Independence Contract Drilling, Inc. Reports Financial Results for the First Quarter Ended March 31, 2023
First quarter 2023 Highlights
- Net income, as defined below, of
$12.0 thousand $0.00 - Adjusted net income, as defined below, of
$2.4 million $0.14 - Adjusted EBITDA, as defined below, of
$21.4 million 16% sequential improvement from the fourth quarter of 2022. - Adjusted net debt, as defined below, of
$193.9 million - 19.4 average rigs working during the quarter.
- Fully burdened margin per day of
$15,665 8% sequential improvement from the fourth quarter of 2022.
In the first quarter of 2023, the Company reported revenues of
Chief Executive Officer Anthony Gallegos commented, "First quarter 2023 proved to be another record quarter for ICD from an earnings, EBITDA, revenue per day and margin per day perspective. The first quarter was also pivotal for ICD from a strategic capital allocation perspective. Our 21st rig was completed during the quarter and commenced operations in early April in the Permian Basin. As this will be our last rig reactivation until market conditions improve, progress towards our free cash flow and net debt reduction targets has accelerated. In fact, we improved our net working capital position by
Looking forward, overall demand for pad optimal super spec rigs remains strong. Our plan to transition rigs from the natural gas-directed Haynesville market to customers in the oil-directed Permian market is underway. Our expectations are that these relocations and redeployments will occur over the second and third quarters of 2023. Today, we have two rigs that have already relocated and recommenced operations, and we have three additional rigs that have physically relocated and for which we are evaluating contracting opportunities for late-May to mid-June deployments. For our rigs remaining in the Haynesville, we successfully extended contracts expiring during the first and early second quarters for two rigs, with our other rigs operating under contract terms that extend beyond the second quarter. Depending upon interplay between the Haynesville and Permian markets later this year and overall market demand, any of these rigs could be candidates to relocate to the Permian Basin. Overall, while these rig relocations take place, we expect our average rigs earning revenue during the second quarter of 2023 will decline to approximately 17 to 18 rigs while our reported margin per day will remain consistent with first quarter levels, excluding transition costs."
Quarterly Operational Results
In the first quarter of 2023, operating days increased sequentially by
Operating revenues in the first quarter of 2023 totaled
Operating costs in the first quarter of 2023 totaled
Fully burdened rig operating margins in the first quarter of 2023 were
Selling, general and administrative expenses in the first quarter of 2023 were
During the first quarter of 2023, the Company recorded interest expense of
Drilling Operations Update
The Company exited the first quarter with 19 rigs operating, with our 21st rig commencing operations in early April 2023. Overall, the Company's operating rig count averaged 19.4 rigs during the quarter. The Company's backlog of drilling contracts with original terms of six months or longer is
Capital Expenditures and Liquidity Update
Cash outlays for capital expenditures in the first quarter of 2023, net of asset sales and recoveries, were
The Company had net working capital of
As of March 31, 2023, the Company had cash on hand of
Conference Call Details
A conference call for investors will be held today, May 9, 2023, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's first quarter 2023 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 4286553. The replay will be available until May 16, 2023.
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
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.
