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EX-32.2 - EXHIBIT 32.2 - Independence Contract Drilling, Inc.icd-20200331x10qexx322.htm
EX-32.1 - EXHIBIT 32.1 - Independence Contract Drilling, Inc.icd-20200331x10qexx321.htm
EX-31.2 - EXHIBIT 31.2 - Independence Contract Drilling, Inc.icd-20200331x10qexx312.htm
EX-31.1 - EXHIBIT 31.1 - Independence Contract Drilling, Inc.icd-20200331x10qexx311.htm
EX-10.1 - EXHIBIT 10.1 - Independence Contract Drilling, Inc.finalloanagreement.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-36590
Independence Contract Drilling, Inc.
(Exact name of registrant as specified in its charter)
Delaware
37-1653648
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
20475 State Highway 249, Suite 300
Houston, Texas
77070
(Address of principal executive offices)
(Zip code)
(281) 598-1230
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange where registered
 
 
 
 
 
Common Stock, $0.01 par value per share
 
ICD
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
x
 
 
 
 
 
 
Emerging growth company
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x
3,816,258 shares of the registrant’s Common Stock were outstanding as of May 6, 2020.



INDEPENDENCE CONTRACT DRILLING, INC.
Index to Form 10-Q
Part I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

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:
Inability to predict the duration or magnitude of the effects of the COVID-19 pandemic on our business, operations, and financial condition and when or if worldwide oil demand will stabilize and begin to improve;
a decline in or substantial volatility of crude oil and natural gas commodity prices;
a sustained 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, 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 that we may enter into as a result of reduced revenues and financial performance;
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;
increased regulation of drilling in unconventional formations;
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.

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, 2019. Further, any forward-looking statement speaks only as of the date on which it is 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.

 

3



PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Independence Contract Drilling, Inc.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value and share amounts)
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
Cash and cash equivalents
$
9,753

 
$
5,206

Accounts receivable, net
26,893

 
35,834

Inventories
1,181

 
2,325

Assets held for sale
5,014

 
8,740

Prepaid expenses and other current assets
4,803

 
4,640

Total current assets
47,644

 
56,745

Property, plant and equipment, net
437,505

 
457,530

Other long-term assets, net
2,754

 
2,726

Total assets
$
487,903

 
$
517,001

Liabilities and Stockholders’ Equity
 
 
 
Liabilities
 
 
 
Current portion of long-term debt
$
3,268

 
$
3,685

Accounts payable
14,981

 
22,674

Accrued liabilities
12,958

 
16,368

Merger consideration payable to an affiliate
2,932

 
3,022

Current portion of contingent consideration
2,814

 
2,814

Total current liabilities
36,953

 
48,563

Long-term debt
145,291

 
134,941

Deferred income taxes, net
610

 
652

Other long-term liabilities
1,198

 
1,249

Total liabilities
184,052

 
185,405

Commitments and contingencies (Note 13)

 

Stockholders’ equity
 
 
 
Common stock, $0.01 par value, 50,000,000 shares authorized; 3,888,137 and 3,876,196 shares issued, respectively, and 3,809,548 and 3,812,050 shares outstanding, respectively
38

 
38

Additional paid-in capital
506,375

 
505,831

Accumulated deficit
(198,649
)
 
(170,426
)
Treasury stock, at cost, 78,589 shares and 64,146 shares, respectively
(3,913
)
 
(3,847
)
Total stockholders’ equity
303,851

 
331,596

Total liabilities and stockholders’ equity
$
487,903

 
$
517,001


The accompanying notes are an integral part of these consolidated financial statements.

4



Independence Contract Drilling, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2020
 
2019
Revenues
$
38,494

 
$
60,358

Costs and expenses
 
 
 
Operating costs
30,229

 
39,333

Selling, general and administrative
3,761

 
4,545

Severance and merger-related expenses
1,076

 
1,081

Depreciation and amortization
11,516

 
11,313

Asset impairment (insurance recoveries), net
16,619

 
2,018

(Gain) loss on disposition of assets, net
(46
)
 
3,220

Total costs and expenses
63,155

 
61,510

Operating loss
(24,661
)
 
(1,152
)
Interest expense
(3,604
)
 
(3,761
)
Loss before income taxes
(28,265
)
 
(4,913
)
Income tax benefit
(42
)
 
(2,540
)
Net loss
$
(28,223
)
 
$
(2,373
)
Loss per share:
 
 
 
Basic and diluted
$
(7.53
)
 
$
(0.63
)
Weighted average number of common shares outstanding:
 
 
 
Basic and diluted
3,750

 
3,785


The accompanying notes are an integral part of these consolidated financial statements.
 

5



Independence Contract Drilling, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Treasury Stock
 
Total Stockholders’ Equity
Balances at December 31, 2019
3,812,050

 
$
38

 
$
505,831

 
$
(170,426
)
 
$
(3,847
)
 
$
331,596

RSUs vested, net of shares withheld for taxes
11,941

 

 
(26
)
 

 

 
(26
)
Purchase of treasury stock
(14,443
)
 

 

 

 
(66
)
 
(66
)
Stock-based compensation

 

 
570

 

 

 
570

Net loss

 

 

 
(28,223
)
 

 
(28,223
)
Balances at March 31, 2020
3,809,548

 
$
38

 
$
506,375

 
$
(198,649
)
 
$
(3,913
)
 
$
303,851


 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Treasury Stock
 
Total Stockholders’ Equity
Balances at December 31, 2018
3,853,909

 
$
39

 
$
504,178

 
$
(109,638
)
 
$
(3,046
)
 
$
391,533

Common stock issuance costs

 

 
(177
)
 

 

 
(177
)
Stock-based compensation

 

 
387

 

 

 
387

Net loss

 

 

 
(2,373
)
 

 
(2,373
)
Balances at March 31, 2019
3,853,909

 
$
39

 
$
504,388

 
$
(112,011
)
 
$
(3,046
)
 
$
389,370



The accompanying notes are an integral part of these consolidated financial statements.


6



Independence Contract Drilling, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net loss
$
(28,223
)
 
$
(2,373
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 
Depreciation and amortization
11,516

 
11,313

Asset impairment (insurance recoveries), net
16,619

 
2,018

Stock-based compensation
570

 
387

(Gain) loss on disposition of assets, net
(46
)
 
3,220

Deferred income taxes
(42
)
 
(2,540
)
Amortization of deferred financing costs
204

 
203

Bad debt expense (recovery)
16

 
(45
)
Changes in operating assets and liabilities
 
 
 
Accounts receivable
8,925

 
(105
)
Inventories
(27
)
 
(45
)
Prepaid expenses and other assets
(462
)
 
843

Accounts payable and accrued liabilities
(5,959
)
 
(5,271
)
Net cash provided by operating activities
3,091

 
7,605

Cash flows from investing activities
 
 
 
Purchases of property, plant and equipment
(9,139
)
 
(10,832
)
Proceeds from the sale of assets
628

 
536

Proceeds from insurance claims

 
1,000

Collection of principal on note receivable
145

 

Net cash used in investing activities
(8,366
)
 
(9,296
)
Cash flows from financing activities
 
 
 
Borrowings under Revolving Credit Facility
11,038

 
2,403

Repayments under Revolving Credit Facility
(38
)
 

Common stock issuance costs

 
(177
)
Purchase of treasury stock
(66
)
 

RSUs withheld for taxes
(26
)
 

Financing costs paid under Term Loan Facility

 
(5
)
Financing costs paid under Revolving Credit Facility

 
(12
)
Payments for finance lease obligations
(1,086
)
 
(216
)
Net cash provided by financing activities
9,822

 
1,993

Net increase in cash and cash equivalents
4,547

 
302

Cash and cash equivalents
 
 
 
Beginning of period
5,206

 
12,247

End of period
$
9,753

 
$
12,549



7



 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
3,541

 
$
3,514

Supplemental disclosure of non-cash investing and financing activities
 
 
 
Change in property, plant and equipment purchases in accounts payable
$
(5,285
)
 
$
(1,753
)
Additions to property, plant and equipment through finance leases
$
55

 
$
520

Extinguishment of finance lease obligations from sale of assets classified as finance leases
$
(204
)
 
$

Transfer of assets from held and used to held for sale
$

 
$
(2,285
)

The accompanying notes are an integral part of these consolidated financial statements.

