UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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INDEPENDENCE CONTRACT DRILLING, INC.
Index to Form 10-Q
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this Quarterly Report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal,” “will” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:
| ● | a decline in or substantial volatility of crude oil and natural gas commodity prices; |
| ● | a decrease in domestic spending by the oil and natural gas exploration and production industry; |
| ● | fluctuation of our operating results and volatility of our industry; |
| ● | inability to maintain or increase pricing of our contract drilling services, or early termination of any term contract for which early termination compensation is not paid; |
| ● | our backlog of term contracts declining rapidly; |
| ● | the loss of any of our customers, customer consolidations, financial distress or management changes of potential customers or failure to obtain contract renewals and additional customer contracts for our drilling services; |
| ● | overcapacity and competition in our industry; |
| ● | an increase in interest rates and deterioration in the credit markets; |
| ● | our inability to comply with the financial and other covenants in debt agreements or to repay our debt obligations when they come due; |
| ● | the inability to maintain a listing of our common stock on a national exchange; |
| ● | unanticipated costs, delays and other difficulties in executing our long-term growth strategy; |
| ● | the loss of key management personnel; |
| ● | new technology that may cause our drilling methods or equipment to become less competitive; |
| ● | labor costs or shortages of skilled workers; |
| ● | the loss of or interruption in operations of one or more key vendors; |
| ● | the effect of operating hazards and severe weather on our rigs, facilities, business, operations and financial results, and limitations on our insurance coverage; |
| ● | restrictive covenants under our debt agreements limiting our ability to conduct our operations; |
| ● | inability to obtain consents from the holders of our convertible notes necessary to maintain operations of our drilling rigs; |
| ● | increased regulation of drilling in unconventional formations; |
| ● | risks related to the ongoing conflict between Russia and Ukraine and conflict in Gaza, including the effects of related sanctions and supply chain disruptions or general effects on the global economy; |
| ● | risks associated with a global pandemic that would cause a reduction in economic activity or reduction in oil and natural gas demand or prices; |
| ● | the incurrence of significant costs and liabilities in the future resulting from our failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment; and |
| ● | the potential failure by us to establish and maintain effective internal control over financial reporting and cybersecurity risks. |
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Form 10-Q and Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Further, any forward-looking statement speaks only as of the date on which it is
3
made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
4
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Independence Contract Drilling, Inc.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value and share amounts)
June 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Other long-term assets, net |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Liabilities |
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Current portion of long-term debt | $ | | $ | | ||
Accounts payable |
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Accrued liabilities |
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Total current liabilities |
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Long-term debt, net |
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Deferred income taxes, net |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 12) |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Treasury stock, at cost, |
| ( |
| ( | ||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
5
Independence Contract Drilling, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Revenues | $ | | $ | | $ | | $ | | ||||
Costs and expenses |
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Operating costs |
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Selling, general and administrative |
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Depreciation and amortization |
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Asset impairment, net |
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| — |
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| — | ||||
(Gain) loss on disposition of assets, net |
| ( |
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| ( |
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Total costs and expenses |
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Operating (loss) income |
| ( |
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| ( |
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Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Loss before income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Income tax benefit |
| ( |
| ( |
| ( |
| ( | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Loss per share: |
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Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average number of common shares outstanding: |
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Basic and diluted | | | | | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Independence Contract Drilling, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
Additional | Total | ||||||||||||||||
Common Stock | Paid-in | Accumulated | Treasury | Stockholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Stock |
| Equity | ||||||
Balances at December 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( |
| $ | | ||||
Restricted stock issued | | | ( | — | — | — | |||||||||||
RSUs vested, net of shares withheld for taxes | | | ( |
| — |
| — |
| ( | ||||||||
Purchase of treasury stock | ( | ( | — | — | ( | ( | |||||||||||
Stock-based compensation | — | — | |
| — |
| — |
| | ||||||||
Net loss | — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balances at March 31, 2024 |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Stock-based compensation | — |
| — |
| |
| — |
| — |
| | ||||||
Net loss | — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balances at June 30, 2024 |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Additional | Total | ||||||||||||||||
Common Stock | Paid-in | Accumulated | Treasury | Stockholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Stock |
| Equity | ||||||
Balances at December 31, 2022 |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
RSUs vested, net of shares withheld for taxes | | | ( |
| — |
| — |
| ( | ||||||||
Issuance of common stock through at-the-market facility, net of offering costs | — | — | ( |
| — |
| — | ( | |||||||||
Stock-based compensation | — | — | |
| — |