INDEPENDENCE CONTRACT DRILLING, INC. | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
March 31, 2023 | December 31, 2022 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 6,715 | $ | 5,326 | ||
Accounts receivable, net of allowance for credit losses of | 41,838 | 39,775 | ||||
Inventories | 1,543 | 1,508 | ||||
Assets held for sale | — | 325 | ||||
Prepaid expenses and other current assets | 3,871 | 4,736 | ||||
Total current assets | 53,967 | 51,670 | ||||
Property, plant and equipment, net | 378,703 | 376,084 | ||||
Other long-term assets, net | 2,389 | 1,960 | ||||
Total assets | $ | 435,059 | $ | 429,714 | ||
Liabilities and Stockholders' Equity | ||||||
Liabilities | ||||||
Current portion of long-term debt (1) | $ | 2,071 | $ | 2,485 | ||
Accounts payable | 26,954 | 31,946 | ||||
Accrued liabilities | 13,549 | 17,608 | ||||
Total current liabilities | 42,574 | 52,039 | ||||
Long-term debt (2) | 163,901 | 143,223 | ||||
Deferred income taxes, net | 12,253 | 12,266 | ||||
Other long-term liabilities | 652 | 7,474 | ||||
Total liabilities | 219,380 | 215,002 | ||||
Commitments and contingencies | ||||||
Stockholders' equity | ||||||
Common stock, | 141 | 136 | ||||
Additional paid-in capital | 618,556 | 617,606 | ||||
Accumulated deficit | (399,085) | (399,097) | ||||
Treasury stock, at cost, 85,092 shares and 85,092 shares, respectively | (3,933) | (3,933) | ||||
Total stockholders' equity | 215,679 | 214,712 | ||||
Total liabilities and stockholders' equity | $ | 435,059 | $ | 429,714 | ||
____________ | |
(1) | As of March 31, 2023 and December 31, 2022, current portion of long-term debt includes |
(2) | As of March 31, 2023 and December 31, 2022, long-term debt includes |
INDEPENDENCE CONTRACT DRILLING, INC. | |||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||
Three Months Ended | |||||||||
March 31, | December 31, | ||||||||
2023 | 2022 | 2022 | |||||||
Revenues | $ | 63,756 | $ | 34,991 | $ | 60,259 | |||
Costs and expenses | |||||||||
Operating costs | 37,460 | 27,165 | 35,950 | ||||||
Selling, general and administrative | 6,727 | 5,228 | 7,714 | ||||||
Depreciation and amortization | 10,854 | 9,751 | 10,724 | ||||||
Asset impairment | — | — | 350 | ||||||
(Gain) loss on disposition of assets, net | (14) | (516) | 469 | ||||||
Total costs and expenses | 55,027 | 41,628 | 55,207 | ||||||
Operating income (loss) | 8,729 | (6,637) | 5,052 | ||||||
Interest expense | (8,719) | (4,675) | (8,570) | ||||||
Loss on extinguishment of debt | — | (46,347) | — | ||||||
Change in fair value of embedded derivative liability | — | (1,857) | — | ||||||
Income (loss) before income taxes | 10 | (59,516) | (3,518) | ||||||
Income tax benefit | (2) | (720) | (6,979) | ||||||
Net income (loss) | $ | 12 | $ | (58,796) | $ | 3,461 | |||
Income (loss) per share: | |||||||||
Basic | $ | 0.00 | $ | (5.20) | $ | 0.25 | |||
Diluted | $ | 0.00 | $ | (5.20) | $ | 0.20 | |||
Weighted average number of common shares outstanding: | |||||||||
Basic | 13,865 | 11,303 | 13,617 | ||||||
Diluted | 13,881 | 11,303 | 51,880 | ||||||
INDEPENDENCE CONTRACT DRILLING, INC. | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
Three Months Ended March 31, | ||||||
2023 | 2022 | |||||
Cash flows from operating activities | ||||||
Net income (loss) | $ | 12 | $ | (58,796) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||
Depreciation and amortization | 10,854 | 9,751 | ||||
Stock-based compensation | 1,672 | 731 | ||||
Gain on disposition of assets, net | (14) | (516) | ||||
Non-cash interest expense | 11,619 | 3,193 | ||||
Non-cash loss on extinguishment of debt | — | 46,347 | ||||
