Independence Contract Drilling, Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31, 2016

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except par value and share data)

BALANCE SHEETS

December 31, 2016

December 31, 2015

Assets

Cash and cash equivalents

$                        7,071

$                        5,344

Accounts receivable, net

11,468

18,240

Inventories

2,336

2,317

Assets held for sale

3,915

-

Prepaid expenses and other current assets

3,102

3,436

Total current assets

27,892

29,337

Property, plant and equipment, net

273,188

283,378

Other long-term assets, net

1,027

2,074

Total assets

$                    302,107

$                    314,789

Liabilities and Stockholders' Equity

Liabilities

Current portion of long-term debt (1)

$                           441

$                                -

Accounts payable

10,031

8,584

Accrued liabilities

7,821

10,206

Total current liabilities 

18,293

18,790

Long-term debt (2)

26,078

62,708

Deferred income taxes

396

193

Other long-term liabilities

88

361

Total liabilities

44,855

82,052

Commitments and contingencies

Stockholders' equity

Common stock, $0.01 par value, 100,000,000 shares authorized;

37,831,723 and 24,539,937 shares issued, respectively;

and 37,617,920 and 24,403,659 shares outstanding, respectively

376

244

Additional paid-in capital

323,918

276,948

Accumulated deficit

(65,347)

(43,169)

Treasury stock, at cost, 213,803 and 136,278 shares, respectively

(1,695)

(1,286)

Total stockholders' equity

257,252

232,737

Total liabilities and stockholders' equity

$                    302,107

$                    314,789

(1)

Current portion of long-term debt relates to the current portion of vehicle capital lease obligations.  In 2015, these vehicle leases were structured as operating leases.

(2)

As of December 31, 2016, long-term debt includes $326K of long-term vehicle capital lease obligations.  In 2015, these vehicle leases were structured as operating leases.  

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except per share amounts)

STATEMENTS OF OPERATIONS

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

2016

2015

2016

2016

2015

Revenues

$   17,988

$  23,686

$             14,464

$   70,062

$  88,418

Costs and expenses

Operating costs

12,066

14,398

11,246

43,277

52,087

Selling, general and administrative

4,276

3,145

3,242

16,144

14,483

Depreciation and amortization

6,157

6,058

6,010

23,808

21,151

Asset impairments, net of insurance recoveries

3,822

3,549

-

3,822

2,708

Loss on disposition of assets, net

1,354

338

676

1,942

2,940

Total cost and expenses

27,675

27,488

21,174

88,993

93,369

Operating loss

(9,687)

(3,802)

(6,710)

(18,931)

(4,951)

Interest expense

(553)

(1,363)

(456)

(3,045)

(3,254)

Loss before income taxes

(10,240)

(5,165)

(7,166)

(21,976)

(8,205)

Income tax expense (benefit)

135

61

32

202

(325)

Net loss

$  (10,375)

$  (5,226)

$             (7,198)

$  (22,178)

$  (7,880)

Loss per share:

Basic and Diluted

$     (0.28)

$   (0.22)

$              (0.19)

$     (0.67)

$   (0.33)

Weighted average number of common shares outstanding:

Basic and Diluted

37,461

23,996

37,387

33,118

23,904

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands)

STATEMENTS OF CASH FLOWS

Twelve Months Ended December 31,

2016

2015

Cash flows from operating activities

Net loss

$(22,178)

$  (7,880)

Adjustments to reconcile net loss to net cash provided by operating activities

    Depreciation and amortization

23,808

21,151

    Asset impairment, net of insurance recoveries

3,822

2,708

    Stock-based compensation

4,249

3,542

    Stock-based compensation - executive retirement

(67)

-

    Loss on disposition of assets, net

1,942

2,940

    Deferred income taxes

203

193

    Amortization of deferred financing costs

532

629

    Write-off of deferred financing costs

504

394

    Bad debt expense

-

132

    Changes in operating assets and liabilities

        Accounts receivable

6,772

755

        Inventories

55

(263)

        Prepaid expenses and other assets

212

(853)

        Accounts payable and accrued liabilities

(2,881)

4,339

        Income taxes payable

-

(408)

            Net cash provided by operating activities

16,973

27,379

Cash flows from investing activities

Purchases of property, plant and equipment

(21,106)

(75,532)

Proceeds from insurance claims

188

2,899

Proceeds from the sale of assets

860

414

            Net cash used in investing activities

(20,058)

(72,219)

Cash flows from financing activities

Borrowings under credit facility

49,048

140,610

Repayments under credit facility

(86,004)

(100,421)