| — |
| | ||||||||
Net income | — |
| — |
| — |
| |
| — |
| | ||||||
Balances at March 31, 2023 |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
RSUs vested, net of shares withheld for taxes | |
| — |
| ( |
| — |
| — |
| ( | ||||||
Stock-based compensation | — |
| — |
| |
| — |
| — |
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Net loss | — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balances at June 30, 2023 |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Independence Contract Drilling, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended June 30, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by operating activities |
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Depreciation and amortization |
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Asset impairment, net |
| |
| — | ||
Stock-based compensation |
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(Gain) loss on disposition of assets, net |
| ( |
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Non-cash interest expense | | | ||||
Amortization of deferred financing costs |
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Amortization of Convertible Notes debt discount and issuance costs | | | ||||
Deferred income taxes |
| ( |
| ( | ||
Changes in operating assets and liabilities |
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Accounts receivable |
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Inventories |
| ( |
| ( | ||
Prepaid expenses and other assets |
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Accounts payable and accrued liabilities |
| ( |
| ( | ||
Net cash provided by operating activities |
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Cash flows from investing activities |
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Purchases of property, plant and equipment |
| ( |
| ( | ||
Proceeds from the sale of assets |
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Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities |
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Payments to redeem Convertible Notes | ( | ( | ||||
Borrowings under Revolving ABL Credit Facility |
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Repayments under Revolving ABL Credit Facility |
| ( |
| ( | ||
Proceeds from issuance of common stock through at-the-market facility, net of issuance costs | — |
| ( | |||
Purchase of treasury stock |
| ( |
| — | ||
Taxes paid for vesting of RSUs |
| ( |
| ( | ||
Payments for finance lease obligations |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Net (decrease) increase in cash and cash equivalents |
| ( |
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Cash and cash equivalents |
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Beginning of period |
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End of period | $ | | $ | | ||
8
Six Months Ended June 30, | ||||||
(in thousands) |
| 2024 |
| 2023 | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid during the period for interest |
| $ | |
| $ | |
Cash paid during the period for taxes | $ | | $ | | ||
Supplemental disclosure of non-cash investing and financing activities | ||||||
Change in property, plant and equipment purchases in accounts payable |
| $ | ( |
| $ | ( |
Additions to property, plant and equipment through finance leases |
| $ | |
| $ | |
Extinguishment of finance lease obligations from sale of assets classified as finance leases |
| $ | ( |
| $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
9
INDEPENDENCE CONTRACT DRILLING, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1.Nature of Operations and Recent Events
Except as expressly stated or the context otherwise requires, the terms “we,” “us,” “our,” “ICD,” and the “Company” refer to Independence Contract Drilling, Inc. and its subsidiary.
We provide land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States. We own and operate a premium fleet comprised of modern, technologically advanced drilling rigs.
We currently focus our operations on unconventional resource plays located in geographic regions that we can efficiently support from our Houston, Texas and Midland, Texas facilities in order to maximize economies of scale. Currently, our rigs are operating in the Permian Basin and the Haynesville Shale; however, our rigs have previously operated in the Eagle Ford Shale, Mid-Continent and Eaglebine regions as well.
Our business depends on the level of exploration and production activity by oil and natural gas companies operating in the United States, and in particular, the regions where we actively market our contract drilling services. The oil and natural gas exploration and production industry is historically cyclical and characterized by significant changes in the levels of exploration and development activities. Oil and natural gas prices and market expectations of potential changes in those prices significantly affect the levels of those activities. Worldwide political, regulatory, economic and military events, as well as natural disasters have contributed to oil and natural gas price volatility historically and are likely to continue to do so in the future. Any prolonged reduction in the overall level of exploration and development activities in the United States and the regions where we market our contract drilling services, whether resulting from changes in oil and natural gas prices or otherwise, could materially and adversely affect our business.
Market Conditions
Oil prices (WTI-Cushing) reached a high of $
On August 22, 2022, natural gas prices reached a high of $
2.Interim Financial Information
These unaudited consolidated financial statements include the accounts of the Company and its subsidiary and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These consolidated financial statements should be read along with our audited consolidated financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2023. In management’s opinion, these financial statements contain all adjustments necessary for a fair statement of our financial position, results of operations, cash flows and changes in stockholders’ equity for all periods presented.
As we had no items of other comprehensive income in any period presented, no other components of comprehensive income are presented.
10
Interim results for the three and six months ended June 30, 2024 may not be indicative of results that will be realized for the full year ending December 31, 2024.
Segment and Geographical Information
Our operations consist of
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This guidance requires an entity to disclose significant segment expenses impacting profit and loss that are regularly provided to the Chief Operating Decision Maker (“CODM”) to assess segment performance and to make decisions about resource allocations. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We do not expect the standard to have a material impact on our financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Also, this guidance requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this guidance are effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.