Amortization of deferred financing costs | 27 | 250 | ||||
Amortization of Convertible Notes issuance costs and debt discount | 2,378 | 370 | ||||
Change in fair value of embedded derivative liability | — | 1,857 | ||||
Deferred income taxes | (13) | (727) | ||||
Credit loss expense | 31 | 60 | ||||
Changes in operating assets and liabilities | ||||||
Accounts receivable | (2,094) | (2,079) | ||||
Inventories | (35) | (130) | ||||
Prepaid expenses and other assets | 324 | 386 | ||||
Accounts payable and accrued liabilities | (11,203) | (2,358) | ||||
Net cash provided by (used in) operating activities | 13,558 | (1,661) | ||||
Cash flows from investing activities | ||||||
Purchases of property, plant and equipment | (18,835) | (6,279) | ||||
Proceeds from the sale of assets | 748 | 589 | ||||
Net cash used in investing activities | (18,087) | (5,690) | ||||
Cash flows from financing activities | ||||||
Proceeds from issuance of convertible debt | — | 157,500 | ||||
Repayments under Term Loan Facility | — | (139,076) | ||||
Borrowings under Revolving ABL Credit Facility | 11,321 | 1,500 | ||||
Repayments under Revolving ABL Credit Facility | (4,334) | (2) | ||||
Payment of merger consideration | — | (2,902) | ||||
Proceeds from issuance of common stock through at-the-market facility, net of issuance costs | (34) | 3,360 | ||||
Taxes paid for vesting of RSUs | (385) | (32) | ||||
Convertible debt issuance costs | — | (6,601) | ||||
Payments for finance lease obligations | (650) | (1,194) | ||||
Net cash provided by financing activities | 5,918 | 12,553 | ||||
Net increase in cash and cash equivalents | 1,389 | 5,202 | ||||
Cash and cash equivalents | ||||||
Beginning of period | 5,326 | 4,140 | ||||
End of period | $ | 6,715 | $ | 9,342 | ||
Three Months Ended March 31, | ||||||
2023 | 2022 | |||||
Supplemental disclosure of cash flow information | ||||||
Cash paid during the period for interest | $ | 419 | $ | 4,262 | ||
Supplemental disclosure of non-cash investing and financing activities | ||||||
Change in property, plant and equipment purchases in accounts payable | $ | (5,091) | $ | (701) | ||
Additions to property, plant and equipment through finance leases | $ | 51 | $ | 604 | ||
Extinguishment of finance lease obligations from sale of assets classified as finance leases | $ | — | $ | (7) | ||
Initial embedded derivative liability upon issuance of Convertible Notes | $ | — | $ | 75,733 | ||
Shares issued for structuring fee | $ | — | $ | 9,163 | ||
The following table provides various financial and operational data for the Company's operations for the three months ended March 31, 2023 and 2022 and December 31, 2022. 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.
OTHER FINANCIAL & OPERATING DATA | ||||||||||||
Three Months Ended | ||||||||||||
March 31, | December 31, | |||||||||||
2023 | 2022 | 2022 | ||||||||||
Number of marketed rigs end of period (1) | 26 | 24 | 26 | |||||||||
Rig operating days (2) | 1,744 | 1,463 | 1,704 | |||||||||
Average number of operating rigs (3) | 19.4 | 16.3 | 18.5 | |||||||||
Rig utilization (4) | 75 | % | 68 | % | 71 | % | ||||||
Average revenue per operating day (5) | $ | 34,870 | $ | 21,823 | $ | 32,778 | ||||||
Average cost per operating day (6) | $ | 19,205 | $ | 16,069 | $ | 18,261 | ||||||
Average rig margin per operating day | $ | 15,665 | $ | 5,754 | $ | 14,517 | ||||||
__________________ | |
(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 |
(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 |
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
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.
