Independence Contract Drilling, Inc. Reports
Unaudited Financial Results for the Third Quarter
Ended
September 30, 2022, Including Record Revenue Per
Day and Margin Per Day
HOUSTON,
TEXAS, November 1, 2022 -- InvestorsHub NewsWire -- Independence
Contract Drilling, Inc. (the "Company" or "ICD") (NYSE:
ICD) today reported financial results for the
three months ended September 30, 2022.
Third quarter
2022 Highlights
Net
loss, as defined below, of $7.2 million, or $0.53 per share.
Adjusted
net loss, as defined below, of $4.8 million, or $0.35 per
share.
Adjusted
EBITDA, as defined below, of $12.5 million, representing an
approximate 35% sequential improvement from the second quarter of
2022.
Adjusted
net debt, as defined below, of $170.4 million.
17.4
average rigs working during the quarter.
Fully
burdened margin per day of $11,341 representing an approximate 27%
sequential improvement from the second quarter of 2022.
In the
third quarter of 2022, the Company reported revenues of $49.1
million, a net loss of $7.2 million, or $0.53 per share, adjusted
net loss (defined below) of $4.8 million, or $0.35 per share, and
adjusted EBITDA (defined below) of $12.5 million. These
results compare to revenues of $24.0 million, a net loss of $4.3
million, or $0.59 per share, adjusted net loss of $13.7 million, or
$1.87 per share, and adjusted EBITDA loss of $0.7 million in the
third quarter of 2021, and revenues of $42.3 million, a net loss of
$2.8 million, or $0.21 per share, an adjusted net loss of $9.8
million, or $0.72 per share, and adjusted EBITDA of $9.2 million in
the second quarter of 2022.
Chief
Executive Officer Anthony Gallegos commented, "ICD achieved
significant progress towards its rig reactivation, rig margin and
adjusted EBITDA goals during the third quarter of 2022. The
Company achieved quarterly revenue per day and margin per day
records during the quarter, buoyed by continued penetration of our
300 series rigs and our marketing strategy of patiently waiting to
seek longer-term contracts. All of this drove sequential
improvements in quarterly adjusted EBITDA of 35%.
Against a
backdrop of greater general macroeconomic uncertainty, market
conditions for the Company's services have continued to tighten as
overall supply and demand fundamentals driven by historically low
underinvestment over the past decade have outweighed general
economic headwinds. During the quarter, we began to
strategically sign longer-term contracts and have increased our
quarter-end backlog by 87% compared to the second quarter.
More importantly, our backlog extending into 2023 is priced at
levels that we expect will generate revenue per day over 20% higher
than our reported third quarter revenue per day levels and margin
per day over 55% higher than third quarter levels. In
addition, we still have the majority of our fleet on shorter-term
contracts that will reprice during the fourth quarter of 2022 or
the first quarter of 2023.
With this
backdrop, we expect to see further sequential improvements in
revenues and margin per day during the remainder of this year and
into 2023. Our current expectations are that fourth quarter margin
per day will exceed reported third quarter levels between 10% and
15%, and first quarter 2023 margin per day will exceed reported
third quarter levels between 28% and 32%. Given pricing already
imbedded in our 2023 backlog, we are excited about further
opportunities for margin expansion beyond these periods.
Operationally, our rig reactivations remain on schedule and our
200-to-300-series conversion program has commenced with our first
conversion in process. Our 19th rig mobilized for operations
at the end of October and our 20th rig is scheduled for
mobilization at the end of the fourth quarter. Both of these
reactivations are pursuant to one-year contracts at leading edge
dayrates where expected margins will earn back reactivation costs
well within the contract terms. Looking forward into 2023, we
are marketing our 21st rig for mobilization early-to-mid first
quarter of 2023 and our 22nd rig for the end of the first quarter
or early second quarter of 2023."
Quarterly
Operational Results
In the third quarter of 2022, operating days increased sequentially
by 4% compared to the second quarter of 2022. The Company's
marketed fleet operated at 70% utilization and recorded 1,601
revenue days, compared to 1,268 revenue days in the third quarter
of 2021, and 1,540 revenue days in the second quarter of 2022.
