Independence Contract Drilling, Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31, 2019 And Announces 1-For-20 Reverse Stock Split

HOUSTON, Feb. 28, 2020 /PRNewswire/ --Independence Contract Drilling, Inc. (the "Company" or "ICD") ICD today reported financial results for the three and twelve months ended December 31, 2019.

Fourth Quarter 2019 Highlights

• Net loss of $35.0 million, or $0.47 per share.
• Adjusted net loss, as defined below, of $7.7 million, or $0.10 per share.
• Adjusted EBITDA, as defined below, of $7.2 million.
• Net debt, excluding finance leases and net of deferred financing costs, of $122.3 million.
• Marketed fleet utilization of 77%.
• Fully burdened margin of $5,534 per day.

In the fourth quarter of 2019, the Company reported revenues of $45.3 million, a net loss of $35.0 million, or $0.47 per share, adjusted net loss (defined below) of $7.7 million, or $0.10 per share, and adjusted EBITDA (defined below) of $7.2 million.  These results compare to revenues of $62.8 million, a net loss of $8.6 million, or $0.11 per share, 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, revenues of $45.1 million, a net loss of $10.5 million, or $0.14 per share, an adjusted net loss of $7.9 million, or $0.10 per share, and adjusted EBITDA of $7.7 million in the third quarter of 2019. 

For the year ended December 31, 2019, the Company reported revenues of $203.6 million, a net loss of $60.8 million, or $0.81 per share, an adjusted net loss of $18.1 million, or $0.24 per share, and adjusted EBITDA of $43.4 million. This compares to revenues of $142.6 million, a net loss of $20.0 million, or $0.42 per share, an adjusted net loss of $8.3 million, or $0.17 per share, and adjusted EBITDA of $31.9 million for the year ended December 31, 2018.

Chief Executive Officer Anthony Gallegos commented, "The fourth quarter of 2019 reflected a continued period of strategic market positioning for ICD.  We successfully added drilling optimization software to three of our operating rigs during the quarter, completed two strategic rig upgrades, and exited the quarter enhancing our industry's efforts to address ESG concerns by utilizing bi-fuel systems on approximately half of our operating rigs.  For the quarter, expected rig count gains and increasing momentum in the Permian were offset slightly by weakness in the Haynesville where depressed natural gas prices caused several key customers to alter planned drilling programs entering 2020.

As we enter 2020, I believe ICD is very well positioned notwithstanding the visibility challenges facing our industry.  Strength in our Permian operations is allowing ICD to relocate and recontract rigs from the Haynesville gas plays, which despite creating some near-term choppiness for our operating rig count, allows us to continue high-grading our customer base and maintain contract utilization.  Against this backdrop, our Board of Directors has approved a capital budget of $10.2 million for 2020, which reflects ICD's commitment to generating free cash flow, with a laser focus on costs and support infrastructure."

Quarterly Operational Results

In the fourth quarter of 2019, the Company's marketed fleet operated at 77% utilization and recorded 1,984 revenue days, compared to 96% utilization and 2,818 revenue days in the fourth quarter of 2018, and 76% utilization and 1,943 revenue days in the third quarter of 2019. During the third quarter of 2019, the Company removed three SCR rigs from its marketed fleet. 

Operating revenues in the fourth quarter of 2019 totaled $45.3 million, compared to $62.8 million in the fourth quarter of 2018 and $45.1 million in the third quarter of 2019.  Revenues in the fourth quarter 2019 and third quarter of 2019 included early termination revenues of $0.6 million and $0.3 million, respectively.  Excluding this early termination revenue, revenue per day in the fourth quarter of 2019 was $20,241, compared to $20,433 in the fourth quarter of 2018 and $20,559 in the third quarter of 2019. Sequential revenue per day declines were driven by lower dayrates on contract renewals.

Operating costs in the fourth quarter of 2019 totaled $33.9 million, compared to $39.9 million in the fourth quarter of 2018 and $34.2 million in the third quarter of 2019.  Fully burdened operating costs were $14,707 per day in the fourth quarter of 2019, compared to $12,932 in the fourth quarter of 2018 and $14,914 in the third quarter of 2019. Sequential decreases in per day operating cost were due to reduced transitory costs between rig contracts offset by higher repair and maintenance cost during the fourth quarter of 2019.