8



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.
Our rig fleet includes 29 marketed AC powered (“AC”) rigs and a number of additional rigs requiring conversions or upgrades in order to meet our AC pad-optimal specifications.
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, the Haynesville Shale and the Eagle Ford Shale; however, our rigs have previously operated in the 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.
COVID-19 Pandemic and Market Conditions Update
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (“COVID-19”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The continued spread of the COVID-19 virus and the responses taken to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, has caused significant declines in global demand for crude oil. This reduction in demand has occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). Even with recent production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories have continued to rise and to test storage capacity and logistics networks. These factors have led to a collapse in oil prices, with the WTI price for May delivery closing at negative $37.63 per barrel on April 20, 2020. Downward pressure on oil prices is expected to continue for the foreseeable future, and the long-term effects on production and demand are unknown at this time. Currently, there is considerable uncertainty regarding measures to contain the virus and what potential future measures may be put in place, therefore we cannot predict when worldwide demand for oil will stabilize and if or when it will begin to improve or reach pre-COVID-19 levels.
In response to these adverse market conditions, North American exploration companies, including all of our customers, have rapidly reduced planned capital expenditures and drilling activity. As a result, demand for our products and services began to rapidly decline late in the first quarter of 2020, and we expect demand for our products and services to continue to decline and remain low as our customers continue adjusting their operations in response to market conditions. During the first quarter of 2020, our operating rig count reached a peak of 22 rigs. Based upon customer actions to date, we expect our operating rig count to fall to six rigs by the end of the second quarter of 2020. However, due to the lack of visibility and confidence towards customer intentions, we cannot assure you that our operating rig count will not fall below these levels by that period of time or thereafter. Our current backlog of contracts stands at 3.2 average rigs during the third quarter of 2020 and 1.8 average rigs during the fourth quarter of 2020, and none of our current drilling contracts have terms extending into 2021 or beyond. As a result of this rapidly declining operating level coupled with downward pressure on dayrates we charge for our contract drilling services, we will experience corresponding reductions in revenue, operating margins and cash flows.

9



Due to these rapidly declining market conditions, we took the following actions at the end of the first quarter of 2020 in order to reduce our cost structure:
Salary or compensation reductions for substantially all our employees, including members of executive management;
Suspension of all cash-based incentive compensation, including all members of executive management;
Reducing the number of executive management positions by two;
Reducing the number of directors from seven to five, which would become effective following director elections at our 2020 Annual Meeting of Stockholders currently scheduled to occur on June 12, 2020;
Annual compensation reductions for our directors; and
Reducing headcount for non-field-based personnel by approximately 40%.
Depending upon the nature and duration of the COVID-19 pandemic, the nature of containment measures taken in the future, it could have a material adverse effect on our business, results of operations and financial condition.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.    
On April 27, 2020, we entered into an unsecured loan in the aggregate principal amount of $10.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration (the “SBA”) as guarantor of loans under the PPP. The PPP is part of the CARES Actand it provides for loans to qualifying businesses in a maximum amount equal to the lesser of $10.0 million and 2.5 times the average monthly payroll expenses of the qualifying business. The proceeds of the loan may only be used for payroll costs, rent, utilities, mortgage interests, and interest on other pre-existing indebtedness (the “permissible purposes”).
The application for these funds required us to, in good faith, certify that current economic uncertainty made the loan request necessary to support our ongoing operations. This certification further required us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. In making our certification, we considered numerous factors, including (i) current market and economic conditions, including the significant declines in worldwide demand and oil prices as a result of the COVID-19 pandemic and the uncertainty and inability to predict when market conditions will stabilize and begin to improve, (ii) the actions and communications from our customers that have caused and will cause our operating rig count to fall (from a high of 22 rigs during the first quarter of 2020, to an estimated six rigs by the end of the second quarter of 2020 and potential further reductions depending on when oil supply and demand fundamentals rebalance and U.S. land rig counts stabilize and begin to improve), (iii) whether our current sources of liquidity, comprised of cash and cash equivalents, availability under our revolving credit facility and accordion under our term loan facility, would be sufficient to finance our operations and required expenditures while industry and market conditions remain distressed, (iv) our status as a micro-cap public company, and (v) our belief, after inquiry, that capital markets were not reasonably available or open to us at such time for new issuances of debt or equity.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue; or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.
The CARES Act did not have a material impact on our income taxes.  Management will continue to monitor future developments and interpretations for any further impacts on our financial condition, results of operations, or liquidity.
Reverse Stock Split
Following approval by our stockholders on February 6, 2020, our Board of Directors approved a 1-for-20 reverse stock split of our common stock. The reverse split was effective March 11, 2020, and all share and earnings per share information have been retroactively adjusted to reflect the reverse stock split and the associated decrease in par value was recorded with the offset to additional paid-in capital.

10



2.
Interim Financial Information
These unaudited consolidated financial statements include the accounts of ICD 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, 2019, included in our Annual Report on Form 10-K for the year ended December 31, 2019. In management’s opinion, these financial statements contain all adjustments necessary to fairly present 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 is presented.
Interim results for the three months ended March 31, 2020 may not be indicative of results that will be realized for the full year ending December 31, 2020.
Segment and Geographical Information
Our operations consist of one reportable segment because all of our drilling operations are located in the United States and have similar economic characteristics. Corporate management administers all properties as a whole rather than as discrete operating segments. Operational data is tracked by rig; however, financial performance is measured as a single enterprise and not on a rig-by-rig basis. Further, the allocation of capital resources is employed on a project-by-project basis across our entire asset base to maximize profitability without regard to individual geographic areas.
Asset Impairments, net
As a result of the rapidly deteriorating market conditions described in "COVID-19 Pandemic and Market Conditions Update", we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we recognized further impairment of $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory. Due to the uncertainty around COVID-19 and current market conditions, we may have to make further impairment charges in future periods relating to, among other things, fixed assets and inventory.
Additionally, in the first quarter of 2019, we recorded $2.0 million of asset impairment expense in conjunction with the sale of miscellaneous drilling equipment at auctions in April of 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. In October 2019, the FASB approved a proposal which grants smaller reporting companies additional time to implement FASB standards on current expected credit losses (CECL) to January 2023. As a smaller reporting company, we will defer adoption of ASU 2016-13 until January 2023. We are currently evaluating the impact this guidance will have on our accounts receivable.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The amendments in the update are effective for public companies for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We plan to adopt this guidance on January 1, 2021 and are currently evaluating the impact of adoption on our consolidated financial statements.

11



3.
Sidewinder Merger
We completed the merger with Sidewinder Drilling LLC on October 1, 2018.
During the three months ended March 31, 2019 we recorded $1.1 million of merger-related expenses comprised primarily of severance, professional fees and various other integration related expenses. There were no merger expenses recorded during the three months ended March 31, 2020.
Certain intangible liabilities were recorded in connection with the Sidewinder merger for drilling contracts in place at the closing date of the transaction that had unfavorable contract terms as compared to then current market terms for comparable drilling rigs. The intangible liabilities are amortized to operating revenues over the remaining underlying contract terms. During the three month period ended March 31, 2019, $1.0 million of intangible revenue was recognized as a result of this amortization. The intangible liabilities were fully amortized in the second quarter of 2019.    
In addition, at the time of consummation of the Sidewinder Merger,  Sidewinder owned 11 mechanical rigs and related equipment (the "Mechanical Rigs") located principally in the Utica and Marcellus plays. As these rigs are not consistent with ICD’s core strategy or geographic focus, ICD agreed that these rigs can be disposed of, with the Sidewinder unitholders receiving the net proceeds. As a result of this arrangement, on the merger date, we recorded the fair value of the Mechanical Rigs less costs to sell, as assets held for sale, with an offsetting liability in contingent consideration. Subsequently, a majority of these assets were sold at auction for substantially less than the appraised fair values on the merger date. As a result, the contingent consideration liability was reduced by the appraised fair values on the merger date and the proceeds were recorded as merger consideration payable to an affiliate on our consolidated balance sheets. We are required to pay out the related net proceeds in the second quarter of 2020. 
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. Our multi-year leases have remaining lease terms of greater than one year to five years.
The components of lease expense were as follows:
(in thousands)
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
Operating lease expense
$
149

