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.
