Independence Contract Drilling, Inc. Reports Financial Results For The First Quarter 2020
HOUSTON, May 7, 2020 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three months ended March 31, 2020.
First Quarter 2020 Highlights
-- Net loss of $28.2 million, or $7.53 per share.
-- Adjusted net loss, as defined below, of $10.6 million, or $2.82 per
share.
-- Adjusted EBITDA, as defined below, of $5.1 million.
-- Net debt, excluding finance leases and net of deferred financing costs,
of $128.9 million.
-- Marketed fleet utilization of 66%.
-- Fully burdened margin of $5,175 per day.
In the first quarter of 2020, the Company reported revenues of $38.5 million, a net loss of $28.2 million, or $7.53 per share, adjusted net loss (defined below) of $10.6 million, or $2.82 per share, and adjusted EBITDA (defined below) of $5.1 million. These results compare to revenues of $60.4 million, a net loss of $2.4 million, or $0.63 per share, adjusted net income of $2.9 million, or $0.76 per share, and adjusted EBITDA of $15.8 million in the first quarter of 2019, revenues of $45.3 million, a net loss of $35.0 million, or $9.32 per share, an adjusted net loss of $7.7 million, or $2.04 per share, and adjusted EBITDA of $7.2 million in the fourth quarter of 2019.
Chief Executive Officer Anthony Gallegos commented, "The COVID-19 pandemic began to impact our operating rig count and results of operations late in the first quarter of 2020. The historic declines in oil demand and prices during March negatively impacted rig demand as evidenced by the significant decline in active drilling rigs working in North America. The pandemic and its effects are causing a rapid and substantial reduction in drilling activity which we expect will continue to play out throughout the second quarter of 2020 and beyond until economic activity rebounds and oil supply and demand fundamentals improve. In line with this view, the Company took actions beginning in March to reduce its cost structure through reducing headcount, salary, and other elements of compensation for all personnel and other initiatives including reducing planned capital expenditures and elimination of executive management and board positions.
As the impacts of the pandemic continue to play out, we currently estimate that we will exit the second quarter of 2020 with six rigs contracted, and because we cannot estimate the duration and ultimate impact of the COVID-19 pandemic, additional reductions in our operating rig count are possible as contracts on operating rigs expire during the back half of 2020. In this uncertain environment, we are focused on the safety of our workforce, exceeding our customers' expectations, and maximizing our available financial liquidity opportunities."
Quarterly Operational Results
In the first quarter of 2020, the Company's marketed fleet operated at 66% utilization and recorded 1,738 revenue days, compared to 95% utilization and 2,728 revenue days in the first quarter of 2019, and 77% utilization and 1,984 revenue days in the fourth quarter of 2019.
Operating revenues in the first quarter of 2020 totaled $38.5 million, compared to $60.4 million in the first quarter of 2019 and $45.3 million in the fourth quarter of 2019. Revenue per day in the first quarter of 2020 was $19,823, compared to $20,755 in the first quarter of 2019 and $20,241 in the fourth quarter of 2019. Sequential revenue per day declines were driven by lower dayrates on contract renewals.
Operating costs in the first quarter of 2020 totaled $30.2 million, compared to $39.3 million in the first quarter of 2019 and $33.9 million in the fourth quarter of 2019. Fully burdened operating costs were $14,648 per day in the first quarter of 2020, compared to $13,302 in the first quarter of 2019 and $14,707 in the fourth quarter of 2019. Sequential increases from the first quarter of 2019 in per day operating cost were primarily attributable to increased labor costs associated with inefficiencies and transitory downtime resulting from rig releases and the reduction of operating rigs during the first quarter of 2020.
Fully burdened rig operating margins in the first quarter of 2020 were $5,175 per day, compared to $7,453 per day in the first quarter of 2019 and $5,534 per day in the fourth quarter of 2019.
Selling, general and administrative expenses in the first quarter of 2020 were $3.8 million (including $0.6 million of non-cash stock-based compensation), compared to $4.5 million (including $0.4 million of non-cash stock-based compensation) in the first quarter of 2019 and $4.7 million (including $0.5 million of non-cash stock-based compensation) in the fourth quarter of 2019. Included in selling, general and administrative costs during the fourth quarter of 2019 was a $0.5 million (or $0.01 per share) charge associated with a bad debt reserve placed upon a receivable relating to a 2018 contract for which the collection process has not yet been completed. Excluding this charge, selling general and administrative expenses in the fourth quarter of 2019 were $4.2 million (including $0.5 million of non-cash stock-based compensation expense). Sequential decreases in selling, general and administrative expenses were associated with lower cash incentive compensation accruals and lower travel, training and professional fees in the first quarter of 2020.