 
$
125

Short-term lease expense
1,281

 
1,193

Variable lease expense
134

 
86

 
 
 
 
Finance lease expense:
 
 
 
Amortization of right-of-use assets
$
392

 
$
265

Interest expense on lease liabilities
195

 
32

Total finance lease expense
587

 
297

Total lease expense
$
2,151

 
$
1,701


12



Supplemental cash flow information related to leases is as follows:
(in thousands)
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
Cash paid for amounts included in measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
160

 
$
103

Operating cash flows from finance leases
$
194

 
$
32

Financing cash flows from finance leases
$
1,086

 
$
216

 
 
 
 
Right-of-use assets obtained or recorded in exchange for lease obligations:
 
 
 
Operating leases
$
178

 
$
955

Finance leases
$
54

 
$
520

Supplemental balance sheet information related to leases is as follows:
(in thousands)
 
March 31, 2020
 
December 31, 2019
Operating leases:
 
 
 
 
Other long-term assets, net
 
$
1,095

 
$
1,033

 
 
 
 
 
Accrued liabilities
 
$
545

 
$
475

Other long-term liabilities
 
1,198

 
1,250

Total operating lease liabilities
 
$
1,743

 
$
1,725

 
 
 
 
 
Finance leases:
 
 
 
 
Property, plant and equipment
 
$
13,774

 
$
14,375

Accumulated depreciation
 
(1,352
)
 
(1,425
)
Property, plant and equipment, net
 
$
12,422

 
$
12,950

 
 
 
 
 
Current portion of long-term debt
 
$
3,268

 
$
3,685

Long-term debt
 
6,654

 
7,472

Total finance lease liabilities
 
$
9,922

 
$
11,157

 
 
 
 
 
Weighted-average remaining lease term
 
 
 
 
Operating leases
 
3.3 years

 
3.6 years

Finance leases
 
2.5 years

 
2.7 years

 
 
 
 
 
Weighted-average discount rate
 
 
 
 
Operating leases
 
8.00
%
 
8.07
%
Finance leases
 
7.66
%
 
7.64
%

13



Maturities of lease liabilities at March 31, 2020 were as follows:
(in thousands)
Operating Leases
 
Finance Leases
2020
$
505

 
$
2,861

2021
616

 
3,661

2022
444

 
3,517

2023
370

 
164

2024
47

 

Thereafter

 

Total cash lease payment
1,982

 
10,203

Add: expected residual value

 
832

Less: imputed interest
(239
)
 
(1,113
)
Total lease liabilities
$
1,743

 
$
9,922


14



5.
Revenue from Contracts with Customers
The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Dayrate drilling
$
34,478

 
$
56,451

Mobilization
1,541

 
1,260

Reimbursables
2,448

 
1,604

Early termination
27

 

Capital modification

 
10

Intangible

 
1,033

Total revenue
$
38,494

 
$
60,358

The following table provides information about receivables and contract liabilities related to contracts with customers. We had no contract assets as of March 31, 2020 or December 31, 2019.
(in thousands)
March 31, 2020
 
December 31, 2019
Receivables, which are included in “Accounts receivable, net”
$
26,752

 
$
35,378

Contract liabilities, which are included in “Accrued liabilities - deferred revenue”
$
(505
)
 
$
(311
)
Significant changes in the contract liabilities balance during the period are as follows:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Revenue recognized that was included in contract liabilities at beginning of period
$
311

 
$
732

Increase in contract liabilities due to cash received, excluding amounts recognized as revenue
$
(505
)
 
$
(479
)
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 March 31, 2020. The estimated revenue does not include amounts of variable consideration that are constrained.
 
Year Ending December 31,
(in thousands)
2020
 
2021
 
2022
 
2023
Revenue
$
505

 
$

 
$

 
$

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.

15



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 $0.5 million and $0.1 million on our consolidated balance sheets at March 31, 2020 and December 31, 2019, respectively. During the three months ended March 31, 2020 and 2019 contract costs increased by $1.2 million and $0.5 million, respectively, and we amortized $0.8 million and $0.7 million of contract costs.
6.
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.
The carrying value of certain of our assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximates their fair value due to the short-term nature of such instruments.
The fair value of our long-term debt is determined by Level 3 measurements based on quoted market prices and terms for similar instruments, where available, and on the amount of future cash flows associated with the debt, discounted using our current borrowing rate for comparable debt instruments (the Income Method). Based on our evaluation of the risk free rate, the market yield and credit spreads on comparable company publicly traded debt issues, we used an annualized discount rate, including a credit valuation allowance, of 38.8%. The following table summarizes the carrying value and fair value of our long-term debt as of March 31, 2020 and December 31, 2019.
 
March 31, 2020
 
December 31, 2019
(in thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Term Loan Facility
$
130,000

 
$
62,559

 
$
130,000

 
$
138,567

Revolving Credit Facility
$
11,000

 
$
4,464

 
$

 
$

The fair value of our assets held for sale is determined using Level 3 measurements. In the first quarter of 2020, we obtained a third-party appraisal to determine the fair value of our assets held for sale. 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 of long-lived assets.
7.
Inventories
All of our inventory as of March 31, 2020 and December 31, 2019 consisted of supplies held for use in our drilling operations.

16



8.
Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands)
March 31, 2020
 
December 31, 2019
Accrued salaries and other compensation
$
2,177

 
$
3,500

Insurance
2,007

 
2,861

Deferred revenues
505

 
701

Property and other taxes
2,569

 
4,716

Interest
3,104

 
3,244

Operating lease liability - current
545

 
475

Other (1)
2,051

 
871

 
$
12,958

 
$
16,368

(1) Accrued Liabilities - Other includes $1.1 million in accrued severance, as of March 31, 2020, in connection with our cost reduction measures instituted in response to the COVID-19 pandemic and current deteriorating market conditions.
9.
Long-term Debt
Our long-term debt consisted of the following:    
(in thousands)
 
March 31, 2020
 
December 31, 2019
Term Loan Facility due October 1, 2023
 
$
130,000

 
$
130,000

Revolving Credit Facility due October 1, 2023
 
11,000

 

Finance lease obligations
 
9,922

 
11,157

 
 
150,922

 
141,157

Less: current portion
 
(3,268
)
 
(3,685
)
Less: Term Loan Facility deferred financing costs
 
(2,363
)
 
(2,531
)
Long-term debt
 
$
145,291

 
$
134,941

Credit Facilities
On October 1, 2018, we entered into a term loan Credit Agreement (the “Term Loan Credit Agreement”) for an initial term loan in an aggregate principal amount of $130.0 million, (the “Term Loan Facility”) and (b) a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million (the “DDTL Facility”, and together with the Term Loan Facility, the “Term Facilities”). The Term Facilities have a maturity date of October 1, 2023, at which time all outstanding principal under the Term Facilities and other obligations become due and payable in full.
At our election, interest under the Term Loan Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) the London Interbank Offered Rate with an interest period of one month (“LIBOR”), plus 1.0%, and (c) the rate of interest as publicly quoted from time to time by the Wall Street Journal as the “prime rate” in the United States; plus an applicable margin of 6.5%, or (ii) a “LIBOR rate” equal to LIBOR with an interest period of one month, plus an applicable margin of 7.5%.
The Term Loan Credit Agreement contains financial covenants, including a liquidity covenant of $10.0 million and a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability under the ABL Credit Facility (defined below) and the DDTL Facility is below $5.0 million at any time that a DDTL Facility loan is outstanding. The Term Loan Credit Agreement also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The Term Loan Credit Agreement also provides for customary events of default, including breaches of material covenants, defaults under the ABL Credit Facility or other material agreements for indebtedness, and a change of control.
The obligations under the Term Loan Credit Agreement are secured by a first priority lien on collateral (the “Term Priority Collateral”) other than accounts receivable, deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the ABL Credit Facility (defined below) and a second priority lien on such Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners, L.P. "MSD Partners") is the lender of our $130.0 million Term Loan Facility. 

