12 396 0.01
Loss (gain) on
disposition of
assets, net(2) 265 (260) (0.01) 18 3,503 0.05 (675) (0.01)
Intangible
revenue(3) - (46) (1,079) (0.02)
Merger-related
expenses(4) 320 1,933 0.05 1,287 0.02 2,688 0.05 2,376 0.06
Other expense 122 255 377 -
Adjusted net
loss $(7,874) $(0.10) $(1,833) $(0.05) $(5,489) $(0.07) $(10,450) $(0.14) $(9,299) $(0.24)
===
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,
2019 2018 2019 2019 2018
(in thousands)
Net loss $(10,547) $(3,937) $(12,858) $(25,778) $(11,396)
Add back:
Income tax expense
(benefit) 232 (50) 2,898 590 (120)
Interest expense 3,560 1,168 3,592 10,913 3,049
Depreciation and
amortization 11,154 6,831 11,371 33,838 20,001
Asset impairment,
net(1) 1,966 431 5,855 9,839 396
EBITDA 6,365 4,443 10,858 29,402 11,930
Loss (gain) on
disposition of
assets, net(2) 265 (260) 18 3,503 (675)
Stock-based
compensation 582 718 416 1,385 2,080
Intangible
revenue(3) - (46) (1,079)
Merger-related
expenses(4) 320 1,933 1,287 2,688 2,376
Other expense 122 255 377 -
Adjusted EBITDA $7,654 $6,834 $12,788 $36,276 $15,711
===
(1) In the third quarter of 2019, we
impaired 100% of the goodwill
recorded in connection with the
Sidewinder Merger. In the third
quarter of 2018, we impaired $0.4
million 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 second
quarter of 2019, we recorded a
$5.9 million impairment of
drilling assets that were sold at
auction in August 2019.
(2) In the third quarter of 2019 and
2018, we recorded a loss and a
gain, respectively, on disposition
of assets of $0.2 million and $0.2
million primarily due to a gain on
the sale or disposition of
miscellaneous drilling equipment.
(3) For the nine months ended September
30, 2019, and the three months
ended June 30, 2019, we amortized
intangible revenue related to an
unfavorable contract liability
acquired in the Sidewinder merger.
(4) For all periods presented, we
incurred costs directly associated
with the Sidewinder merger. These
costs were primarily comprised of
severance, professional fees and
other merger integration related
expenses.
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.