Public offering proceeds, net of offering costs of $3,305

42,920

-

Purchase of treasury stock

(409)

(315)

Financing costs paid

(217)

(447)

Payments for capital lease obligations

(526)

-

            Net cash provided by financing activities

4,812

39,427

            Net increase (decrease) in cash and cash equivalents

1,727

(5,413)

Cash and cash equivalents

Beginning of year

5,344

10,757

End of year

$    7,071

$    5,344

Supplemental disclosure of cash flow information

Cash paid during the year for interest

$    2,198

$    3,173

Cash (received) paid during the year for income taxes

$     (133)

$        22

Supplemental disclosure of non-cash investing and financing activity

Stock-based compensation capitalized as property, plant and equipment

$        -

$      654

Change in property, plant and equipment purchases in accounts payable

$    1,670

$(14,750)

Additions to property, plant and equipment through capital leases

$    1,293

$        -

OTHER FINANCIAL & OPERATING DATA

Unaudited

Three Months Ended

Twelve Months Ended

December 31,
2016

December 31,
2015

September 30,
2016

December 31,
2016

December 31,
2015

Number of completed rigs end of period

14

14

14

14

14

Rig operating days (1)

935.8

961.7

774.0

3,385.1

3,731.8

Average number of operating rigs (2)

10.2

10.5

8.4

9.2

10.2

Rig utilization (3)

78.2%

87.1%

64.7%

73.6%

85.0%

Average revenue per operating day (4)

$          18,224

$          23,717

$     17,420

$          19,661

$          22,921

Average cost per operating day (5)

$          10,681

$          13,298

$       9,614

$          10,274

$          12,857

Average rig margin per operating day

$            7,543

$          10,419

$       7,806

$            9,387

$          10,064

(1)

Rig operating days represent the number of days our rigs are earning revenue under a contract during the period, including days that standby revenues are earned.  For the three months ended December 31, 2016 and 2015 and September 30, 2016 there were 92.0, 13.5 and 236.0 operating days in which the Company earned revenue on a standby basis, respectively, including 92.0, 6.5 and 222.0 standby-without-crew days, respectively.  For the twelve months ended December 31, 2016 and 2015 there were 882.1 and 471.3 operating days in which the Company earned revenue on a standby basis, respectively, including 839.0 and 125.5 standby-without-crew days, respectively. 

(2)

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.  

(3)

Rig utilization is calculated as rig operating days divided by the total number of days our drilling rigs are available during the applicable period.  During the third quarter of 2015, the Company elected to remove its two 100 series non-walking rigs from its marketed fleet pending completion of their planned rig conversions to 200 series, pad-optimal status.  Rig utilization during the first nine months of 2016 excludes one of these 100 series rigs.  The conversion of the other 100 series rig was completed during the second quarter of 2016 and the rig re-entered the marketed fleet in June 2016.  Rig utilization excludes this rig during the first five months of 2016.

(4)

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 $0.9 million, $0.9 million and $1.0 million for the three months ended December 31, 2016 and 2015 and September 30, 2016, respectively, and $3.5 million and $2.9 million for the twelve months ended December 31, 2016 and 2015, respectively.  Included in calculating average revenue per operating day for the twelve months ended December 31, 2016 were $1.8 million of early termination revenues associated with a contract termination at the end of the first quarter of 2016.

(5)

Average cost per operating day represents total direct 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 reimbursed by customers of $0.9 million, $0.9 million and $1.0 million for the three months ended December 31, 2016 and 2015 and September 30, 2016, respectively, and $3.5 million and $2.9 million for the twelve months ended December 31, 2016 and 2015, respectively, (ii) new crew training costs of $30 thousand, $0.3 million and $0.4 million for the three months ended December 31, 2016 and 2015 and September 30, 2016, respectively, and $0.5 million and $0.8 million for the twelve months ended December 31, 2016 and 2015, respectively, (iii) construction overhead costs expensed due to reduced rig construction activity of $0.2 million, $0.5 million and $0.3 million for the three months ended December 31, 2016 and 2015 and September 30, 2016, respectively, and $1.5 million and $0.4 million for the twelve months ended December 31, 2016 and 2015, and (iv) rig reactivation costs for the three months ended December 31, 2016 and September 30, 2016, of $0.9 million and $2.1 million, respectively (excluding $30 thousand and $0.4 million, respectively, of new crew training costs (included in (ii) above)), and (v) rig reactivation costs for the twelve months ended December 31, 2016 of $3.0 million (excluding $0.5 million of new crew training costs (included in (ii) above)).

