ICD Independence Contract Drilling Inc

HOUSTON, Feb. 28, 2024 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three and twelve months ended December 31, 2023.

Fourth quarter 2023 Highlights

• Net loss of $26.0 million, or $1.84 per share
• Adjusted net loss, as defined below, of $8.6 million, or $0.61 per share
• Adjusted EBITDA, as defined below, of $9.9 million, including $2.1 million of costs associated with rig reactivations and transitions
• Adjusted net debt, as defined below, of $179.1 million
• 14.9 average rigs working during the quarter
• Fully burdened margin per day of $12,313

In the fourth quarter of 2023, the Company reported revenues of $45.8 million, net loss of $26.0 million, or $1.84 per share, adjusted net loss (defined below) of $8.6 million, or $0.61 per share, and adjusted EBITDA (defined below) of $9.9 million.  These results compare to revenues of $60.3 million, net income of $3.5 million, or $0.20 per diluted share, adjusted net loss of $0.1 million, or $0.01 per share, and adjusted EBITDA of $18.5 million in the fourth quarter of 2022, and revenues of $44.2 million, net loss of $7.6 million, or $0.54 per share, adjusted net loss of $5.2 million, or $0.37 per share, and adjusted EBITDA of $12.9 million in the third quarter of 2023.

For the year ended December 31, 2023, the Company reported revenues of $210.1 million, a net loss of $37.7 million, or $2.69 per share, an adjusted net loss of $12.5 million, or $0.89 per share, and adjusted EBITDA of $62.8 million.  This compares to revenues of $186.7 million, a net loss of $65.3 million, or $5.01 per share, an adjusted net loss of $25.7 million, or $1.98 per share, and adjusted EBITDA of $43.8 million for the year ended December 31, 2022.

Chief Executive Officer Anthony Gallegos commented, "In spite of the market headwinds in 2023 associated with a declining overall rig count in our target markets, fiscal 2023 represented a period of significant accomplishments for ICD.  In the Permian basin, while the overall rig count in this basin declined 15% in 2023, ICD grew its Permian rig count by more than 40% as we successfully transitioned a substantial portion of our Haynesville rigs into this market during the year.  Our backlog of term contracts also increased at year end as we recently signed several attractive contracts with Permian operators, including two multi-year contracts.

During fiscal 2023, we also accelerated our 200-to-300 Series conversion program, delivering four conversions during the year and completing a fifth in January of 2024.  Today, we only have one operating 200 Series rig that has not yet been converted, and we have budgeted for that conversion to occur later in 2024 depending upon customer requirements.  On the technology side, as we exited 2023, over half of our operating rigs were earning revenue from some sort of technology bundle, and based upon customer demand, we expect this percentage to increase during 2024.

Looking forward into 2024, we expect to see more opportunities for ICD to drive incremental demand for our drilling rigs, even in an overall flat rig count in our target markets.  Near term rig reactivations will likely be limited to rig replacement opportunities in the Permian basin, but we will also continue to evaluate opportunities in adjacent markets.  With the expectations for a flatter near-term environment, we have compressed our 2024 capital expenditure budget, net of disposals, to $18.2 million, and our cash SG&A budget to $15.3 million.  Strategically, although our Convertible Notes do not mature until March 2026, the refinancing window for these Convertible Notes will open later this year, and we want to be proactive in starting the process to begin reviewing potential refinancing and other strategic opportunities.  Thus, our Board has appointed a special committee of independent directors to begin this review and evaluation process."

Quarterly Operational Results

In the fourth quarter of 2023, operating days increased sequentially by 11% compared to the third quarter of 2023.  The Company's marketed fleet operated at 57% utilization and recorded 1,370 revenue days, compared to 1,704 revenue days in the fourth quarter of 2022, and 1,229 revenue days in the third quarter of 2023. During the third quarter of 2023, the Company also recognized early termination revenue of approximately $0.7 million.  There was no early termination revenue recognized during the fourth quarter of 2023 or the fourth quarter of 2022.

