Independence Contract Drilling, Inc. Reports Financial Results for the Second Quarter Ended June 30, 2024

HOUSTON, Aug. 7, 2024 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three months ended June 30, 2024.

Second quarter 2024 Highlights

• Net loss of $16.7 million, or $1.15 per share
• Adjusted net loss, as defined below, of $10.6 million, or $0.73 per share
• Adjusted EBITDA, as defined below, of $8.5 million, representing a 28% sequential decrease
• Adjusted net debt, as defined below, of $196.7 million, representing a 3% sequential increase
• 14.5 average rigs working during the quarter, representing a 4% sequential decrease
• Fully burdened margin per day of $9,675, representing a 18% sequential decrease

In the second quarter of 2024, the Company reported revenues of $43.3 million, net loss of $16.7 million, or $1.15 per share, adjusted net loss (defined below) of $10.6 million, or $0.73 per share, and adjusted EBITDA (defined below) of $8.5 million. These results compare to revenues of $56.4 million, net loss of $4.2 million, or $0.30 per diluted share, adjusted net loss of $1.0 million, or $0.07 per diluted share, and adjusted EBITDA of $18.7 million in the second quarter of 2023, and revenues of $46.6 million, net loss of $9.0 million, or $0.62 per share, adjusted net loss of $7.3 million, or $0.50 per share, and adjusted EBITDA of $11.8 million in the first quarter of 2024.

Chief Executive Officer Anthony Gallegos commented, "Our financial results for the second quarter came in line with our expectations, as the overall U.S. land contract drilling market continued to be impacted by elevated rig churn from headwinds driven by customer consolidation, accelerating drilling efficiencies and increased fiscal discipline by E&P customers. These headwinds have continued into the third quarter of 2024 and resulted in the delay or cancellation of expected third quarter rig reactivation opportunities and additional rig releases where our rigs will be required to be placed with new customers. We are actively marketing all of these rigs into identified contract opportunities in our Permian market as well as our Haynesville/ East Texas market where we were recently successful in adding a third operating rig. However, we expect near term white space from rig churn to result in a decline in our third quarter average operating rig count to approximately 13 rigs. Assuming our re-contracting efforts are successful, we expect our operating rig count will return to second quarter levels by the end of the fourth quarter of 2024."

Quarterly Operational Results

In the second quarter of 2024, operating days decreased 4% compared to the first quarter of 2024. The Company's marketed fleet operated at 56% utilization and recorded 1,315 revenue days, compared to 58% utilization and 1,369 revenue days in the second quarter of 2023, and 58% utilization and 1,376 revenue days in the first quarter of 2024.

Operating revenues in the second quarter of 2024 totaled $43.3 million, compared to $56.4 million in the second quarter of 2023 and $46.6 million in the first quarter of 2024. Revenue per day in the second quarter of 2024 was $28,899, compared to $34,467 in the second quarter of 2023 and $30,313 in the first quarter of 2024. Sequential decreases in revenue per day were primarily due to lower dayrates on contractual renewals. Looking forward, the Company expects revenue per day during the third quarter of 2024 to decline approximately 2% compared to second quarter 2024 revenue per day levels.

Operating costs in the second quarter of 2024 totaled $31.5 million, compared to $33.8 million in the second quarter of 2023 and $30.8 million in the first quarter of 2024. Operating costs during the second quarter included approximately $0.3 million associated with the closure of the Company's Houston rig yard, which the Company plans to exit during the fourth quarter of 2024. The Company expects to incur approximately $1.0 million during the third quarter of 2024 relating to this location and its full closure. Fully burdened operating costs, which exclude costs associated with the Company's Houston rig yard, were $19,224 per day in the second quarter of 2024, compared to $19,005 in the second quarter of 2023 and $18,484 in the first quarter of 2024. Sequential increases in cost per day were primarily driven by fewer operating days absorbing fixed costs during the quarter as well as elevated rig churn.

Fully burdened rig operating margins in the second quarter of 2024 were $9,675 per day, compared to $15,462 per day in the second quarter of 2023 and $11,829 per day in the first quarter of 2024. Sequential declines in rig operating margins were driven by lower dayrates on contractual renewals as well as slightly higher operating costs per day during the second quarter of 2024. Looking forward, the Company currently expects per day operating margins in the third quarter of 2024 to fall approximately 1% sequentially driven primarily by lower average dayrates as rigs recontract in the current market environment.