17



MSD Partners, together with its affiliate, MSD Capital, L.P. (“MSD Capital”) own approximately 30% of the outstanding shares of the Company’s common stock.
In July 2019, we revised our credit agreement to explicitly permit the repurchase of equity interests by the company pursuant to the stock purchase program that was approved by our Board of Directors.
Additionally on October 1, 2018, we entered into a $40.0 million revolving Credit Agreement (the “ABL Credit Facility”), including availability for letters of credit in an aggregate amount at any time outstanding not to exceed $7.5 million. Availability under the ABL Credit Facility is subject to a borrowing base calculated based on 85% of the net amount of our eligible accounts receivable, minus reserves. The ABL Credit Facility has a maturity date of the earlier of October 1, 2023 or the maturity date of the Term Loan Credit Agreement.
At our election, interest under the ABL Credit Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) LIBOR with an interest period of one month, plus 1.0%, and (c) the prime rate of Wells Fargo, plus in each case, an applicable base rate margin ranging from 1.0% to 1.5% based on quarterly availability, or (ii) a revolving loan rate equal to LIBOR for the applicable interest period plus an applicable LIBOR margin ranging from 2.0% to 2.5% based on quarterly availability. We also pay, on a quarterly basis, a commitment fee of 0.375% (or 0.25% at any time when revolver usage is greater than 50% of the maximum credit) per annum on the unused portion of the ABL Credit Facility commitment.
The ABL Credit Facility contains a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability is less than 10% of the maximum credit. The ABL Credit Facility also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The ABL Credit Facility also provides for customary events of default, including breaches of material covenants, defaults under the Term Loan Agreement or other material agreements for indebtedness, and a change of control. We are in compliance with our covenants as of March 31, 2020.
The obligations under the 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 Term Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries.  As of March 31, 2020, the weighted-average interest rate on our borrowings was 9.84%.  At March 31, 2020, the borrowing base under our ABL Credit Facility was $20.1 million, and we had $8.6 million of availability remaining of our $40.0 million commitment on that date.
10.
Stock-Based Compensation
Prior to June 2019, we issued common stock-based awards to employees and non-employee directors under our 2012 Long-Term Incentive Plan adopted in March 2012 (the “2012 Plan”). 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 and restricted stock unit awards, and up to 275,000 shares were authorized for issuance. Restricted stock and restricted stock units may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. As of March 31, 2020, approximately 87,532 shares were available for future awards under the 2019 Plan. In connection with the adoption of the 2019 Plan, no further awards will be made under the 2012 Plan. Our policy is to account for forfeitures of share-based compensation awards as they occur.
A summary of compensation cost recognized for stock-based payment arrangements is as follows:
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Compensation cost recognized:
 
 
 
Restricted stock and restricted stock units
570

 
387

Total stock-based compensation
$
570

 
$
387

No stock-based compensation was capitalized in connection with rig construction activity during the three months ended March 31, 2020 or 2019.

18



Stock Options
We use the Black-Scholes option pricing model to estimate the fair value of stock options granted to employees and non-employee directors. The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods.
There were no stock options granted during the three months ended March 31, 2020 or 2019.
A summary of stock option activity and related information for the three months ended March 31, 2020 is as follows:
 
Three Months Ended March 31, 2020
 
Options
 
Weighted
Average
Exercise
Price
Outstanding at January 1, 2020
33,458

 
$
254.80

Granted

 

Exercised

 

Forfeited/expired

 

Outstanding at March 31, 2020
33,458

 
$
254.80

Exercisable at March 31, 2020
33,458

 
$
254.80

The number of options vested at March 31, 2020 was 33,458 with a weighted average remaining contractual life of 2.0 years and a weighted average exercise price of $254.80 per share. There were no unvested options or unrecognized compensation cost related to outstanding stock options at March 31, 2020.
Time-based Restricted Stock and Restricted Stock Units
We have granted time-based restricted stock and restricted stock units to key employees under the 2012 Plan and 2019 Plan.
Time-based Restricted Stock
Time-based restricted stock awards consist of grants of our common stock that vest over five years. We recognize compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is determined based on the estimated fair market value of our shares on the grant date. As of March 31, 2020, there was $3.0 million in unrecognized compensation cost related to unvested restricted stock awards. This cost is expected to recognized over a weighted-average period of 1.9 years.
A summary of the status of our time-based restricted stock awards and of changes in our time-based restricted stock awards outstanding for the three months ended March 31, 2020 is as follows:
 
Three Months Ended March 31, 2020
 
Shares
 
Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2020
62,817

 
$
64.40

Granted

 

Vested

 

Forfeited

 

Outstanding at March 31, 2020
62,817

 
$
64.40


19



Time-based Restricted Stock Units
We have granted three-year time vested restricted stock unit awards where each unit represents the right to receive, at the end of a vesting period, one share of ICD common stock with no exercise price. The fair value of time-based restricted stock unit awards is determined based on the estimated fair market value of our shares on the grant date. As of March 31, 2020, there was $2.3 million of total unrecognized compensation cost related to unvested time-based restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of 1.1 years.
A summary of the status of our time-based restricted stock unit awards and of changes in our time-based restricted stock unit awards outstanding for the three months ended March 31, 2020 is as follows:
 
Three Months Ended March 31, 2020
 
RSUs
 
Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2020
44,439

 
$
59.71

Granted
62,534

 
11.98

Vested and converted
(9,561
)
 
38.80

Forfeited
(3,031
)
 
38.80

Outstanding at March 31, 2020
94,381

 
$
30.88

Performance-Based and Market-Based Restricted Stock Units
We have granted three-year performance-based and market-based restricted stock unit awards, where each unit represents the right to receive, at the end of a vesting period, up to two shares of ICD common stock with no exercise price. Exercisability of the market-based restricted stock unit awards is based on our total shareholder return ("TSR") as measured against the TSR of a defined peer group and vesting of the performance-based restricted stock unit awards is based on our cumulative return on invested capital ("ROIC") as measured against ROIC performance goals determined by the compensation committee of our Board of Directors. We used a Monte Carlo simulation model to value the TSR market-based restricted stock unit awards. The fair value of the performance-based restricted stock unit awards is based on the market price of our common stock on the date of grant. During the restriction period, the performance-based and market-based restricted stock unit awards may not be transferred or encumbered, and the recipient does not receive dividend equivalents or have voting rights until the units vest. As of March 31, 2020, there was unrecognized compensation cost related to unvested performance-based or market-based restricted stock unit awards totaling $0.5 million. This cost is expected to be recognized over a weighted-average period of 1.3 years.
A summary of the status of our performance-based and market-based restricted stock unit awards and of changes in our restricted stock unit awards outstanding for the three months ended March 31, 2020 is as follows:
 
Three Months Ended March 31, 2020
 
RSUs
 
Weighted
Average
Grant-Date
Fair Value
Per Share
Outstanding at January 1, 2020
23,480

 
$
33.90

Granted
24,854

 
12.50

Vested and converted

 

Forfeited

 

Outstanding at March 31, 2020
48,334

 
$
22.90



20



11.
Stockholders’ Equity and Earnings (Loss) per Share
As of March 31, 2020, we had a total of 3,809,548 shares of common stock, $0.01 par value, outstanding. We also had 78,589 shares held as treasury stock. Total authorized common stock is 50,000,000 shares.
Basic earnings (loss) per common share (“EPS”) are computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the numerators and denominators of the basic and diluted losses per share computations is as follows:
 
Three Months Ended March 31,
(in thousands, except per share data)
2020
 
2019
Net loss (numerator):
$
(28,223
)
 
$
(2,373
)
Loss per share:
 
 
 
Basic and diluted
$
(7.53
)
 
$
(0.63
)
Shares (denominator):
 
 
 