Severance expenses of $1.1 million were recorded in the first quarter of 2020 in connection with the Company's cost reduction measures instituted in response to the COVID-19 pandemic and current deteriorating market conditions. Severance and merger-related expenses of $1.1 million were recorded in the first quarter of 2019 primarily comprised of severance, professional fees and other merger-related expenses.
Impairment Charge
During the first quarter of 2020, the Company recorded impairments totaling $16.6 million relating primarily to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment, inventory and assets held for sale.
Drilling Operations Update
The Company exited the first quarter 2020 with 17 rigs earning revenues under drilling contracts and expects to exit the second quarter with six rigs earning revenues under drilling contracts. The Company's backlog of drilling contracts with original terms of six months or longer was $26.4 million as of March 31, 2020, representing 3.58 rig years of activity. All of this backlog is expected to be realized during the remainder of 2020.
Capital Expenditures and Liquidity Update
The Company's capital expenditure budget for 2020, before asset sales and recoveries is $7.5 million, representing a $2.7 million reduction from its original annual budget. Cash outlays for capital expenditures in the first quarter of 2020, net of asset sales and recoveries, of $8.4 million, included the cash flow impact of a $5.3 million reduction in accounts payable compared to year end.
As of March 31, 2020, the Company had cash on hand of $9.8 million, a borrowing base of $20.1 million under its revolving credit facility based upon eligible accounts receivable with $8.6 million of availability remaining, and $130 million principal amount outstanding under its term loan. The term loan includes a committed $15 million accordion that remains undrawn and currently available to the Company. Looking forward, the Company expects availability under its revolving line of credit to deteriorate during the remainder of 2020 with lower activity levels reducing the eligible accounts receivable collateral balance that is used to determine availability. The Company also expects it will need to draw on its term loan accordion during 2020 to support operations and fund other non-operating expenses. In light of the unprecedented declines in industry conditions, uncertain macro-economics, lack of capital market availability for micro-cap companies in the U.S. land oil field services industry and after assessing the Company's liquidity requirements and available sources of liquidity to fund operations, on April 27, 2020, the Company applied for and received a $10 million loan issued pursuant to the Payroll Protection Program (PPP) under the CARES Act, which will be used to fund permitted expenses under the CARES Act.
Conference Call Details
A conference call for investors will be held today, May 7, 2020, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's first quarter 2020 results.
The call can be accessed live over the telephone by dialing (855) 239-3115 or for international callers, (412) 542-4125. A replay will be available shortly after the call and can be accessed by dialing (877) 344-7529 or for international callers, (412) 317-0088. The passcode for the replay is 10143627. The replay will be available until May 14, 2020.
Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company's website at www.icdrilling.com in the Investor Relations section. A replay of the webcast will also be available for approximately 30 days following the call.
About Independence Contract Drilling, Inc.
Independence Contract Drilling provides land-based contract drilling services for oil and natural gas producers in the United States. The Company constructs, owns and operates a fleet of pad-optimal ShaleDriller rigs that are specifically engineered and designed to accelerate its clients' production profiles and cash flows from their most technically demanding and economically impactful oil and gas properties. For more information, visit www.icdrilling.com.
Forward-Looking Statements
This news release contains certain forward-looking statements within the meaning of the federal securities laws. Words such as "anticipated," "estimated," "expected," "planned," "scheduled," "targeted," "believes," "intends," "objectives," "projects," "strategies" and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to Independence Contract Drilling's operations are based on a number of expectations or assumptions which have been used to develop such information and statements but which may prove to be incorrect. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, and there can be no assurance that actual outcomes and results will not differ materially from those expected by management of Independence Contract Drilling. For more information concerning factors that could cause actual results to differ materially from those conveyed in the forward-looking statements, please refer to the "Risk Factors" section of the Company's Annual Report on Form 10-K, filed with the SEC and the information included in subsequent amendments and other filings. These forward-looking statements are based on and include our expectations as of the date hereof. Independence Contract Drilling does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Independence Contract Drilling becomes aware of, after the date hereof.