Selling, general and administrative expenses in the second quarter of 2024 were $3.7 million (including $0.4 million of non-cash compensation), compared to $5.2 million (including $1.3 million of non-cash compensation) in the second quarter of 2023 and $4.3 million (including $0.3 million of non-cash compensation) in the first quarter of 2024. Included in selling, general and administrative costs were approximately $0.6 million of costs relating to special committee activities directed toward evaluating strategic alternatives, including refinancing of the Company's outstanding Convertible Notes. Overall sequential decreases in cash selling, general and administrative expenses primarily related to reduced incentive compensation accruals partially offset by the costs associated with the strategic alternatives review. Sequential decreases in non-cash compensation expenses related to variable accounting on stock-based compensation that is tied to changes in the market price for the Company's common stock at period end. Looking forward, the Company expects overall selling, general and administrative costs during the third quarter of 2024 to be relatively flat compared to second quarter 2024 levels.

During the second quarter of 2024, the Company recorded interest expense of $10.2 million, including $2.9 million relating to non-cash amortization of Convertible Note debt discount and debt issuance costs. The Company has excluded this non-cash amortization when presenting adjusted net loss. During the first and second quarters of 2024, the Company redeemed $3.5 million and $3.5 million, respectively, of Convertible Notes at par plus accrued interest and paid in-kind $13.3 million of interest on the Convertible Notes during the first quarter of 2024. As of June 30, 2024, accrued but unpaid interest on the Convertible Notes was $7.0 million.

Drilling Operations Update

The Company currently expects to operate approximately 13.0 net average rigs during the third quarter of 2024. The Company's backlog of drilling contracts with original terms of six months or longer is $48.9 million. Approximately 57% of this backlog expires in 2024. This backlog excludes rigs operating on short-term pad-to-pad drilling contracts with original terms of less than six months.

Capital Expenditures and Liquidity Update

Cash outlays for capital expenditures in the second quarter of 2024, net of asset sales and recoveries, were $5.5 million, and include payments of $3.9 million relating to prior period deliveries. On June 30, 2024, there was approximately $4.1 million of accrued liabilities relating to capital expenditures for which the Company expects to make payment during the third quarter of 2024.

On June 30, 2024, the Company repurchased $3.5 million of Convertible Notes at par, plus accrued interest, pursuant to the required mandatory purchase offers under the indenture governing the Convertible Notes. The Company is required to make similar offers to repurchase $3.5 million of Convertible Notes on each of September 30, 2024, December 31, 2024, and March 31, 2025.

As of June 30, 2024, the Company had cash on hand of $5.5 million and a revolving line of credit with availability of $15.5 million. Net working capital as of June 30, 2024 was $10.0 million, representing a $0.7 million increase compared to March 31, 2024. The Company's revolving line of credit has a maturity date of September 30, 2025. Net working capital as of June 30, 2024 excludes outstanding borrowings under the revolving line of credit of $9.8 million, as well as future mandatory offer obligations to purchase Convertible Notes that would be funded through the revolving line of credit. Beginning September 30, 2024, until such time as the Company refinances the revolving line of credit or extends its maturity, outstanding borrowings under the revolving credit facility and related mandatory offer obligations will be classified as current liabilities and will thus reduce reported net working capital. There can be no assurance that the Company will be successful in refinancing the revolving line of credit or extending its maturity date.

The Company reported adjusted net debt as of June 30, 2024 of $196.7 million. This represents an increase of approximately $6.4 million, or 3%, compared to adjusted net debt as of March 31, 2024. Looking forward, to maintain liquidity, the Company has elected to pay in-kind interest on the Convertible Notes that will be due and payable on September 30, 2024, and expects to elect to pay interest in-kind thereafter through maturity of the Convertible Notes.

In February 2024, our Board of Directors established a committee of independent directors to evaluate strategic alternatives, including a refinancing and recapitalization of our outstanding Convertible Notes, which mature on March 18, 2026. There can be no assurance that the Company will be successful in refinancing or recapitalizing the Convertible Notes.

Conference Call

The Company will not host a quarterly earnings conference call relating to its financial results for the three months ended June 30, 2024, and does not intend to host future earnings calls until such time as the strategic review by the Board of Directors has completed its review of strategic alternatives.

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, including the Company's Quarterly Reports on Form 10-Q. 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 June 30, 2024 and 2023 and March 31, 2024 and the six months ended June 30, 2024 and 2023. 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.

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) plus accrued interest on its Convertible Notes 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 (loss) 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.

Calculation of Adjusted Net Debt:

Reconciliation of Adjusted Net Debt to Reported Long-Term Debt:

Reconciliation of Net Loss to Adjusted Net Loss:

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:

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.