Weighted average common shares outstanding - basic
3,750

 
3,785

Weighted average common shares outstanding - diluted
3,750

 
3,785

For all periods presented, the computation of diluted loss per share excludes the effect of certain outstanding stock options and RSUs because their inclusion would be anti-dilutive. The number of options that were excluded from diluted loss per share were 33,458 during the three months ended March 31, 2020 and 33,458 during the three months ended March 31, 2019. The number of RSUs, which are not participating securities, that were excluded from our basic and diluted loss per share because they are anti-dilutive, were 142,715 for the three months ended March 31, 2020 and 20,480 for the three months ended March 31, 2019.
12.
Income Taxes
Our effective tax rate was 0.1% and 51.7% for the three months ended March 31, 2020 and 2019, respectively. Taxes in both periods relate to Louisiana state income tax and Texas margin tax. In the first quarter of 2020, the rate is largely driven by the recording of a valuation allowance against the Louisiana deferred tax assets, caused by the asset impairment recorded. In the first quarter of 2019, our effective tax rate was significantly higher based on our then full year forecast of net income before taxes and the application of our estimated annual rate to our year-to-date results.  We finished 2019 with an annual effective rate of 0.2%.
13.
Commitments and Contingencies
Purchase Commitments
As of March 31, 2020, we had outstanding purchase commitments to a number of suppliers totaling $2.9 million related primarily to the operation of drilling rigs. All of these commitments relate to equipment and services currently scheduled for delivery in 2020.
Contingencies
We may be the subject of lawsuits and claims arising in the ordinary course of business from time to time. Management cannot predict the ultimate outcome of such lawsuits and claims. While lawsuits and claims are asserted for amounts that may be material should an unfavorable outcome be the result, management does not currently expect that the outcome of any of these known legal proceedings or claims will have a material adverse effect on our financial position or results of operations.
14.
Related Parties
In conjunction with the closing of the Sidewinder Merger on October 1, 2018, we entered into the Term Loan Credit Agreement for an initial term loan in an aggregate principal amount of $130.0 million and a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners) is the lender of our $130.0 million Term Loan Facility.  MSD Partners, together with MSD Capital, own approximately 30% of the outstanding shares of the Company’s common stock as of March 31, 2020.

21



We made interest payments on the Term Loan Facility totaling $3.2 million and $3.3 million for the three months ended March 31, 2020 and 2019, respectively.
Additionally, we have recorded merger consideration payable to an affiliate of $2.9 million related to proceeds received from the sale of specific assets earmarked in the Sidewinder Merger agreement as assets held for sale with the Sidewinder unitholders receiving the net proceeds. We are required to make this payment to MSD, the shareholders’ representative, in the second quarter of 2020.



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 2, 2020 (the “Form 10-K”). This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in the section titled Cautionary Statement Regarding Forward-Looking Statements” and those set forth under Part 1“Item 1A. Risk Factors” or in other parts of the Form 10-K.
Management Overview
We were incorporated in Delaware on November 4, 2011. 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. Our first rig began drilling in May 2012. On October 1, 2018, we completed a merger with Sidewinder Drilling LLC. As a result of this merger, we more than doubled our operating fleet and personnel.
Our rig fleet includes 29 marketed AC powered (“AC”) rigs and a number of additional rigs requiring conversions or upgrades in order to meet our AC pad-optimal specifications. We do not intend to complete these conversions or upgrades until market conditions improve.    
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, the Haynesville Shale and the Eagle Ford Shale; however, our rigs have previously operated in the 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.
Significant Developments
COVID-19 Pandemic and Market Conditions Update
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (“COVID-19”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The continued spread of the COVID-19 virus and the responses taken to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, has caused significant declines in global demand for crude oil. This reduction in demand has occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). Even with recent production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories have continued to rise and to test storage capacity and logistics networks. These factors have led to a collapse in oil prices, with the WTI price for May delivery closing at negative $37.63 per barrel on April 20, 2020. Downward pressure on oil prices is expected to continue for the foreseeable future, and the long-term effects on production and demand are unknown at this time. Currently, there is considerable uncertainty regarding measures to contain the virus and what potential future measures may be put in place, therefore we cannot predict when worldwide demand for oil will stabilize and if or when it will begin to improve or reach pre-COVID-19 levels.
In response to these adverse market conditions, North American exploration companies, including all of our customers, have rapidly reduced planned capital expenditures and drilling activity. As a result, demand for our products and services began to rapidly decline late in the first quarter of 2020, and we expect demand for our products and services to

23



continue to decline and remain low as our customers continue adjusting their operations in response to market conditions. During the first quarter of 2020, our operating rig count reached a peak of 22 rigs. Based upon customer actions to date, we expect our operating rig count to fall to six rigs by the end of the second quarter of 2020. However, due to the lack of visibility and confidence towards customer intentions, we cannot assure you that our operating rig count will not fall below these levels by that period of time or thereafter. Our current backlog of contracts stands at 3.2 average rigs during the third quarter of 2020 and 1.8 average rigs during the fourth quarter of 2020, and none of our current drilling contracts have terms extending into 2021 or beyond. As a result of this rapidly declining operating level coupled with downward pressure on dayrates we charge for our contract drilling services, we will experience corresponding reductions in revenue, operating margins and cash flows.
Due to these rapidly declining market conditions, we took the following actions at the end of the first quarter of 2020 in order to reduce our cost structure:
Salary or compensation reductions for substantially all our employees, including members of executive management;
Suspension of all cash-based incentive compensation, including all members of executive management;
Reducing the number of executive management positions by two;
Reducing the number of directors from seven to five, which would become effective following director elections at our 2020 Annual Meeting of Stockholders currently scheduled to occur on June 12, 2020;
Annual compensation reductions for our directors; and
Reducing headcount for non-field-based personnel by approximately 40%
Depending upon the nature and duration of the COVID-19 pandemic, the nature of containment measures taken in the future, it could have a material adverse effect on our business, results of operations and financial condition.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.    
On April 27, 2020, we entered into an unsecured loan in the aggregate principal amount of $10.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration (the “SBA”) as guarantor of loans under the PPP. The PPP is part of the CARES Actand it provides for loans to qualifying businesses in a maximum amount equal to the lesser of $10.0 million and 2.5 times the average monthly payroll expenses of the qualifying business. The proceeds of the loan may only be used for payroll costs, rent, utilities, mortgage interests, and interest on other pre-existing indebtedness (the “permissible purposes”).
The application for these funds required us to, in good faith, certify that current economic uncertainty made the loan request necessary to support our ongoing operations. This certification further required us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. In making our certification, we considered numerous factors, including (i) current market and economic conditions, including the significant declines in worldwide demand and oil prices as a result of the COVID-19 pandemic and the uncertainty and inability to predict when market conditions will stabilize and begin to improve, (ii) the actions and communications from our customers that have caused and will cause our operating rig count to fall (from a high of 22 rigs during the first quarter of 2020, to an estimated six rigs by the end of the second quarter of 2020 and potential further reductions depending on when oil supply and demand fundamentals rebalance and U.S. land rig counts stabilize and begin to improve), (iii) whether our current sources of liquidity, comprised of cash and cash equivalents, availability under our revolving credit facility and accordion under our term loan facility, would be sufficient to finance our operations and required expenditures while industry and market conditions remain distressed, (iv) our status as a micro-cap public company, and (v) our belief, after inquiry, that capital markets were not reasonably available or open to us at such time for new issuances of debt or equity.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue; or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.

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The CARES Act did not have a material impact on our income taxes.  Management will continue to monitor future developments and interpretations for any further impacts on our financial condition, results of operations, or liquidity.
Asset Impairments, net
As a result of the rapidly deteriorating market conditions described in "COVID-19 Pandemic and Market Conditions Update", we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory. Due to the uncertainty around the COVID-19 pandemic and current market conditions, we may have to make further impairment charges in future periods relating to, among other things, fixed assets and inventory.
Additionally, in the first quarter of 2019, we recorded $2.0 million of asset impairment expense in conjunction with the sale of miscellaneous drilling equipment at auctions in April of 2019.
Reverse Stock Split
Following approval by our stockholders on February 6, 2020, our Board of Directors approved a 1-for-20 reverse stock split of our common stock. The reverse split was effective March 11, 2020, and all share and earnings per share information have been retroactively adjusted to reflect the reverse stock split and the associated decrease in par value was recorded with the offset to additional paid-in capital.

