Independence Contract Drilling, Inc. (ICD)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 results deteriorated sequentially on lower dayrates and elevated rig churn: revenue $43.3M, adjusted EBITDA $8.5M, and EPS $(1.15); rig margin/day fell to $9,675 as renewals reset to current market rates .
• Management flagged ongoing headwinds into Q3: average operating rigs expected to dip to ~13 and revenue/day to decline ~2% with margin/day down ~1% sequentially; targeting a return to Q2 rig levels by end of Q4 via re‑contracting .
• Liquidity remains a focal risk: adjusted net debt rose to $196.7M; cash $5.5M; ABL availability $15.5M; mandatory $3.5M Convertible Note repurchase offers due 9/30/24, 12/31/24, and 3/31/25; ABL matures 9/30/25 and may shift borrowings to current liabilities beginning 9/30/24 absent a refinancing .
• No earnings call due to an ongoing strategic alternatives review; Street consensus from S&P Global was unavailable, limiting beat/miss analysis; near‑term stock catalysts include rig count trajectory, dayrate resets, and capital structure actions .

What Went Well and What Went Wrong

• What Went Well

  • Cost control: SG&A fell to $3.7M (incl. $0.4M non‑cash), with management indicating Q3 SG&A should be relatively flat; lower cash SG&A benefited from reduced incentive accruals .
  • Operational repositioning: Added a third operating rig in the Haynesville/East Texas market and actively marketing rigs into identified Permian and Haynesville opportunities .
  • Working capital stability: Net working capital improved to $10.0M (+$0.7M q/q) despite softer activity; cash capex was $5.5M (incl. $3.9M for prior deliveries) .

• What Went Wrong

  • Activity/margins under pressure: Average rigs 14.5 (−4% q/q) and rig margin/day dropped to $9,675 (−18% q/q) on lower renewal dayrates and higher cost/day .
  • Backlog compression: Backlog declined to $48.9M with ~57% expiring in 2024, heightening recontracting risk in a churn‑heavy market .
  • Capital structure strain: Interest expense rose to $10.2M (incl. $2.9M non‑cash), adjusted net debt increased to $196.7M, and ICD will make mandatory note repurchase offers while electing PIK interest to preserve liquidity .

Financial Results

Income statement summary (oldest → newest)

Key operating KPIs (oldest → newest)

Balance sheet and liquidity (oldest → newest)

Actual vs consensus (Q2 2024)

Note: S&P Global consensus data was unavailable for ICD at the time of analysis (missing CIQ mapping), so Street comparisons could not be performed.

Non‑GAAP/one‑time items impacting results

• Asset impairment of $4.3M in Q2 (equipment held for sale tied to Houston yard exit) .
• Interest expense includes $2.9M non‑cash amortization of Convertible Notes discount/issuance costs (excluded from adjusted net loss) .

Guidance Changes

Earnings Call Themes & Trends

Note: ICD did not host a Q2 earnings call due to strategic alternatives review .

Management Commentary

• “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.”
• “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.”
• Q1 setup emphasized cost actions and fleet upgrades: “Our financial results for the first quarter came in ahead of expectations driven by strong cost control... Today, all but one of our current operating rigs are 300 series rigs... we have scheduled our remaining 200 series rig for conversion later this year.”

Q&A Highlights

• No Q2 earnings call or Q&A; ICD suspended calls during its strategic alternatives review .
• Key clarifications from the release: Q3 average rigs ~13; Q3 revenue/day down ~2% and margin/day down ~1% sequentially; SG&A expected roughly flat; backlog $48.9M with 57% expiring in 2024; mandatory note repurchase offers scheduled; ABL maturity 9/30/25 and potential current classification of borrowings beginning 9/30/24 .

Estimates Context

• S&P Global consensus (revenue, EPS, EBITDA) was unavailable for ICD at this time due to missing CIQ mapping; therefore, we cannot formally assess beat/miss vs Street. Management’s updated outlook (lower Q3 rigs and modest sequential declines in revenue/day and margin/day) likely implies near‑term estimate pressure absent faster re‑contracting .

Key Takeaways for Investors

• Near‑term air pocket: Rig churn and dayrate resets drive another sequential step down in Q3 (avg rigs ~13; revenue/day −~2%; margin/day −~1%), with a potential rebound in rigs by year‑end contingent on re‑contracting success .
• Margin compression persists but may moderate: Margin/day declines are smaller into Q3 vs the Q2 step‑down, suggesting the worst of the rate reset could be passing if recontracting holds .
• Liquidity watch items: Adjusted net debt up to $196.7M; mandatory $3.5M note repurchase offers in Q3/Q4/FQ1; PIK interest election; ABL maturity 9/30/25 with classification risk beginning 9/30/24 without an extension/refi .
• Backlog reset underscores execution risk: Backlog fell to $48.9M (57% 2024 expiry); rapid conversion of identified Permian/Haynesville opportunities is critical for H2 utilization and pricing .
• Cost discipline offsets some pressure: SG&A lowered and expected flat; continued fleet standardization to 300‑series supports competitiveness in core basins .
• Communications/catalysts: No earnings calls during strategic review; outcomes of refinancing/recapitalization, contract wins, and rig count inflections are the primary catalysts to track .

Appendix: Additional Detail

Selected P&L and cash flow drivers

• SG&A: $3.7M (incl. $0.4M non‑cash); includes ~$0.6M special committee costs for strategic alternatives .
• Interest expense: $10.2M in Q2 (incl. $2.9M non‑cash amortization) .
• Capex: $5.5M outlays in Q2 (incl. $3.9M prior period payments); ~$4.1M accrued capex at 6/30/24 to be paid in Q3 .
• Cash/ABL: $5.5M cash; $15.5M ABL availability at 6/30/24 .

Attempted sources and availability notes

• Q2 2024 8‑K with Exhibit 99.1 press release and full financial schedules (used throughout) .
• Q2 stand‑alone press release and certain other press items were listed but could not be retrieved due to a document retrieval inconsistency; however, Exhibit 99.1 contained the full earnings release content .
• Q1 2024 8‑K with Exhibit 99.1 provided prior‑quarter financials and operational context .
• No Q2 earnings call transcript exists; ICD suspended calls during the strategic review .

All cited information originates from the company’s filings and press releases as referenced above.