Operating
revenues in the third quarter of 2022 totaled $49.1 million,
compared to $24.0 million in the third quarter of 2021 and $42.3
million in the second quarter of 2022. Revenue per day in the
third quarter of 2022 was $28,646, compared to $17,141 in the third
quarter of 2021 and $24,875 in the second quarter of 2022.
The sequential increase quarter over quarter in revenue per day was
driven by higher dayrates on contract renewals and reactivated
rigs.
Operating
costs in the third quarter of 2022 totaled $31.4 million, compared
to $20.1 million in the third quarter of 2021 and $28.9 million in
second quarter of 2022. Fully burdened operating costs were
$17,305 per day in the third quarter of 2022, compared to $13,685
in the third quarter of 2021 and $15,929 in the second quarter of
2022. Sequential increases in operating costs per day were
driven primarily by higher labor costs associated with increases in
field-level wages implemented during the latter part of the second
quarter of 2022, partially offset by improved cost absorption.
Fully
burdened rig operating margins in the third quarter of 2022 were
$11,341 per day, compared to $3,456 per day in the third quarter of
2021 and $8,946 per day in the second quarter of 2022. The
Company currently expects per day operating margins in the fourth
quarter of 2022 to increase sequentially between 10% and 15%
compared to the third quarter of 2022, driven primarily by
favorable dayrate momentum as well as the reactivation of the
Company's 19th and 20th rigs.
Selling,
general and administrative expenses in the third quarter of 2022
were $7.0 million (including $1.7 million of non-cash
compensation), compared to $4.1 million (including $0.8 million of
non-cash compensation) in the third quarter of 2021 and $4.9
million (including $0.7 million of non-cash compensation) in the
second quarter of 2022. Cash selling, general and
administrative expenses increased sequentially during the quarter
due to $0.3 million relating to a dispute settlement and higher
incentive compensation accruals. Stock-based incentive compensation
expense increased sequentially primarily due to full quarter
amortization of out-of-the-money stock appreciation rights granted
late in the second quarter of 2022.
During the
quarter, the Company recorded interest expense of $8.1 million,
including $2.0 million, or $0.14 per share, relating to non-cash
amortization of debt discount and debt issuance costs. The
Company has excluded this non-cash amortization when presenting
adjusted net income/loss per share.
The Company
recorded a tax benefit of $0.7 million, or $0.05 per share, during
the third quarter of 2022, of which $0.1 million relates to cash
taxes, attributable to state and local franchise taxes.
Drilling
Operations Update
The Company exited the third quarter with 18 rigs operating.
Overall, the Company's operating rig count averaged 17.4 rigs
during the quarter. The Company's backlog of drilling
contracts with original terms of six months or longer is $101.6
million. This backlog excludes rigs operating on short term
pad-to-pad drilling contracts. Approximately 31% of this
backlog is expected to be realized in 2022. The Company's
19th rig mobilized for drilling operations on a one-year contract
in the Haynesville at the end of October 2022 and the Company's
20th rig is contracted and scheduled for reactivation late in the
fourth quarter of 2022.
Capital
Expenditures and Liquidity Update
Cash
outlays for capital expenditures in the third quarter of 2022, net
of asset sales and recoveries, were $9.4 million. This
included $5.6 million associated with prior period deliveries.
As of
September 30, 2022, the Company had cash on hand of $7.6
million and a revolving line of credit with availability of $19.9
million. The Company elected to pay in-kind interest due under its
convertible notes as of September 30, 2022. Following this payment,
$170.2 million principal amount was outstanding under the
convertible notes.
Conference Call
Details
A
conference call for investors will be held today, November 1, 2022,
at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the
Company's third quarter 2022 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 2879534. The replay will be
available until November 8, 2022.
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 the Company's 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.
The
following table provides various financial and operational data for
the Company's operations for the three months ended
September 30, 2022 and 2021 and June 30, 2022 and
the nine months ended September 30, 2022 and 2021.
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 the Company's
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.
(1)
Marketed rigs exclude idle rigs that will not be reactivated unless
market conditions materially improve.