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Our Revenues
We earn contract drilling revenues pursuant to drilling contracts entered into with our customers. We perform drilling services on a “daywork” basis, under which we charge a specified rate per day, or “dayrate.” The dayrate associated with each of our contracts is a negotiated price determined by the capabilities of the rig, location, depth and complexity of the wells to be drilled, operating conditions, duration of the contract and market conditions. The term of land drilling contracts may be for a defined number of wells or for a fixed time period. We generally receive lump-sum payments for the mobilization of rigs and other drilling equipment at the commencement of a new drilling contract. Revenue and costs associated with the initial mobilization are deferred and recognized ratably over the term of the related drilling contract once the rig spuds. Costs incurred to relocate rigs and other equipment to an area in which a contract has not been secured are expensed as incurred. If a contract is terminated prior to the specified contract term, early termination payments received from the customer are only recognized as revenues when all contractual obligations, such as mitigation requirements, are satisfied. While under contract, our rigs generally earn a reduced rate while the rig is moving between wells or drilling locations, or on standby waiting for the customer. Reimbursements for the purchase of supplies, equipment, trucking and other services that are provided at the request of our customers are recorded as revenue when incurred.  The related costs are recorded as operating expenses when incurred. Revenue is presented net of any sales tax charged to the customer that we are required to remit to local or state governmental taxing authorities.
Our Operating Costs
Our operating costs include all expenses associated with operating and maintaining our drilling rigs. Operating costs include all “rig level” expenses such as labor and related payroll costs, repair and maintenance expenses, supplies, workers’ compensation and other insurance, ad valorem taxes and equipment rental costs. Also included in our operating costs are certain costs that are not incurred at the “rig level.” These costs include expenses directly associated with our operations management team as well as our safety and maintenance personnel who are not directly assigned to our rigs but are responsible for the oversight and support of our operations and safety and maintenance programs across our fleet.
How We Evaluate our Operations
We regularly use a number of financial and operational measures to analyze and evaluate the performance of our business and compensate our employees, including the following:
Safety Performance. Maintaining a strong safety record is a critical component of our business strategy. We measure safety by tracking the total recordable incident rate for our operations. In addition, we closely monitor and measure compliance with our safety policies and procedures, including “near miss” reports and job safety analysis compliance. We believe our Risk-Based HSE management system provides the required control, yet needed flexibility, to conduct all activities safely, efficiently and appropriately.
Utilization. Rig utilization measures the percentage of time that our rigs are earning revenue under a contract during a particular period. We measure utilization by dividing the total number of Operating Days (defined below) for a rig by the total number of days the rig is available for operation in the applicable calendar period. A rig is available for operation commencing on the earlier of the date it spuds its initial well following construction or when it has been completed and is actively marketed. “Operating Days” represent the total number of days a rig is earning revenue under a contract, beginning when the rig spuds its initial well under the contract and ending with the completion of the rig’s demobilization.
Revenue Per Day. Revenue per day measures the amount of revenue that an operating rig earns on a daily basis during a particular period. We calculate revenue per day by dividing total contract drilling revenue earned during the applicable period by the number of Operating Days in the period. Revenues attributable to costs reimbursed by customers are excluded from this measure.
Operating Cost Per Day. Operating cost per day measures the operating costs incurred on a daily basis during a particular period. We calculate operating cost per day by dividing total operating costs during the applicable period by the number of Operating Days in the period. Operating costs attributable to costs reimbursed by customers and rig construction costs are excluded from this measure.
Operating Efficiency and Uptime. Maintaining our rigs’ operational efficiency is a critical component of our business strategy. We measure our operating efficiency by tracking each drilling rig’s unscheduled downtime on a daily, monthly, quarterly and annual basis.

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Results of Operations
The following summarizes our financial and operating data for the three months ended March 31, 2020 and 2019:
 
Three Months Ended
(In thousands, except per share data)
March 31, 2020
 
March 31, 2019
Revenues
$
38,494

 
$
60,358

Costs and expenses
 
 
 
Operating costs
30,229

 
39,333

Selling, general and administrative
3,761

 
4,545

Severance and merger-related expenses
1,076

 
1,081

Depreciation and amortization
11,516

 
11,313

Asset impairment (insurance recoveries), net
16,619

 
2,018

Gain (loss) on disposition of assets, net
(46
)
 
3,220

Total cost and expenses
63,155

 
61,510

Operating loss
(24,661
)
 
(1,152
)
Interest expense
(3,604
)
 
(3,761
)
Loss before income taxes
(28,265
)
 
(4,913
)
Income tax benefit
(42
)
 
(2,540
)
Net loss
$
(28,223
)
 
$
(2,373
)
 
 
 
 
Other financial and operating data
 
 
 
Number of marketed rigs (end of period) (1)
29

 
32

Rig operating days (2)
1,738

 
2,728

Average number of operating rigs (3)
19.1

 
30.3

Rig utilization (4)
66.0
%
 
94.8
%
Average revenue per operating day (5)
$
19,823

 
$
20,755

Average cost per operating day (6)
$
14,648

 
$
13,302

Average rig margin per operating day
$
5,175

 
$
7,453

(1)
Number of marketed rigs as of March 31, 2020 decreased by three rigs as compared to the number of marketed rigs as of March 31, 2019 as a result of the removal of three rigs from our marketed fleet in the third quarter of 2019. Marketed rigs exclude idle rigs that will not be reactivated until upgrades or conversions are complete.
(2)
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.
(3)
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.
(4)
Rig utilization is calculated as rig operating days divided by the total number of days our drilling rigs are available during the applicable period.
(5)
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 (i) out-of-pocket costs paid by customers of $4.0 million and $2.7 million during the three months ended March 31, 2020 and 2019, respectively, and (ii) revenues associated with the amortization of intangible revenue acquired in the Sidewinder merger of $1.0 million during the three months ended March 31, 2019.
(6)
Average cost per operating day represents 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 $4.0 million and $2.7 million during the three months ended March 31, 2020 and 2019,

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respectively, and (ii) overhead costs expensed due to reduced rig upgrade activity of $0.6 million and $0.3 million during the three months ended March 31, 2020 and 2019, respectively.

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Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenues
Revenues for the three months ended March 31, 2020 were $38.5 million, representing a 36.2% decrease as compared to revenues of $60.4 million for the three months ended March 31, 2019. This decrease was attributable to a decrease in operating days to 1,738 days as compared to 2,728 days in the prior year comparable quarter. The decrease in operating days was primarily attributable to the current drastic downturn in market conditions as a result of the COVID-19 pandemic and the concurrent initiation of a crude oil price war between members of the “OPEC+” group. On a revenue per operating day basis, which excludes the impact of intangible revenues, our revenue per day decreased by 4.5% to $19,823 during the three months ended March 31, 2020, as compared to revenue per day of $20,755 for the three months ended March 31, 2019. This decrease in revenue per day was the result of declining dayrates as compared to the prior year quarter.
Operating Costs
Operating costs for the three months ended March 31, 2020 were $30.2 million, representing a 23.1% decrease as compared to operating costs of $39.3 million for the three months ended March 31, 2019. This decrease was primarily attributable to a decrease in operating days to 1,738 days as compared to 2,728 days in the prior year comparable quarter. The decrease in operating days was primarily attributable to the current drastic downturn in market conditions as a result of the COVID-19 pandemic and the concurrent initiation of a crude oil price war between members of the “OPEC+” group. On a cost per operating day basis, our cost increased to $14,648 per day during the three months ended March 31, 2020, representing an 10.1% increase compared to cost per operating day of $13,302 for the three months ended March 31, 2019. This increase was primarily attributable to increased labor costs associated with inefficiencies and transitory downtime resulting from rig releases and the reduction of operating rigs during the current quarter.
Selling, General and Administrative
Selling, general and administrative expenses for the three months ended March 31, 2020 were $3.8 million, representing a 17.2% decrease as compared to selling, general and administrative expense of $4.5 million for the three months ended March 31, 2019. This decrease as compared to the prior year comparable quarter primarily relates to lower cash incentive pay, travel, training and professional fees in the current quarter.
Severance and Merger-related Expenses
Severance expense of $1.1 million was recorded for the three months ended March 31, 2020 in connection with our cost reduction measures instituted in response to the COVID-19 pandemic and current deteriorating market conditions.
Merger-related expenses of $1.1 million were recorded for the three months ended March 31, 2019, primarily comprised of severance, professional fees and other merger-related expenses.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended March 31, 2020 was $11.5 million, representing a 1.8% increase compared to depreciation and amortization expense of $11.3 million for the three months ended March 31, 2019.
Assets Impairment, net
As a result of the rapidly deteriorating market conditions described in "COVID-19 Pandemic and Market Conditions Update", we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory. Due to the uncertainty around COVID-19 and current market conditions, we may have to make further impairment charges in future periods relating to, among other things, fixed assets and inventory.
Additionally, in the first quarter of 2019, we recorded $2.0 million of asset impairment expense in conjunction with the sale of miscellaneous drilling equipment at auctions in April of 2019.

