Independence Contract Drilling, Inc. Reports Unaudited Financial …

HOUSTON, Nov. 1, 2022 /PRNewswire/ -- Independence Contract Drilling, Inc. (the "Company" or "ICD") (NYSE: ICD) today reported financial results for the three months ended September30,2022.

Third quarter 2022 Highlights

In the third quarter of 2022, the Company reported revenues of $49.1 million, a net loss of $7.2 million, or $0.53 per share, adjusted net loss (defined below) of $4.8 million, or $0.35 per share, and adjusted EBITDA (defined below) of $12.5 million. These results compare to revenues of $24.0 million, a net loss of $4.3 million, or $0.59 per share, adjusted net loss of $13.7 million, or $1.87 per share, and adjusted EBITDA loss of $0.7 million in the third quarter of 2021, and revenues of $42.3 million, a net loss of $2.8 million, or $0.21 per share, an adjusted net loss of $9.8 million, or $0.72 per share, and adjusted EBITDA of $9.2 million in the second quarter of 2022.

Chief Executive Officer Anthony Gallegos commented, "ICD achieved significant progress towards its rig reactivation, rig margin and adjusted EBITDA goals during the third quarter of 2022. The Company achieved quarterly revenue per day and margin per day records during the quarter, buoyed by continued penetration of our 300 series rigs and our marketing strategy of patiently waiting to seek longer-term contracts. All of this drove sequential improvements in quarterly adjusted EBITDA of 35%.

Against a backdrop of greater general macroeconomic uncertainty, market conditions for the Company's services have continued to tighten as overall supply and demand fundamentals driven by historically low underinvestment over the past decade have outweighed general economic headwinds. During the quarter, we began to strategically sign longer-term contracts and have increased our quarter-end backlog by 87% compared to the second quarter. More importantly, our backlog extending into 2023 is priced at levels that we expect will generate revenue per day over 20% higher than our reported third quarter revenue per day levels and margin per day over 55% higher than third quarter levels. In addition, we still have the majority of our fleet on shorter-term contracts that will reprice during the fourth quarter of 2022 or the first quarter of 2023.

With this backdrop, we expect to see further sequential improvements in revenues and margin per day during the remainder of this year and into 2023. Our current expectations are that fourth quarter margin per day will exceed reported third quarter levels between 10% and 15%, and first quarter 2023 margin per day will exceed reported third quarter levels between 28% and 32%. Given pricing already imbedded in our 2023 backlog, we are excited about further opportunities for margin expansion beyond these periods.

Operationally, our rig reactivations remain on schedule and our 200-to-300-series conversion program has commenced with our first conversion in process. Our 19th rig mobilized for operations at the end of October and our 20th rig is scheduled for mobilization at the end of the fourth quarter. Both of these reactivations are pursuant to one-year contracts at leading edge dayrates where expected margins will earn back reactivation costs well within the contract terms. Looking forward into 2023, we are marketing our 21st rig for mobilization early-to-mid first quarter of 2023 and our 22nd rig for the end of the first quarter or early second quarter of 2023."

Quarterly Operational Results

In the third quarter of 2022, operating days increased sequentially by 4% compared to the second quarter of 2022. The Company's marketed fleet operated at 70% utilization and recorded 1,601 revenue days, compared to 1,268 revenue days in the third quarter of 2021, and 1,540 revenue days in the second quarter of 2022.

Operating revenues in the third quarter of 2022 totaled $49.1 million, compared to $24.0 million in the third quarter of 2021 and $42.3 million in the second quarter of 2022. Revenue per day in the third quarter of 2022 was $28,646, compared to $17,141 in the third quarter of 2021 and $24,875 in the second quarter of 2022. The sequential increase quarter over quarter in revenue per day was driven by higher dayrates on contract renewals and reactivated rigs.

Operating costs in the third quarter of 2022 totaled $31.4 million, compared to $20.1 million in the third quarter of 2021 and $28.9 million in second quarter of 2022. Fully burdened operating costs were $17,305 per day in the third quarter of 2022, compared to $13,685 in the third quarter of 2021 and $15,929 in the second quarter of 2022. Sequential increases in operating costs per day were driven primarily by higher labor costs associated with increases in field-level wages implemented during the latter part of the second quarter of 2022, partially offset by improved cost absorption.