Calculation of Adjusted Net Debt: | |||
(in thousands) | March 31, 2023 | ||
Convertible Notes | $ | 181,785 | |
Revolving ABL Credit Facility | 18,798 | ||
Less: Cash | (6,715) | ||
Adjusted net debt | $ | 193,868 | |
Reconciliation of Adjusted Net Debt to Reported Long-Term Debt: | |||
(in thousands) | March 31, 2023 | ||
Adjusted net debt | $ | 193,868 | |
Add back: | |||
Cash | 6,715 | ||
Long-term portion of finance lease obligations | 1,293 | ||
Less: | |||
Debt discount, net of amortization | (31,107) | ||
Deferred issuance costs, net of amortization | (6,868) | ||
Total reported long-term debt | $ | 163,901 | |
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss): | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended | ||||||||||||
March 31, | December 31, | |||||||||||
2023 | 2022 | 2022 | ||||||||||
Amount | Amount | Amount | ||||||||||
(in thousands) | ||||||||||||
Net income (loss) | $ | 12 | $ | (58,796) | $ | 3,461 | ||||||
Add back: | ||||||||||||
Asset impairment (1) | — | — | 350 | |||||||||
(Gain) loss on disposition of assets, net (2) | (14) | (516) | 469 | |||||||||
Amortization of debt discount - Convertible Notes | 1,798 | — | 1,855 | |||||||||
Amortization of issuance costs - Convertible Notes | 580 | — | 551 | |||||||||
Loss on extinguishment of debt (3) | — | 46,347 | — | |||||||||
Change in fair value of embedded derivative liability (4) | — | 1,857 | — | |||||||||
Non-cash income tax benefit related to deductibility of Convertible Note interest (5) | — | — | (6,773) | |||||||||
Adjusted net income (loss) - Basic | $ | 2,376 | $ | (11,108) | $ | (87) | ||||||
Add back dilutive effect of: | ||||||||||||
After-tax interest expense of Convertible Notes | 4,622 | — | — | |||||||||
Adjusted net income (loss) - Diluted | $ | 6,998 | $ | (11,108) | $ | (87) | ||||||
Adjusted net income (loss) per share - Basic | $ | 0.17 | $ | (0.98) | $ | (0.01) | ||||||
Adjusted net income (loss) per share - Diluted | $ | 0.14 | $ | (0.98) | $ | (0.01) | ||||||
Weighted average number of common shares outstanding - Basic | 13,865 | 11,303 | 13,617 | |||||||||
Weighted average number of common shares outstanding - Diluted | 51,642 | 11,303 | 13,617 | |||||||||
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA: | |||||||||
(Unaudited) | |||||||||
Three Months Ended | |||||||||
March 31, | December 31, | ||||||||
2023 | 2022 | 2022 | |||||||
(in thousands) | |||||||||
Net income (loss) | $ | 12 | $ | (58,796) | $ | 3,461 | |||
Add back: | |||||||||
Income tax benefit | (2) | (720) | (6,979) | ||||||
Interest expense | 8,719 | 4,675 | 8,570 | ||||||
Depreciation and amortization | 10,854 | 9,751 | 10,724 | ||||||
Asset impairment (1) | — | — | 350 | ||||||
EBITDA | 19,583 | (45,090) | 16,126 | ||||||
(Gain) loss on disposition of assets, net (2) | (14) | (516) | 469 | ||||||
Stock-based and deferred compensation cost | 1,838 | 977 | 1,890 | ||||||
Loss on extinguishment of debt (3) | — | 46,347 | — | ||||||
Change in fair value of embedded derivative liability (4) | — | 1,857 | — | ||||||
Adjusted EBITDA | $ | 21,407 | $ | 3,575 | $ | 18,485 | |||
_______________ | |
(1) | During the fourth quarter of 2022, we impaired |
(2) | Gain or loss on disposition of assets, net represents recognition of the sale or disposition of miscellaneous drilling equipment in each respective period. |
(3) | Loss on extinguishment of debt in the first quarter of 2022 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. |
(4) | During the first quarter of 2022, we recorded the change in fair value of embedded derivative liability between the issuance date of the Convertible Notes, March 18, 2022, and March 31, 2022. |
(5) | During the fourth quarter of 2022, the Company recorded non-cash income tax benefit related to the determination of deductibility of the Convertible Note interest. |
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.