Fully burdened rig operating margins in the fourth quarter of 2019 were $5,534 per day, compared to $7,501 per day in the fourth quarter of 2018 and $5,645 per day in the third quarter of 2019.

Selling, general and administrative expenses in the fourth quarter of 2019 were $4.7 million (including $0.5 million of non-cash stock-based compensation). 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).  This compares to selling, general and administrative expenses of $5.0 million (including $0.2 million of non-cash stock-based compensation) in the fourth quarter of 2018 and $3.8 million (including $0.6 million of non-cash stock-based compensation) in the third quarter of 2019.  Sequential increases in selling, general and administrative expenses were associated with higher incentive compensation accruals compared to third quarter 2019 levels.

Impairment Charge

During the fourth quarter of 2019, the Company recorded impairments totaling $25.9 million relating primarily to obsolete equipment and its plan to sell or otherwise dispose of legacy rigs and related component equipment acquired in the Sidewinder combination that will not be utilized in the Company's pad-optimal drilling fleet. 

Drilling Operations Update

The Company exited the fourth quarter with 21 rigs earning revenues under drilling contracts and currently has 22 rigs under contract.  The Company's backlog of drilling contracts with original terms of six months or longer was $51.5 million as of December 31, 2019, representing 6.9 rig years of activity.  Approximately 100% of this backlog is expected to be realized during the remainder of 2020.  The Company also has six 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 2020, before asset sales and recoveries is $10.2 million.  The Company had $5.9 million of assets classified as held for sale at December 31, 2019.  During the fourth quarter of 2019, cash outlays for capital expenditures, net of asset sales and recoveries, were $2.2 million. 

As of December 31, 2019, the Company had cash on hand of $5.2 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.

1-for-20 Reverse Stock Split

Following approval by the Company's stockholders, the Company's Board of Directors has approved a 1-for-20 reverse stock split of the Company's common stock.  The reverse split will be effective at 5:00 p.m. Eastern Time on March 11, 2020 (the "Effective Time"), and the Company's common stock will begin trading on a split-adjusted basis on the New York Stock Exchange as of the market open on March 12, 2020.  The reverse stock split reduces the number of issued and outstanding shares of the Company's common stock from approximately 77,523,973 and 76,241,045 shares, respectively to approximately 3,876,199 and 3,812,052 shares, respectively.

The reverse stock split affects all issued and outstanding shares of the Company's common stock and shares held in treasury, as well as the number of shares of common stock available for issuance under the Company's stock incentive plans and outstanding awards subject to those plans. The reverse stock split affects all stockholders uniformly and will not alter any stockholder's percentage interest in the Company's outstanding common stock, except for adjustments that may result from the treatment of fractional shares as described below.

No fractional shares will be issued as a result of the reverse stock split. The Company will pay to record holders cash in lieu of any fractional shares, which amount will be determined based on the average closing market price of the pre-split shares of ICD common stock on the New York Stock Exchange ("NYSE") (or if the pre-split shares of ICD common stock do not remain listed thereon, on the principal securities exchange or quotation service for the pre-split shares of ICD common stock, as determined by the Company's Board of Directors of ICD (the "Board")), for the ten trading days immediately preceding the day of the Effective Time, with payment for each whole post-split share of ICD common stock equal to 1/20th of the average closing price of one share of the pre-split shares of ICD common stock on the NYSE (or if the pre-split shares of ICD common stock do not remain listed thereon, on the principal securities exchange or quotation service for the pre-split shares of ICD common stock, as determined by the Board).

In connection with the reverse stock split, the Company's certificate of incorporation will also be amended to reduce the authorized number of shares of the Company's common stock from 200,000,000 shares to 50,000,000 shares.

Conference Call Details

A conference call for investors will be held today, February 28, 2020, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss the Company's fourth quarter and year end 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 10138717.  The replay will be available until March 6, 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.

The following table provides various financial and operational data for the Company's operations for the three months ending December 31, 2019 and 2018 and September 30, 2019, and the twelve months ending December 31, 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.

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.

INVESTOR CONTACTS:

Independence Contract Drilling, Inc.
E-mail inquiries to: Investor.relations@icdrilling.com
Phone inquiries: (281) 598-1211

SOURCE Independence Contract Drilling, Inc.