Fully burdened rig operating margins in the third quarter of 2022 were $11,341 per day, compared to $3,456 per day in the third quarter of 2021 and $8,946 per day in the second quarter of 2022. The Company currently expects per day operating margins in the fourth quarter of 2022 to increase sequentially between 10% and 15% compared to the third quarter of 2022, driven primarily by favorable dayrate momentum as well as the reactivation of the Company's 19th and 20th rigs.

Selling, general and administrative expenses in the third quarter of 2022 were $7.0 million (including $1.7 million of non-cash compensation), compared to $4.1 million (including $0.8 million of non-cash compensation) in the third quarter of 2021 and $4.9 million (including $0.7 million of non-cash compensation) in the second quarter of 2022. Cash selling, general and administrative expenses increased sequentially during the quarter due to $0.3 million relating to a dispute settlement and higher incentive compensation accruals. Stock-based incentive compensation expense increased sequentially primarily due to full quarter amortization of out-of-the-money stock appreciation rights granted late in the second quarter of 2022.

During the quarter, the Company recorded interest expense of $8.1 million, including $2.0 million, or $0.14 per share, relating to non-cash amortization of debt discount and debt issuance costs. The Company has excluded this non-cash amortization when presenting adjusted net income/loss per share.

The Company recorded a tax benefit of $0.7 million, or $0.05 per share, during the third quarter of 2022, of which $0.1 million relates to cash taxes, attributable to state and local franchise taxes.

Drilling Operations Update

The Company exited the third quarter with 18 rigs operating. Overall, the Company's operating rig count averaged 17.4 rigs during the quarter. The Company's backlog of drilling contracts with original terms of six months or longer is $101.6 million. This backlog excludes rigs operating on short term pad-to-pad drilling contracts. Approximately 31% of this backlog is expected to be realized in 2022. The Company's 19th rig mobilized for drilling operations on a one-year contract in the Haynesville at the end of October 2022 and the Company's 20th rig is contracted and scheduled for reactivation late in the fourth quarter of 2022.

Capital Expenditures and Liquidity Update

Cash outlays for capital expenditures in the third quarter of 2022, net of asset sales and recoveries, were $9.4 million. This included $5.6 million associated with prior period deliveries.

As of September30,2022, the Company had cash on hand of $7.6 million and a revolving line of credit with availability of $19.9 million. The Company elected to pay in-kind interest due under its convertible notes as of September 30, 2022. Following this payment, $170.2 million principal amount was outstanding under the convertible notes.

Conference Call Details

A conference call for investors will be held today, November 1, 2022, at 11:00 a.m. Central Time (12:00 p.m. Eastern Time) to discuss the Company's third quarter 2022 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 2879534. The replay will be available until November 8, 2022.

Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company's website at http://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 http://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.

INDEPENDENCE CONTRACT DRILLING, INC.

Unaudited

(in thousands, except par value and share data)

CONSOLIDATED BALANCE SHEETS

September30,2022

December31,2021

Assets

Cash and cash equivalents

$

7,566

$

4,140

Accounts receivable

33,967

22,211

Inventories

1,433

1,171

Prepaid expenses and other current assets

2,940

4,787

Total current assets

45,906

32,309

Property, plant and equipment, net

365,160

362,346

Other long-term assets, net

2,159

2,449

Total assets

$

413,225

$

397,104

Liabilities and Stockholders' Equity

Liabilities

Current portion of long-term debt (1)

$

3,302

$

4,464

Accounts payable

28,859

15,304

Accrued liabilities

13,162

11,245

Accrued interest

122

4,372

Current portion of merger consideration payable to an affiliate

2,902

Total current liabilities

45,445

38,287

Long-term debt (2)

136,756

141,740

Deferred income taxes, net

19,391

19,037

Other long-term liabilities

1,661

2,811

Total liabilities

203,253

201,875

Commitments and contingencies

Stockholders' equity

Common stock, $0.01 par value, 250,000,000 shares authorized; 13,698,851 and 10,287,931shares issued, respectively, and 13,617,005 and 10,206,085 shares outstanding, respectively

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