Independence Contract Drilling, Inc. Reports Financial Results For The First Quarter Ended March 31, 2016

HOUSTON, April 28, 2016 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company") (NYSE: ICD) today reported financial results for the three months ended March 31, 2016. 

First Quarter 2016 Highlights

• Net loss of $0.4 million, or $0.02 per share.
• Adjusted EBITDA of $7.4 million.
• 86% utilization of marketed rigs.
• 943 revenue days.
• Margin per operating day of $10,982.
• Extension of contracts for two rigs operating in the spot-market through the later part of the second quarter of 2016.
• Extension of a term contract expiring in December 2016 through the first quarter of 2017 without a reduction in operating dayrate.
• Substantial completion of the conversion of one of its non-walking rigs to 200 Series pad-optimal status.
• Early termination of a drilling contract with an original term expiring in June 2016, resulting in the recognition of $0.2 million of early termination revenues during the first quarter.

During the first quarter of 2016, the Company reported operating revenues of $22.5 million, a net loss of $0.4 million ($0.02 per share) and Adjusted EBITDA of $7.4 million.  This compares to operating revenues of $23.7 million, Adjusted EBITDA of $7.2 million and adjusted net loss of $0.9 million ($0.04  per share) for the fourth quarter of 2015, and operating revenues of $22.3 million, Adjusted EBITDA of $6.3 million and adjusted net income of $0.9 million ($0.03 per share) for the first quarter of 2015. 

Chief Executive Officer Byron Dunn commented, "Although North American rig counts and market conditions have continued to decline, I am very pleased with our continued efforts to streamline costs during the first quarter of 2016 as well as our successful efforts to strengthen our balance sheet.  This ideally positions ICD to restart its growth trajectory in what we believe will be a very strong market demand for pad optimal drilling equipment when market conditions begin to improve."

Quarterly Operational Results

The Company's marketed fleet operated at 86.4% utilization and recorded 943 revenue days during the first quarter of 2016 compared to 87.1% utilization and 962 revenue days during the fourth quarter of 2015 and 92.1% utilization and 951 revenue days during the first quarter of 2015.  Rig operating margins during the first quarter of 2016 were $10,982 per day, compared to $10,419 per day during the fourth quarter of 2015 and $9,747 per day during the first quarter of 2015.  Rig operating margins during the first quarter benefitted from the recognition of early termination revenues and the deferral of certain costs to the second quarter of 2016.

Operating costs during the first quarter of 2016 totaled $12.6 million, compared to $14.4 million during the fourth quarter of 2015 and $13.1 million during the first quarter of 2015.  Included in operating costs during the period were approximately $0.5 million ($0.02 per share, net of tax) of Galayda Yard costs that were expensed due to the fact rig construction activities were intermittent during the quarter.  These costs were capitalized in prior periods when rig construction activities were continuous.  On an operating cost per day basis, operating expenses were $11,589 per day during the first quarter of 2016, compared to $13,298 during the fourth quarter of 2015 and $13,035 during the first quarter of 2015.  Operating cost per day statistics during the first quarter of 2016 benefitted from 162 revenue days that were earned on a standby-without-crew basis.

Selling, general and administrative expenses during the first quarter of 2016 were $3.6 million (including $1.2 million of non-cash stock-based compensation), compared to $3.1 million (including $1.1 million of non-cash stock based compensation) during the fourth quarter of 2015 and $3.8 million (including $0.9 million of non-cash stock based compensation) during the first quarter of 2015. The overall decrease in selling, general and administrative expenses compared to the first quarter of 2015 related to efficiency initiatives instituted during 2015 as well as a reduction in cash-based incentive compensation expense.

Depreciation expense during the first quarter of 2016 was $5.8 million, compared to $6.1 million during the fourth quarter of 2015 and $4.3 million during the first quarter of 2015. 

Drilling Operations Update

During the first quarter, the Company operated two rigs on a spot-market basis.   The short-term contracts for both of these rigs were extended during the quarter to mid-June 2016.  In connection with a contracted rig being placed on standby status, the Company also negotiated the extension of the term contract expiring in December 2016 through the first quarter of 2017 without a reduction in operating dayrate. 