3.Revenue from Contracts with Customers
The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three and six months ended June 30, 2024 and 2023:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Dayrate drilling | $ | | $ | | $ | | $ | | ||||
Mobilization |
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Reimbursables |
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Early termination |
| — |
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Capital modification |
| — |
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| — |
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Other |
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Total revenue | $ | | $ | | $ | | $ | | ||||
Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from
| June 30, |
| December 31, | |||
(in thousands) | 2024 | 2023 | ||||
Receivables, which are included in “Accounts receivable” | $ | | $ | | ||
Contract liabilities, which are included in “Accrued liabilities” | $ | ( | $ | ( | ||
11
The primary changes in contract liabilities balances during the period are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenue recognized that was included in contract liabilities at beginning of period | $ | | $ | | $ | | $ | | ||||
Decrease (increase) in contract liabilities due to cash received, excluding amounts recognized as revenue | $ | | $ | ( | $ | ( | $ | ( | ||||
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2024. The estimated revenue does not include amounts of variable consideration that are constrained.
Year Ending December 31, | ||||||||||||
(in thousands) |
| 2024 |
| 2025 |
| 2026 |
| 2027 | ||||
Revenue | | $ | — | $ | — | $ | — | |||||
The amounts presented in the table above consist only of fixed consideration related to fees for rig mobilizations and demobilizations, if applicable, which are allocated to the drilling services performance obligation as such performance obligation is satisfied. We have elected the exemption from disclosure of remaining performance obligations for variable consideration. Therefore, dayrate revenue to be earned on a rate scale associated with drilling conditions and level of service provided for each fractional-hour time increment over the contract term and other variable consideration such as penalties and reimbursable revenues, have been excluded from the disclosure.
Contract Costs
We capitalize costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligations under the contract and (iii) are expected to be recovered through revenue generated under the contract. These costs, which principally relate to rig mobilization costs at the commencement of a new contract, are deferred as a current or noncurrent asset (depending on the length of the contract term), and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Such contract costs, recorded as “Prepaid expenses and other current assets”, amounted to $
4.Leases
We have multi-year operating and financing leases for corporate office space, field location facilities, land, vehicles and various other equipment used in our operations. We also have a significant number of rentals related to our drilling operations that are day-to-day or month-to-month arrangements.
12
The components of lease expense were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
(in thousands) | 2024 | 2023 |
| 2024 |
| 2023 | ||||||
Operating lease expense | $ | | $ | | $ | | $ | | ||||
Short-term lease expense |
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Variable lease expense |
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Finance lease expense: |
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Amortization of right-of-use assets | $ | | $ | | $ | | $ | | ||||
Interest expense on lease liabilities |
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Total finance lease expense |
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Total lease expense | $ | | $ | | $ | | $ | | ||||
Supplemental cash flow information related to leases is as follows:
Six Months Ended June 30, | ||||||
(in thousands) |
| 2024 |
| 2023 | ||
Cash paid for amounts included in measurement of lease liabilities: |
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|
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Operating cash flows from operating leases | $ | | $ | | ||
Operating cash flows from finance leases | $ | | $ | | ||
Financing cash flows from finance leases | $ | | $ | | ||
Right-of-use assets obtained or recorded in exchange for lease obligations: |
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Operating leases | $ | | $ | | ||
Finance leases | $ | | $ | | ||
Supplemental balance sheet information related to leases is as follows:
(in thousands) |
| June 30, 2024 |
| December 31, 2023 | |||
Operating leases: |
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$ | | $ | | ||||
$ | | $ | | ||||
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Total operating lease liabilities | $ | | $ | | |||
Finance leases: |
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Property, plant and equipment | $ | | $ | | |||
Accumulated depreciation |
| ( |
| ( | |||
$ | | $ | | ||||
$ | | $ | | ||||
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Total finance lease liabilities | $ | | $ | | |||
Weighted-average remaining lease term |
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Operating leases |
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Finance leases |
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Weighted-average discount rate |
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Operating leases |
| | % |
| | % | |
Finance leases |
| | % |
| | % | |
13
Maturities of lease liabilities at June 30, 2024 were as follows:
(in thousands) |
| Operating Leases |
| Finance Leases | ||
2024 | $ | | | |||
2025 |
| | | |||
2026 |
| | | |||
2027 |
| |
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2028 |
| |
| | ||
Total cash lease payment |
| |
| | ||
Less: imputed interest |
| ( | ( | |||
Total lease liabilities | $ | | $ | | ||
5.Financial Instruments and Fair Value
Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 | Unadjusted quoted market prices for identical assets or liabilities in an active market; |
Level 2 | Quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets or liabilities; and |
Level 3 | Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, certain accrued liabilities and our debt. Our debt consists primarily of our Convertible Notes and Revolving ABL Facility as of June 30, 2024 and December 31, 2023. The fair value of cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying value because of the short-term nature of these instruments. We believe the carrying value of our Revolving ABL Facility approximates fair value because the interest rates are variable and reflective of current market rates.