Operating revenues in the fourth quarter of 2023 totaled $45.8 million, compared to $60.3 million in the fourth quarter of 2022 and $44.2 million in the third quarter of 2023.  Revenue per day in the fourth quarter of 2023 was $31,508, compared to $32,778 in the fourth quarter of 2022 and $32,925 in the third quarter of 2023.  Sequential decreases in revenue per day were primarily due to expiration and repricing of higher dayrate term contracts originally entered into during fiscal 2022.  Revenue per day statistics exclude early termination revenue recognized during the quarter.

Operating costs in the fourth quarter of 2023 totaled $31.5 million, compared to $36.0 million in the fourth quarter of 2022 and $27.5 million in the third quarter of 2023.  Fully burdened operating costs were $19,195 per day in the fourth quarter of 2023, compared to $18,261 in the fourth quarter of 2022 and $18,920 in the third quarter of 2023.  Reported cost per day excludes reactivation costs of $2.1 million in the fourth quarter of 2023 and Haynesville-to-Permian rig transition costs of approximately $0.8 million in the third quarter of 2023.  There were no reactivation costs or rig transition costs in the fourth quarter of 2022.

Fully burdened rig operating margins in the fourth quarter of 2023 were $12,313 per day, compared to $14,517 per day in the fourth quarter of 2022 and $14,005 per day in the third quarter of 2023.  The Company currently expects per day operating margins in the first quarter of 2024 to fall approximately 12% to 14% sequentially driven primarily by lower average dayrates as rigs recontract in the current market environment. 

Selling, general and administrative expenses in the fourth quarter of 2023 were $5.7 million (including $1.2 million of non-cash compensation), compared to $7.7 million (including $1.9 million of non-cash compensation) in the fourth quarter of 2022 and $6.9 million (including $2.0 million of non-cash compensation) in the third quarter of 2023.  Cash selling, general and administrative expenses decreased sequentially due to a $1.1 million charge in the third quarter of 2023 associated with modification and extension of an existing drilling contract with a customer, which has been excluded in the Company's calculation of adjusted net loss per share and adjusted EBITDA.

During the fourth quarter of 2023, the Company recorded interest expense of $9.8 million, including $2.6 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 fourth quarter of 2023, the Company redeemed $5.0 million of Convertible Notes at par plus accrued interest.

During the fourth quarter of 2023, the Company reviewed its idle equipment and recorded an impairment charge of $14.7 million associated with equipment and capital spares that it determined would no longer be utilized by the Company's marketed fleet of 26 rigs.

Drilling Operations Update

The Company currently expects to operate approximately 15 net average rigs during the first quarter of 2024, with several rigs transitioning between customers during the quarter.  The Company's backlog of drilling contracts with original terms of six months or longer is $82.9 million.  Approximately 75% 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 fourth quarter of 2023, net of asset sales and recoveries, were $2.7 million.  The Company's capital expenditure budget for 2024, net of disposals, is approximately $18.2 million.

As of December 31, 2023, the Company had cash on hand of $5.6 million and a revolving line of credit with availability of $20.6 million, and net working capital of $3.0 million. The Company reported adjusted net debt as of December 31, 2023 of $179.1 million, consisting of the full amount of the outstanding Convertible Notes and outstanding borrowings under the Company's revolving line of credit.

The refinancing window under the Indenture governing the Company's PIK Toggle Convertible Notes due 2026 opens September 18, 2024.  In this regard, ICD's Board of Directors has decided to initiate a formal review process to begin evaluating alternatives with respect to refinancing these Convertible Notes and any other strategic opportunities that present themselves in connection with this evaluation and has formed a committee of independent directors for that purpose.  There can be no assurance that this process will result in the Company pursuing any particular transaction or strategic outcome.

Conference Call Details

A conference call for investors will be held today, February 28, 2024, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's fourth quarter and year end 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 4798268.  The replay will be available until February 28, 2024.

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 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 December 31, 2023 and 2022 and September 30, 2023 and the year ended December 31, 2023 and 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. 

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 (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.

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.