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Independence Contract Drilling, Inc. Reports Financial Results For The Second Quarter Ended June 30, 2019 And Announces $10 Million Stock Repurchase Program

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HOUSTON, Aug. 1, 2019 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company") (NYSE:ICD) today reported financial results for the three months ended June 30, 2019 and also announced that its Board of Directors has authorized the Company to engage in a stock repurchase program of up to $10 million.

Second Quarter 2019 Highlights

  • Net loss of $12.9 million, or $0.17 per share.
  • Adjusted net loss, as defined below, of $5.5 million, or $0.07 per share. Adjusted net loss includes a charge of $2.7 million, or $0.03 per share, associated with a tax rate adjustment described below.
  • Adjusted EBITDA, as defined below, of $12.8 million.
  • Net debt, excluding finance leases, of $119.7 million.
  • Fleet utilization of 83.7%.
  • Fully burdened margin of $6,713 per day.

In the second quarter of 2019, the Company reported revenues of $52.9 million, a net loss of $12.9 million, or $0.17 per share, adjusted net loss (defined below) of $5.5 million, or $0.07 per share, and adjusted EBITDA (defined below) of $12.8 million.  Included in net loss and adjusted net loss during the quarter was a tax charge of $2.7 million, or $0.03 per share, associated with a change in expected tax rate compared to the first quarter of 2019 which resulted in a reversal of the tax benefit recorded during the first quarter of 2019.

These results compare to revenues of $25.8 million, a net loss of $3.3 million, or $0.09 per share, adjusted net loss of $3.2 million, or $0.08 per share, and adjusted EBITDA of $5.0 million in the second quarter of 2018, revenues of $60.4 million, a net loss of $2.4 million, or $0.03 per share, an adjusted net income of $2.9 million, or $0.04 per share, and adjusted EBITDA of $15.8 million in the first quarter of 2019.  Net income and adjusted net income during the first quarter of 2019 included a tax benefit of $2.5 million, or $0.03 per share.

Chief Executive Officer Anthony Gallegos commented, "Second quarter market conditions softened more than original expectations as our customers increased their focus on budget discipline in light of investor demands and commodity price volatility.  As a result, we exited the quarter with 22 rigs operating in the field.  Since exiting the second quarter, we have seen improvement in our contracted AC pad-optimal rig count and we expect to add more contracted rigs during the third quarter. The rig releases experienced during the second quarter caused higher and longer-than-expected, transitory downtime and cost inefficiencies for our rig fleet during the quarter.

Looking forward, we believe ICD is well positioned with a strong balance sheet and liquidity position supporting our pad-optimal fleet and relentless focus on safety, operational excellence, and customer satisfaction.  Our merger integration is complete, and we are now seeing increased near-term customer high-grading opportunities that were not available to the Company pre-merger.   We have reentered the Eagle Ford and expect to add additional rigs to that market during the second half of this year. We have exciting initiatives underway involving rig conversions, upgrades, and technology that were all budgeted and require minimal incremental capital outlays. These initiatives are expected to generate significant free cash flow and value for ICD, our customers, and our stockholders.

In light of current stock valuations and the fact that the merger integration and associated costs are now behind us, I am pleased to announce that our Board of Directors has authorized a stock repurchase program of up to $10 million.  We plan to make future capital allocation decisions based on free cash flow generation and prioritizing between stock repurchases, our most economic investment opportunities within our existing fleet, and debt repayment."

Quarterly Operational Results

In the second quarter of 2019, the Company's fleet operated at 83.7% utilization and recorded 2,330 revenue days, compared to 99.3% utilization and 1,265 revenue days in the second quarter of 2018, and 94.8% utilization and 2,728 revenue days in the first quarter of 2019.