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands, except par value and share data)
CONSOLIDATED BALANCE SHEETS
March 31, 2020
December 31, 2019
Assets
Cash and cash equivalents $9,753 $5,206
Accounts receivable, net 26,893 35,834
Inventories 1,181 2,325
Assets held for sale 5,014 8,740
Prepaid expenses and other current assets 4,803 4,640
Total current assets 47,644 56,745
Property, plant and equipment, net 437,505 457,530
Other long-term assets, net 2,754 2,726
Total assets $487,903 $517,001
Liabilities and Stockholders' Equity
Liabilities
Current portion of long-term debt (1) $3,268 $3,685
Accounts payable 14,981 22,674
Accrued liabilities 12,958 16,368
Merger consideration payable to an affiliate 2,932 3,022
Current portion of contingent consideration 2,814 2,814
Total current liabilities 36,953 48,563
Long-term debt (2) 145,291 134,941
Deferred income taxes, net 610 652
Other long-term liabilities 1,198 1,249
Total liabilities 184,052 185,405
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 50,000,000 shares
authorized; 3,888,137 and 3,876,196 shares issued,
respectively, and 3,809,548 and 3,812,050 shares
outstanding, respectively 38 38
Additional paid-in capital 506,375 505,831
Accumulated deficit (198,649) (170,426)
Treasury stock, at cost, 78,589 shares and 64,146
shares, respectively (3,913) (3,847)
Total stockholders' equity 303,851 331,596
Total liabilities and stockholders' equity $487,903 $517,001
(1) Current portion of long-term
debt relates to the current
portion of finance lease
obligations.
(2) As of March 31, 2020, and
December 31, 2019, long-term
debt includes $6.7 million and
$7.5 million, respectively, of
long-term finance lease
obligations.
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
December 31,
2020 2019 2019
Revenues $38,494 $60,358 $45,292
Costs and expenses
Operating costs 30,229 39,333 33,881
Selling, general and administrative 3,761 4,545 4,743
Severance and merger-related expenses 1,076 1,081 10
Depreciation and amortization 11,516 11,313 11,529
Asset impairment (insurance recoveries),
net 16,619 2,018 25,909
(Gain) loss on disposition of assets, net (46) 3,220 1,440
Total cost and expenses 63,155 61,510 77,512
Operating loss (24,661) (1,152) (32,220)
Interest expense (3,604) (3,761) (3,502)
---
Loss before income taxes (28,265) (4,913) (35,722)
Income tax benefit (42) (2,540) (712)
---
Net loss $(28,223) $(2,373) $(35,010)
Loss per share:
Basic and Diluted $(7.53) $(0.63) $(9.32)
Weighted average number of common shares outstanding:
Basic and Diluted 3,750 3,785 3,755
INDEPENDENCE CONTRACT DRILLING, INC.
Unaudited
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2020 2019
---
Cash flows from operating activities
Net loss $(28,223) $(2,373)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization 11,516 11,313
Asset impairment (insurance recoveries), net 16,619 2,018
Stock-based compensation 570 387
(Gain) loss on disposition of assets, net (46) 3,220
Deferred income taxes (42) (2,540)
Amortization of deferred financing costs 204 203
Bad debt expense (recovery) 16 (45)
Changes in operating assets and liabilities
Accounts receivable 8,925 (105)
Inventories (27) (45)
Prepaid expenses and other assets (462) 843
Accounts payable and accrued liabilities (5,959) (5,271)
Net cash provided by operating activities 3,091 7,605
---
Cash flows from investing activities
Purchases of property, plant and equipment (9,139) (10,832)
Proceeds from the sale of assets 628 536
Proceeds from insurance claims 1,000
Collection of principal on note receivable 145
Net cash used in investing activities (8,366) (9,296)
---
Cash flows from financing activities
Borrowings under Revolving Credit Facility 11,038 2,403
Repayments under Revolving Credit Facility (38)
Common stock issuance costs (177)
Purchase of treasury stock (66)
RSUs withheld for taxes (26)
Financing costs paid under Term Loan Facility (5)
Financing costs paid under Revolving Credit Facility (12)
Payments for finance lease obligations (1,086) (216)
Net cash provided by financing activities 9,822 1,993
---
Net increase in cash and cash equivalents 4,547 302
Cash and cash equivalents
Beginning of period 5,206 12,247
End of period $9,753 $12,549
Supplemental disclosure of cash flow information
Cash paid during the period for interest $3,541 $3,514
Supplemental disclosure of non-cash investing and financing activity
Change in property, plant and equipment purchases in accounts payable $(5,285) $(1,753)
Additions to property, plant and equipment through finance leases $55 $520
Extinguishment of finance lease obligations from sale of assets classified as finance leases $(204)
$ -
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 for the three months ending March 31, 2020 and 2019 and December 30, 2019. This information contains non-GAAP financial measures of the Company's operating performance. The Company believes this non-GAAP information is useful because it provides a means to evaluate the operating performance of the Company on an ongoing basis using criteria that are used by our management. Additionally, it highlights operating trends and aids analytical comparisons. However, this information has limitations and should not be used as an alternative to operating income (loss) or cash flow performance measures determined in accordance with GAAP, as this information excludes certain costs that may affect the Company's operating performance in future periods.