Reconciliation of Net Loss to Adjusted Net Loss:

(Unaudited)

(Unaudited)

Three Months Ended

Twelve Months Ended

December 31, 2016

December 31, 2015

September 30, 2016

December 31, 2016

December 31, 2015

Amount

Per
Share

Amount

Per
Share

Amount

Per
Share

Amount

Per
Share

Amount

Per
Share

(in thousands)

Net loss

$(10,375)

$(0.28)

$(5,226)

$(0.22)

$(7,198)

$(0.19)

$(22,178)

$(0.67)

$(7,880)

$(0.33)

   Asset impairments, net of insurance recoveries (1)

3,822

0.10

3,549

0.15

-

-

3,822

0.12

2,708

0.11

   Loss on disposition of assets, net (2)

1,354

0.04

338

0.01

676

0.02

1,942

0.06

2,940

0.12

   Write-off of deferred financing costs (3)

-

-

394

0.02

-

-

504

0.02

394

0.02

   Executive retirement (4)

-

-

-

-

-

-

1,552

0.05

-

-

   Stock-based compensation - executive retirement (4)

-

-

-

-

-

-

(67)

(0.01)

-

-

Adjusted net loss

$  (5,199)

$(0.14)

$   (945)

$(0.04)

$(6,522)

$(0.17)

$(14,425)

$(0.43)

$(1,838)

$(0.08)

(Unaudited)

(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,
2016

December 31,
2015

September 30,
2016

December 31,
2016

December 31, 2015

(in thousands)

Net loss

$         (10,375)

$           (5,226)

$            (7,198)

$         (22,178)

$           (7,880)

Add back:

   Income tax expense (benefit)

135

61

32

202

(325)

   Interest expense

553

1,363

456

3,045

3,254

  Depreciation and amortization

6,157

6,058

6,010

23,808

21,151

EBITDA

(3,530)

2,256

(700)

4,877

16,200

   Stock-based compensation

913

1,071

976

4,249

3,543

   Stock-based compensation - executive retirement (4)

-

-

-

(67)

-

   Asset impairments, net of insurance recoveries (1)

3,822

3,549

-

3,822

2,708

   Loss on disposition of assets, net (2)

1,354

338

676

1,942

2,940

   Executive retirement (4)

-

-

-

1,552

-

Adjusted EBITDA

$            2,559

$            7,214

$                952

$          16,375

$          25,391

(1)

In the fourth quarter of 2016, we recorded a $3.8 million, or $0.10 per share, non-cash write-down of assets held for sale to reflect their current fair value less estimated selling costs.  In the fourth quarter of 2015, we recorded a $3.5 million, or $0.15 per share, impairment associated with our remaining non-walking 100 Series rig that will not be converted to 200 series status until market conditions improve.  For the full year 2016, we recorded a $3.8 million, or $0.12 per share, non-cash impairment of assets held for sale to reflect their current market value less estimated selling costs and for the full year 2015 we recorded a $2.7 million, or $0.11 per share, impairment associated with our remaining non-walking 100 Series rig mentioned above and the impairment of a damaged driller's cabin, net of insurance recoveries.

(2)

In the fourth quarter of 2016, we recorded a loss on disposition of assets of $1.4 million, or $0.04 per share, primarily due to non-cash disposal of equipment in connection with the upgrade to 7,500 psi mud systems.  In the fourth quarter of 2015, we recorded a loss on disposition of assets of $0.3 million, or $0.01 per share, associated with the disposition of assets largely attributable to a rig conversion that was completed during the first quarter of 2016, and in the third quarter of 2016 we recorded a loss on disposition of assets of $0.7 million, or $0.02 per share, primarily due to non-cash disposal of equipment in connection with the upgrade to 7,500 psi mud systems.  For the full year 2016, we recorded a loss on disposition of assets of $1.9 million, or $0.06 per share, primarily due to non-cash disposal of equipment in connection with the upgrade to 7,500 psi mud systems and for the full year 2015 we recorded $2.9 million, or $0.12 per share, associated with the disposition of assets largely attributable to the Company's rig conversion that was completed during the first quarter of 2016.

(3)

For the full year 2016, we recorded $0.5 million, or $0.02 per share, related to the amortization of deferred financing costs in connection with a reduction of commitments under the Company's revolving credit facility in April 2016.  In the fourth quarter of 2015 and for the full year of 2015, we recorded $0.4 million, or $0.02 per share, related to the amortization of deferred financing costs in connection with a reduction of commitments under the Company's revolving credit facility in October 2015. 

(4)

For the full year 2016, we recorded $1.5 million, or $0.04 per share, of retirement benefits associated with the departure of an executive officer.