At the end of the first quarter of 2016, one of the Company's customers elected to early terminate a contract with an original term expiring at the end of the second quarter of 2016.  This rig was on standby-without-crew status at the time of early termination.  The Company recognized $0.2 million of early termination revenue associated with this contract during the first quarter of 2016 and expects to recognize $1.6 million of early termination revenue during the second quarter of 2016.

Since the first quarter, the Company has had one rig cease drilling operations following the expiration of a term contract and this rig has not yet been recontracted.  

During the first quarter, ICD substantially completed the conversion of one of its two non-walking rigs to 200 Series, pad-optimal status, fully equipped with a new substructure and omni-directional walking system as well as 7500 psi mud system.  This rig entered the Company's marketed fleet at the beginning of the second quarter of 2016.

Capital Expenditures and Liquidity Update

Aggregate cash outlays for capital expenditures during the first quarter were $5.7 million, comprised of $3.1 million associated with 2016 equipment purchases and $2.6 million associated with payments for capital equipment purchases made in 2015.  The Company's capital expenditure budget for 2016 is $10.0 million.  

At March 31, 2016, the Company had drawn $62.7 million on its revolving credit facility and had net debt, excluding capitalized vehicle leases, of $55.3 million.  On April 14, 2016, the Company amended its revolving credit facility to reduce aggregate commitments to $85.0 million and amend certain covenants and borrowing base calculations.  The borrowing base under the credit facility, adjusted for these amendments, was $86.4 million at March 31, 2016. 

On April 26, 2016, the Company completed the public offering of approximately 13.2 million shares of common stock, which resulted in estimated net proceeds, after deduction of applicable underwriting discounts and estimated offering expenses, of approximately $43.0 million.  On a pro forma basis for the completion of this offering, the Company would have had net debt, excluding capitalized vehicle leases, of $12.3 million at March 31, 2016.

Summary of Non-Operating Charges

Non-operating charges incurred during the first quarter of 2015 included the following items:

• $0.4 million ($0.01 per share, net of tax) loss on disposition of assets associated with decommissioning and trade-in of discontinued crew quarters; offset by
• $0.8 million ($0.04 per share, net of tax) of income associated with insurance recoveries, net of non-cash impairment expense associated with damage to certain rig equipment, as well as impairment of obsolete equipment.

Non-operating charges incurred during the fourth quarter of 2015 included the following items:

• $3.6 million ($0.15 per share, net of tax) associated with the impairment of the Company's remaining non-walking 100 Series rig that will not be converted to 200 Series status until market conditions improve;
• $0.4 million ($0.02 per share, net of tax) of non-cash amortization of deferred financing costs associated with the reduction in commitments under the Company's revolving credit facility from $155 million to $125 million during the quarter; and
• $0.3 million ($0.01 per share, net of tax) associated with the disposition of assets largely attributable to the Company's ongoing rig conversion that was substantially completed during the first quarter of 2016. 

Conference Call Details

A conference call for investors will be held today, April 28, 2016, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss the Company's first quarter 2016 results.  Hosting the call will be Byron A. Dunn, Chief Executive Officer, Edward S. Jacob, III, President & Chief Operating Officer, and Philip A. Choyce, Senior Vice President and Chief Financial Officer.

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 10084341.  The replay will be available until May 6, 2016.

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 during the three months ending March 31, 2016 and 2015 and December 31, 2015.  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 Measure

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define "EBITDA" as earnings (or loss) before interest, taxes, depreciation, and amortization, and we define "Adjusted EBITDA" as EBITDA before stock-based compensation, gain/loss on warrant derivative liability and non-cash asset impairments, gains or losses on disposition of assets and other non-operating items.  Adjusted EBITDA is not a measure of net income as determined by U.S. generally accepted accounting principles ("GAAP").

Management believes Adjusted EBITDA is useful because it allows our stockholders to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in calculating 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. Adjusted EBITDA should not 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 EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as stock-based compensation and the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our presentation of 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 EBITDA may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated.

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.