The following table summarizes the carrying value and fair value of our Convertible Notes as of June 30, 2024 and December 31, 2023.
June 30, 2024 |
| December 31, 2023 | ||||||||||
Carrying | Fair | Carrying | Fair | |||||||||
(in thousands) |
| Value |
| Value |
| Value |
| Value | ||||
Convertible Notes | $ | | $ | | $ | | $ | | ||||
The fair value of the Convertible Notes is also determined to be a Level 3 measurement as this instrument is not actively traded and was estimated using a binomial lattice model. The factors used to determine fair value as of June 30, 2024 are subject to management's judgement and expertise and include, but are not limited to our share price, expected price volatility (
There were
See Note 9 “Stock-Based Compensation” for fair value of liability-based awards.
14
Fair value measurements are applied with respect to our non-financial assets and liabilities measured on a non-recurring basis, which would consist of measurements primarily related to the potential impairment of long-lived assets. During the second quarter of 2024, we recorded asset impairment on certain drilling equipment of $
6.Inventories
All of our inventory as of June 30, 2024 and December 31, 2023 consisted of supplies held for use in our drilling operations.
7.Supplemental Balance Sheet Information
Prepaid expenses and other current assets consisted of the following:
(in thousands) |
| June 30, 2024 |
| December 31, 2023 | ||
Prepaid insurance | $ | | $ | | ||
Deferred mobilization costs |
| |
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Prepaid and other current assets |
| |
| | ||
$ | | $ | | |||
Accrued liabilities consisted of the following:
(in thousands) |
| June 30, 2024 |
| December 31, 2023 | ||
Accrued salaries and other compensation | $ | | $ | | ||
Insurance |
| |
| | ||
Deferred mobilization revenues |
| |
| | ||
Property and other taxes |
| |
| | ||
Interest |
| | | |||
Operating lease liability - current |
| |
| | ||
Cash-settled SARs liability | | | ||||
Other |
| |
| | ||
$ | | $ | | |||
8.Long-term Debt
Our long-term debt consisted of the following:
| ||||||
(in thousands) |
| June 30, 2024 |
| December 31, 2023 | ||
Convertible Notes due March 18, 2026 | $ | | $ | | ||
Revolving ABL Credit Facility due September 30, 2025 |
| |
| | ||
Finance lease obligations |
| |
| | ||
| |
| | |||
Less: Convertible Notes debt discount and issuance costs | ( | ( | ||||
Less: current portion of finance leases |
| ( |
| ( | ||
Long-term debt, net | $ | | $ | | ||
Convertible Notes
On March 18, 2022, we entered into a subscription agreement with affiliates of MSD Partners, L.P. and an affiliate of Glendon Capital Management L.P. (the “Subscription Agreement”) for the placement of $
The Convertible Notes were issued pursuant to an Indenture, dated as of March 18, 2022 (the “Indenture”). The obligations under the Convertible Notes are secured by a first priority lien on collateral other than accounts receivable,
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deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the Revolving ABL Credit Facility (defined below). The Convertible Notes mature on March 18, 2026.
The Convertible Notes have a cash interest rate of the Secured Overnight Financing Rate plus a
The effective conversion price of the Convertible Notes is $
Each noteholder has a right to convert our Convertible Notes into shares of ICD common stock at any time after issuance through maturity. The conversion price is $
The Indenture includes a mandatory redemption offer requirement (the “Mandatory Offer Requirement”). The mandatory offer price is an amount in cash equal to the principal amount of such Note plus accrued and unpaid interest on such Note. We redeemed $
The Indenture contains financial covenants, including a liquidity covenant of $
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year. In addition, capital expenditures are excluded from this covenant (a) if funded from equity proceeds, (b) if relating to the reactivation of a rig so long as (i) we have a signed contract with a customer with respect to each such rig of at least one year duration providing for early termination payments consistent with past practice equal to at least the expected margin on the contract, (ii) the expected margin on such rig contract will be equal to or exceed such reactivation capital expenditures, and (iii) the reactivation capital expenditures, rig contract and the expected margin calculation are approved by our board of directors or (c) relate to other capital expenditures specifically approved by written or electronic consent by both (i) the required holders (which approval may, for the avoidance of doubt, be provided by the required holders in their sole discretion for an amount of capital expenditures to be committed or made by us or a subsidiary of us within 90 days after the date of such consent) and (ii) our Board of Directors. The Indenture also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments (including the payment of dividends), investments and transactions with affiliates. The Indenture also provides for customary events of default, including breaches of material covenants, defaults under the Revolving ABL Credit Facility or other material agreements for indebtedness, and a change of control.