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(Gain) Loss on Disposition of Assets, net
A gain on the disposition of assets totaling $46.0 thousand was recorded for the three months ended March 31, 2020 compared to a loss on the disposition of assets totaling $3.2 million in the prior year comparable period. In the current year period the gain relates to the sale of miscellaneous drilling equipment. In the prior year period, the loss relates primarily to the sale of certain surplus assets, acquired in the Sidewinder Merger, at auctions during the quarter.
Interest Expense
Interest expense for the three months ended March 31, 2020 was $3.6 million, as compared to $3.8 million for the three months ended March 31, 2019.
Income Tax Benefit
Income tax benefit recorded for the three months ended March 31, 2020 and 2019 amounted to $42.0 thousand and $2.5 million, respectively. Our effective tax rates for the three months ended March 31, 2020 and 2019 were 0.1% and 51.7%, respectively. Taxes in both periods relate to Louisiana state income tax and Texas margin tax. In the first quarter of 2020, the rate is largely driven by the recording of a valuation allowance against the Louisiana deferred tax assets, caused by the asset impairment recorded. In the first quarter of 2019, our effective tax rate was significantly higher based on our then full year forecast of net income before taxes and the application of our estimated annual rate to our year-to-date results.  We finished 2019 with an annual effective rate of 0.2%.
Liquidity and Capital Resources
Our liquidity at March 31, 2020 consisted of cash on hand of $9.8 million, other net working capital of $0.9 million,$8.6 million of availability under our revolving credit facility and $15 million available under the accordion feature of our term loan facility. As a result of the extreme and rapid nature of the decline in market conditions caused by the COVID-19 pandemic, our liquidity and capital resources are being impaired and will continue to be impaired until market conditions stabilize and improve. Currently, we expect our operating rig count to fall to six rigs by the end of the second quarter of 2020, and based upon our declining backlog of contracts for the second half of 2020, there is substantial risk that the rig count could fall to even lower levels. Because availability under our revolving credit facility is determined based upon a borrowing base tied to eligible accounts receivable, the amount we are able to borrow under our revolving credit facility is expected to decline as our accounts receivable balances fall in proportion to our reduction in operating activity. Looking forward past March 31, 2020, we currently estimate that required non-operating cash payments for interest under our credit facilities, maintenance capital expenditures and finance lease payments will approximate $18.7 million for the remainder of 2020. Because our cash flows from operations will be materially impacted by operating declines caused by the COVID-19 pandemic, we plan to draw down funds pursuant to the $15 million accordion feature under our term loan to meet required non-operating expenditures and to fund operations. In addition, on April 27, 2020, we entered into the $10 million PPP Loan pursuant to the Paycheck Protection Program (the “PPP”). We will use the proceeds of the loan for payroll costs, rent, utilities, mortgage interests, and other permitted purposes. We currently believe that these sources of liquidity are sufficient to fund or operations for the next twelve months. However, due to the uncertainty regarding the duration of the COVID-19 pandemic and its effects on the oil and gas industry and our business and operations, there can be no assurance in this regard.
Net Cash Provided By Operating Activities
Cash provided by operating activities was $3.1 million for the three months ended March 31, 2020 compared to cash provided by operating activities of $7.6 million during the same period in 2019. Factors affecting changes in operating cash flows are similar to those that impact net earnings, with the exception of non-cash items such as depreciation and amortization, impairments, gains or losses on disposals of assets, stock-based compensation, deferred taxes and amortization of deferred financing costs. Additionally, changes in working capital items such as accounts receivable, inventory, prepaid expense and accounts payable can significantly affect operating cash flows. Cash flows from operating activities during the first three months of 2020 were lower as a result of an increase in net loss of $25.9 million, adjusted for non-cash items, of $28.8 million for the three months ended March 31, 2020 compared to $14.6 million for non-cash items during the same period in 2019. Additionally, working capital changes increased cash flows from operating activities by $2.5 million for the three months ended March 31, 2020 compared to a reduction of cash flows of $4.6 million during the same period in 2019.

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Net Cash Used In Investing Activities
Cash used in investing activities was $8.4 million for the three months ended March 31, 2020 compared to cash used in investing activities of $9.3 million during the same period in 2019. During the first three months of 2020, cash payments of $9.1 million for capital expenditures were offset by proceeds from the sale of property, plant and equipment of $0.6 million and the collection of principal on a note receivable of $0.1 million. During the 2019 period, cash payments of $10.8 million for capital expenditures were offset by insurance proceeds of $1.0 million and proceeds from the sale of property, plant and equipment of $0.5 million.
Net Cash Provided by Financing Activities
Cash provided by financing activities was $9.8 million for the three months ended March 31, 2020 compared to cash provided by financing activities of $2.0 million during the same period in 2019. During the first three months of 2020, we made borrowings under our revolving credit facility of $11.0 million. These proceeds were offset by repayments under our revolving credit facility of $38.0 thousand, the purchase of treasury stock of $66.0 thousand, restricted stock unit’s withheld for taxes paid of $26.0 thousand and payments for finance lease obligations of $1.1 million. During the first three months of 2019 we made borrowings under our revolving credit facility of $2.4 million. These proceeds were offset by common stock issuance costs of $0.2 million and payments for finance lease obligations of $0.2 million.
Long-term Debt
On October 1, 2018, we entered into a term loan Credit Agreement (the “Term Loan Credit Agreement”) for an initial term loan in an aggregate principal amount of $130.0 million, (the “Term Loan Facility”) and (b) a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million (the “DDTL Facility”, and together with the Term Loan Facility, the “Term Facilities”). The Term Facilities have a maturity date of October 1, 2023, at which time all outstanding principal under the Term Facilities and other obligations become due and payable in full.
At our election, interest under the Term Loan Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) the London Interbank Offered Rate with an interest period of one month (“LIBOR”), plus 1.0%, and (c) the rate of interest as publicly quoted from time to time by the Wall Street Journal as the “prime rate” in the United States; plus an applicable margin of 6.5%, or (ii) a “LIBOR rate” equal to LIBOR with an interest period of one month, plus an applicable margin of 7.5%.
The Term Loan Credit Agreement contains financial covenants, including a liquidity covenant of $10.0 million and a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability under the ABL Credit Facility (defined below) and the DDTL Facility is below $5.0 million at any time that a DDTL Facility loan is outstanding. The Term Loan Credit Agreement also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The Term Loan Credit Agreement also provides for customary events of default, including breaches of material covenants, defaults under the ABL Credit Facility or other material agreements for indebtedness, and a change of control.
The obligations under the Term Loan Credit Agreement are secured by a first priority lien on collateral (the “Term Priority Collateral”) other than accounts receivable, deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the ABL Credit Facility (defined below) and a second priority lien on such Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. MSD PCOF Partners IV, LLC (an affiliate of MSD Partners) is the lender of our $130.0 million Term Loan Facility.  MSD Partners, together with MSD Capital, own approximately 30% of the outstanding shares of the Company’s common stock.
In July 2019, we revised our credit agreement to explicitly permit the repurchase of equity interests by the company pursuant to the stock purchase program that was approved by our Board of Directors.
Additionally on October 1, 2018, we entered into a $40.0 million revolving Credit Agreement (the “ABL Credit Facility”), including availability for letters of credit in an aggregate amount at any time outstanding not to exceed $7.5 million. Availability under the ABL Credit Facility is subject to a borrowing base calculated based on 85% of the net amount of our eligible accounts receivable, minus reserves. The ABL Credit Facility has a maturity date of the earlier of October 1, 2023 or the maturity date of the Term Loan Credit Agreement.
At our election, interest under the ABL Credit Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) LIBOR with an interest period of one month, plus 1.0%, and (c) the prime rate of Wells Fargo, plus in each case, an applicable base rate margin ranging from 1.0% to 1.5% based on quarterly availability, or (ii) a revolving loan rate equal to LIBOR for the applicable interest