(2)
Rig operating days represent the number of days the Company's rigs
are earning revenue under a contract during the period, including
days that standby revenue is 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 the Company's 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 $3.3 million, $2.3 million
and $4.0 million during the three months ended
September 30, 2022 and 2021, and June 30, 2022,
respectively, and $10.3 million and $5.5 million during the nine
months ended September 30, 2022 and 2021,
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 paid by customers of $3.3
million, $2.3 million and $4.0 million during the three months
ended September 30, 2022 and 2021, and
June 30, 2022, respectively, and $10.3 million and $5.5
million during the nine months ended September 30, 2022
and 2021, respectively; (ii) overhead costs of $0.4 million, $0.4
million and $0.4 million during the three months ended
September 30, 2022 and 2021, and June 30, 2022,
respectively, and $1.4 million and $1.2 million during the nine
months ended September 30, 2022 and 2021, respectively;
and (iii) rig reactivation costs, inclusive of new crew training
costs, of zero, $0.1 million and zero during the three months ended
September 30, 2022 and 2021, and June 30, 2022,
respectively, and zero and $1.4 million during the nine months
ended September 30, 2022 and 2021,
respectively.
Non-GAAP Financial Measures
Adjusted
net debt, adjusted net (loss) income, EBITDA and adjusted EBITDA
are supplemental non-GAAP financial measures that are used by
management and external users of the Company's financial
statements, such as industry analysts, investors, lenders and
rating agencies. In addition, adjusted EBITDA is consistent
with how EBITDA is calculated under the Company's credit facility
for purposes of determining the Company's compliance with various
financial covenants. The Company defines "adjusted net debt"
as long-term notes (excluding long-term capital leases) less
cash. The Company defines "adjusted net (loss) income" as net
(loss) income before: asset impairment, net; gain or loss on
disposition of assets, net; amortization of debt discount;
amortization of issuance costs; gain or loss on extinguishment of
debt; change in fair value of embedded derivative liability, gain
on extinguishment of derivative and other adjustments. The
Company defines "EBITDA" as earnings (or loss) before interest,
taxes, depreciation and amortization, and asset impairment, net and
the Company defines "adjusted EBITDA" as EBITDA before stock-based
compensation, gain or loss on disposition of assets, gain or loss
on extinguishment of debt, gain on extinguishment of derivative and
other non-recurring items added back to, or subtracted from, net
income for purposes of calculating EBITDA under the Company's
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 debt, adjusted net (loss) income, EBITDA and
adjusted EBITDA are useful because they allow the Company's
stockholders to more effectively evaluate the Company's operating
performance and compliance with various financial covenants under
the Company's credit facility and compare the results of the
Company's operations from period to period and against the
Company's peers without regard to the Company's financing methods
or capital structure or non-recurring, non-cash transactions. The
Company excludes 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 the Company's 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 the Company's 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. The Company's presentation of adjusted net debt,
adjusted net (loss) income, EBITDA and adjusted EBITDA should not
be construed as an inference that the Company's results will be
unaffected by unusual or non-recurring items. The Company's
computations of adjusted net debt, adjusted net (loss) income,
EBITDA and adjusted EBITDA may not be comparable to other similarly
titled measures of other companies.
(1)
During the third quarter of 2021, we impaired $0.5 million of
drilling equipment that we deemed obsolete or no longer usable in
our business. During the second quarter of 2021, we impaired a
damaged piece of drilling equipment for $0.3 million, net of
insurance recoveries.
(2)
Loss or gain on disposition of assets, net represents the sale or
disposition of miscellaneous drilling equipment in each respective
period.
(3)
Loss on extinguishment of debt related to unamortized debt issuance
costs on our prior term loan facility, non-cash structuring fees
settled in shares to the affiliates of our prior term loan facility
and the fair value of the embedded derivatives attributable to the
affiliates of our prior term loan facility in the first quarter of
2022. During the third quarter of 2021, we received notice
from the SBA of full forgiveness of our PPP loan and recorded a
gain on extinguishment of debt of $10.1 million.
(4)
Represents the change in fair value of embedded derivative
liability between March 31, 2022 and June 8, 2022, and March 18,
2022 and June 8, 2022, respectively. The embedded derivative
liability was extinguished on June 8, 2022.
(5)
Represents the gain on extinguishment of the variable PIK interest
rate feature of the derivative liability.
INVESTOR CONTACTS:
Independence Contract Drilling, Inc.
E-mail
inquiries to: Investor.relations@icdrilling.com
Phone
inquiries: (281) 598-1211
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