At any time on or after September 18, 2024, we may execute an in-substance defeasance of the Convertible Notes and suspend all covenants and related security interests in the Company’s equipment and assets under the Indenture by irrevocably depositing with the trustee funds sufficient funds to pay the principal and interest on the outstanding Convertible Notes through the maturity date of the Convertible Notes.
Our Board of Directors has initiated a formal review process to begin evaluating alternatives with respect to refinancing the Convertible Notes and other strategic opportunities and has formed a special committee of independent directors for that purpose. There can be no assurance that this process or evaluation will result in one or more transactions or any particular transaction or strategic outcome.
We are in compliance with our covenants as of June 30, 2024.
Upon a Qualified Merger (defined below), we may elect to convert all, but not less than all, of the Convertible Notes at a Conversion Rate equal to our Conversion Rate on the date on which the relevant “Qualified Merger” is consummated (a “Qualified Merger Conversion”), so long as the “MOIC Condition” is satisfied with respect to such potential Qualified Merger Conversion. A “Qualified Merger” means a Common Stock Change Event consolidation, merger, combination or binding or statutory share exchange of the Company with a Qualified Acquirer. A “Qualified Merger Conversion Date” means the date on which the relevant Qualified Merger is consummated. A “Qualified Acquirer” means any entity that (i) has its common equity listed on the New York Stock Exchange, the NYSE American, Nasdaq Global Market or Nasdaq Global Select Market, or Toronto Stock Exchange, (ii) has an aggregate equity market capitalization of at least $350 million, and (iii) has a “public float” (as defined in Rule 12b-2 under the Securities Act of 1933) of at least $250 million in each case, as determined by the calculation agent based on the last reported sale price of such common equity on date of the signing of the definitive agreement in respect of the relevant Common Stock Change Event. A “Common Stock Change Event” means the occurrence of any: (i) recapitalization, reclassification or change of our common stock (other than (x) changes solely resulting from a subdivision or combination of the common stock, (y) a change only in par value or from par value to no par value or no par value to par value and (z) stock splits and stock combinations that do not involve the issuance of any other series or class of securities); (ii) consolidation, merger, combination or binding or statutory share exchange involving us; (iii) sale, lease or other transfer of all or substantially all of the assets of ours and our Subsidiaries, taken as a whole, to any person; or (iv) other similar event, and, as a result of which, the common stock is converted into, or is exchanged for, or represents solely the right to receive, other securities, cash or other property, or any combination of the foregoing. A “Company Conversion Rate” means, in respect of any Qualified Merger, the greater of (a) the relevant Conversion Rate, (b) $
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Note from the Issue Date through the potential Qualified Merger Conversion Date, (y) the aggregate fair market value of any Conversion Consideration that would be received by the Holder of such hypothetical Note on the relevant Qualified Merger Conversion Date and (z) the aggregate fair market value of any Conversion Consideration that would be received on the relevant Qualified Merger Conversion Date by the Holder of any PIK Notes issued in respect of (or the relevant increase in value of) such hypothetical Note.
We recorded a debt discount of $
Revolving ABL Credit Facility
On October 1, 2018, we entered into a $
Interest under the Revolving ABL Credit Facility is determined by reference, at our option, to either (i) a “base rate” equal to the higher of (a) the floor, or
The Revolving ABL Credit Facility contains a springing fixed charge coverage ratio covenant of
The obligations under the Revolving ABL Credit Facility are secured by a first priority lien on Priority Collateral, which includes all accounts receivable and deposit accounts, and a second priority lien on the Indenture, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. As of June 30, 2024, the weighted-average interest rate on our borrowings was
9.Stock-Based Compensation
In June 2019, we adopted the 2019 Omnibus Incentive Plan (the “2019 Plan”) providing for common stock-based awards to employees and non-employee directors. The 2019 Plan permits the granting of various types of awards, including stock options, restricted stock, restricted stock unit awards, and stock appreciation rights (“SARs”), and up to
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less than the market price of the underlying stock on the date of grant. As of June 30, 2024, approximately
A summary of compensation cost recognized for stock-based payment arrangements is as follows:
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Compensation cost recognized: |
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