Operating revenues in the second quarter of 2019 totaled $52.9 million, compared to $25.8 million in the second quarter of 2018 and $60.4 million in the first quarter of 2019.  Second quarter 2019 revenues include $0.5 million of early termination revenue, and second quarter and first quarter 2019 revenues include $46 thousand and $1.0 million, respectively, of non-cash intangible revenue associated with the Sidewinder merger that closed on October 1, 2018.  Excluding this early termination revenue and non-cash revenue, revenue per day in the second quarter of 2019 was $20,868, compared to $19,411 in the second quarter of 2018 and $20,755 in the first quarter of 2019.  Sequential revenue per day increases were driven by higher dayrates from recontracting of older legacy contracts.

Operating costs in the second quarter of 2019 totaled $37.5 million, compared to $18.0 million in the second quarter of 2018 and $39.3 million in the first quarter of 2019.  Fully burdened operating costs were $14,155 per day in the second quarter of 2019, compared to $13,034 in the second quarter of 2018 and $13,302 in the first quarter of 2019.  Sequential increases in per day operating costs were primarily the result of decreased operating days and transitory personnel costs associated with the reduction in operating rigs.

Fully burdened rig operating margins in the second quarter of 2019 were $6,713 per day, compared to $6,377 per day in the second quarter of 2018 and $7,453 per day in the first quarter of 2019. Sequential reductions in margin per day were associated with the transitory increases in cost per day.

Selling, general and administrative expenses in the second quarter of 2019 were $3.0 million (including $0.4 million of non-cash stock-based compensation), compared to $3.5 million (including $0.7 million of non-cash stock-based compensation) in the second quarter of 2018 and $4.5 million (including $0.4 million of non-cash stock-based compensation) in the first quarter of 2019.  Sequential decreases in SG&A were primarily associated with continued merger synergy realization and reduced incentive compensation accruals in light of reduced operating activity.

A tax charge of $2.7 million ($0.03 per share) was recorded in the second quarter of 2019 as a result of applying the Company's revised estimated annual tax rate to the year-to-date results. The expected annual tax expense for 2019 consists of Louisiana and Texas tax. 

During the second quarter of 2019, the Company incurred other expenses of $0.3 million related to costs associated with the resolution of non-recurring pre-IPO litigation matters.

Drilling Operations Update

In light of market conditions, the Company elected during the second quarter of 2019 to decommission the remaining three operating SCR rigs in its fleet.  All of these rigs ceased operations by early July 2019.  These rigs will not re-enter the Company's marketed fleet until their conversions to AC pad-optimal status are complete.  As a result, the Company recorded a $3.1 million non-cash asset impairment during the quarter relating to equipment that will be replaced.  Long lead-time items for these conversions were previously ordered, and the first conversion is scheduled for completion at the end of the third quarter of 2019.  

The Company's backlog of drilling contracts with original terms of six months or longer is $84.2 million as of June 30, 2019, representing 10.8 rig years of activity.  Approximately 66% of this backlog is expected to be realized during the remainder of 2019.  The Company also has 4 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 second quarter of 2019, cash outlays for capital expenditures, net of asset sales and recoveries, was $9.1 million.  Budgeted capital expenditures for the remainder of the year include maintenance and ancillary equipment items, completion of budgeted 300 series upgrades, the first of which is scheduled for completion during the third quarter of 2019, and items associated with budgeted SCR conversions, the first of which is scheduled for completion at the end of the third quarter of 2019.

As of June 30, 2019, the Company had cash on hand of $10.3 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, August 1, 2019, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's second 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 10133851.  The replay will be available until August 8, 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






June 30, 2019


December 31, 2018

Assets




Cash and cash equivalents

$           10,278


$                    12,247

Accounts receivable, net

35,862


41,987

Inventories

2,443


2,693

Assets held for sale

13,796


19,711

Prepaid expenses and other current assets

3,321


8,930




Total current assets

65,700


85,568

Property, plant and equipment, net

489,074


496,197

Goodwill

1,627


1,627

Other long-term assets, net

2,212


1,470




Total assets

$         558,613


$                   584,862

Liabilities and Stockholders' Equity




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