OTHER FINANCIAL & OPERATING DATA
Unaudited
Three Months Ended
March 31,
March 31,
December 31,
2020 2019 2019
Number of marketed rigs end of period(1) 29 32 29
Rig operating days(2) 1,738 2,728 1,984
Average number of operating rigs(3) 19.1 30.3 21.6
Rig utilization (4) 66% 95% 77%
Average revenue per operating day (5) $19,823 $20,755 $20,241
Average cost per operating day(6) $14,648 $13,302 $14,707
Average rig margin per operating day $5,175 $7,453 $5,534
(1) Number of marketed rigs as of March
31, 2020 decreased by three rigs as
compared to the number of marketed
rigs as of March 31, 2019. 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 $4.0
million, $2.7 million and $4.5
million during the three months
ended March 31, 2020 and 2019, and
December 30, 2019, respectively, and
(ii) revenues associated with the
amortization of intangible revenue
acquired in the Sidewinder merger of
$1.0 million during the three months
ended March 31, 2019.
(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 $4.0
million, $2.7 million and $4.5
million during the three months
ended March 31, 2020 and 2019, and
December 30, 2019, respectively and
(ii) overhead costs expensed due to
reduced rig upgrade activity of $0.6
million and $0.3 million and zero
during the three months ended March
31, 2020 and 2019, and December 30,
2019, respectively.
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)
Three Months Ended
---
March 31, March 31, December 31,
2020 2019 2019
Amount Per Share Amount Per Share Amount Per Share
---
(in thousands)
Net loss $(28,223) $(7.53) $(2,373) $(0.63) $(35,010) $(9.32)
Add back:
Asset impairment (insurance recoveries), net (1) 16,619 4.43 2,018 0.52 25,909 6.90
(Gain) loss on disposition of assets, net(2) (46) (0.01) 3,220 0.84 1,440 0.38
Intangible revenue(3) - (1,033) (0.27)
Severance and merger-related expenses(4) 1,076 0.29 1,081 0.28 10 -
Adjusted net (loss) income $(10,574) $(2.82) $2,913 $0.76 $(7,651) $(2.04)
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:
(Unaudited)
Three Months Ended
---
March 31,
March 31,
December 31,
2020 2019 2019
(in thousands)
Net loss $(28,223) $(2,373) $(35,010)
Add back:
Income tax benefit (42) (2,540) (712)
Interest expense 3,604 3,761 3,502
Depreciation and amortization 11,516 11,313 11,529
Asset impairment (insurance recoveries), net(1) 16,619 2,018 25,909
EBITDA 3,474 12,179 5,218
(Gain) loss on disposition of assets, net(2) (46) 3,220 1,440
Stock-based compensation 570 387 486
Intangible revenue(3) - (1,033)
Severance and merger-related expenses(4) 1,076 1,081 10
Adjusted EBITDA $5,074 $15,834 $7,154
===
(1) In the first quarter of 2020, we
recorded impairments totaling
$16.6 million relating primarily
to the remaining assets on rigs
removed from our marketed fleet,
as well as certain other component
equipment, inventory and assets
held for sale. In the 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
the fourth quarter of 2019, we
recorded impairments totaling
$25.9 million relating primarily
to our decision to remove rigs
from our marketed fleet, as well
as a plan to sell or otherwise
dispose of rigs and related
component equipment, much of which
was acquired in connection with
the Sidewinder merger.
(2) In the first quarter of 2020, and
the fourth quarter of 2019, we
recorded a gain and loss,
respectively, on the disposition
of miscellaneous drilling
equipment in the respective
quarter. 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) In the first quarter of 2019 we
amortized $1.0 million of
intangible revenue related to an
unfavorable contract liability
acquired in the Sidewinder merger.
(4) Severance expenses of $1.1 million
were recorded in the first quarter
of 2020 in connection with our
cost reduction measures instituted
in response to the COVID-19
pandemic and current deteriorating
market conditions. Severance and
merger-related expenses of $1.1
million were recorded in the first
quarter of 2019 primarily
comprised of severance,
professional fees and other
Sidewinder merger-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.