31



period plus an applicable LIBOR margin ranging from 2.0% to 2.5% based on quarterly availability. We also pay, on a quarterly basis, a commitment fee of 0.375% (or 0.25% at any time when revolver usage is greater than 50% of the maximum credit) per annum on the unused portion of the ABL Credit Facility commitment.
The ABL Credit Facility contains a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability is less than 10% of the maximum credit. The ABL Credit Facility also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The ABL Credit Facility also provides for customary events of default, including breaches of material covenants, defaults under the Term Loan Agreement or other material agreements for indebtedness, and a change of control. We are in compliance with our covenants as of March 31, 2020.
The obligations under the 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 Term Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries.  As of March 31, 2020, the weighted-average interest rate on our borrowings was 9.84%.  At March 31, 2020, the borrowing base under our ABL Credit Facility was $20.1 million, and we had $8.6 million of availability remaining of our $40.0 million commitment on that date.
In addition, on April 27, 2020, we entered into an unsecured loan in the aggregate principal amount of $10.0 million (the “PPP Loan”) pursuant to the PPP, sponsored by the SBA as guarantor of loans under the PPP. The PPP is part of the CARES Actand it provides for loans to qualifying businesses in a maximum amount equal to the lesser of $10.0 million and 2.5 times the average monthly payroll expenses of the qualifying business. The proceeds of the loan may only be used for payroll costs, rent, utilities, mortgage interests, and interest on other pre-existing indebtedness (the “permissible purposes”).
The application for these funds required us to, in good faith, certify that current economic uncertainty made the loan request necessary to support our ongoing operations. This certification further required us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. In making our certification, we considered numerous factors, including (i) current market and economic conditions, including the significant declines in worldwide demand and oil prices as a result of the COVID-19 pandemic and the uncertainty and inability to predict when market conditions will stabilize and begin to improve, (ii) the actions and communications from our customers that have caused and will cause our operating rig count to fall (from a high of 22 rigs during the first quarter of 2020, to an estimated six rigs by the end of the second quarter of 2020 and potential further reductions depending on when oil supply and demand fundamentals rebalance and U.S. land rig counts stabilize and begin to improve), (iii) whether our current sources of liquidity, comprised of cash and cash equivalents, availability under our revolving credit facility and accordion under our term loan facility, would be sufficient to finance our operations and required expenditures while industry and market conditions remain distressed, (iv) our status as a micro-cap public company, and (v) our belief, after inquiry, that capital markets were not reasonably available or open to us at such time for new issuances of debt or equity.
Additionally, included in our long-term debt are finance leases. These leases generally have initial terms of 36 months and are paid monthly.
 Other Matters
Off-Balance Sheet Arrangements
We are party to certain arrangements defined as “off-balance sheet arrangements” that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.  These arrangements relate to non-cancelable operating leases and unconditional purchase obligations not fully reflected on our balance sheets (see Note 13 “Commitments and Contingencies” for additional information).
Critical Accounting Policies and Accounting Estimates
We review our assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets that are held and used is measured by comparison of the estimated future undiscounted cash flows associated with the asset to the carrying amount of the asset. If the carrying value of such assets is less than the estimated undiscounted cash flow, an impairment charge is recorded in the amount by which the carrying amount of the assets exceeds their estimated fair value.  
As a result of the rapidly deteriorating market conditions described in "COVID-19 Pandemic and Market Conditions Update", we concluded that a triggering event occurred and, accordingly, an interim asset impairment test was performed as of

32



March 31, 2020. As a result, we further impaired $3.3 million associated with the decline in the market value of our assets held for sale and $13.3 million related to the remaining assets on rigs removed from our marketed fleet, as well as certain other component equipment and inventory. Due to the uncertainty around COVID-19 and current market conditions, we may have to make further impairment charges in future periods relating to, among other things, fixed assets and inventory.
For a complete discussion of our critical accounting policies and accounting estimates, please see our Annual Report on Form 10-K for the year ended December 31, 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. In October 2019, the FASB approved a proposal which grants smaller reporting companies additional time to implement FASB standards on current expected credit losses (CECL) to January 2023. As a smaller reporting company, we will defer adoption of ASU 2016-13 until January 2023. We are currently evaluating the impact this guidance will have on our accounts receivable.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The amendments in the update are effective for public companies for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We plan to adopt this guidance on January 1, 2021 and are currently evaluating the impact of adoption on our consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks including risks related to potential adverse changes in interest rates and commodity prices. We actively monitor exposure to market risk and continue to develop and utilize appropriate risk management techniques. We do not use derivative financial instruments for trading or to speculate on changes in commodity prices.
Interest Rate Risk
Total long-term debt at March 31, 2020 included $141.0 million of floating-rate debt attributed to borrowings at an average interest rate of 9.84%. As a result, our annual interest cost in 2020 will fluctuate based on short-term interest rates. The impact on annual cash flow of a 10% change in the floating-rate (approximately 10.83%) would be approximately $1.3 million annually based on the floating-rate debt and other obligations outstanding at March 31, 2020; however, there are no assurances that possible rate changes would be limited to such amounts.
Commodity Price Risk
Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas generally results in lower prices for these commodities and may impact the economics of planned drilling projects and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending decline, both dayrates and utilization have also historically declined. Further declines in oil and natural gas prices and the general economy, could materially and adversely affect our business, results of operations, financial condition and growth strategy.
In addition, if oil and natural gas prices decline, companies that planned to finance exploration, development or production projects through the capital markets may be forced to curtail, reduce, postpone or delay drilling activities even further, and also may experience an inability to pay suppliers. Adverse conditions in the global economic environment could also impact our vendors’ and suppliers’ ability to meet obligations to provide materials and services in general. If any of the foregoing were to occur, or if current depressed market conditions continue for a prolonged period of time, it could have a material adverse effect on our business and financial results and our ability to timely and successfully implement our growth strategy.
The COVID-19 pandemic, responses taken and economic effects have caused significant declines in the global demand for crude oil. This demand declines in has occurred concurrent with the initiation of a crude oil price war between members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (collectively, the “OPEC+” group). These combined events have resulted significant declines in demand for oil and major disruptions to global energy prices. Even with recent production cuts announced by the OPEC+ group and others on April 9, 2020, and the cessation to the crude oil price war, crude oil inventories have continued to rise and to test storage capacity and logistics networks. These factors have led to a collapse in oil prices, with the WTI price for May delivery closing at negative $37.63 per barrel on April 20, 2020. Downward pressure on oil prices is expected to continue for the foreseeable future, and the long-term effects on production and demand are unknown at this time.
We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels. The extent to which our operating and financial results are affected by COVID-19 will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic; and the speed and effectiveness of responses to combat the virus. As a result, our business, operating results and financial conditions are subject to various risks outlined in this Current Report on Form 10-Q under Part II, Section 1a “Risk Factors”, as well as the risk factors outlined in our Annual Report on Form 10-K, many of which are aggravated as a result of the declining market conditions and significant uncertainty caused by the COVID-19 pandemic.
Credit and Capital Market Risk
Our customers may finance their drilling activities through cash flow from operations, the incurrence of debt or the issuance of equity. Any deterioration in the credit and capital markets, as currently being experienced, can make it difficult for our customers to obtain funding for their capital needs. A reduction of cash flow resulting from declines in commodity prices, or a reduction of available financing may result in a reduction in customer spending and the demand for our drilling services. This reduction in spending could have a material adverse effect on our business, financial condition, cash flows and results of operations.

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We expect all of our customers, lenders and suppliers are being adversely affected in some fashion by the COVID-19 pandemic. Although we are not currently experiencing any material disruption in payments by customers at this time, given the dramatic impact the COVID-19 pandemic has had on the oil and gas industry and our customers, there is no assurance that our customers’ financial position will not be adversely impacted which could result in payment delays and payment defaults. Availability under our revolving line of credit is based upon a borrowing base determined by the level of our accounts receivable, with uncollectable amounts or amounts greater than 90 days past excluded from consideration. As a result, delays in payment or payment defaults by any of our customers could have a material adverse impact on our financial liquidity. Similarly, our suppliers may not extend credit to us or require less favorable payment terms or face similar challenges with their own suppliers. We also are reliant upon our third-party lenders’ ability to meet their commitments under our existing credit facilities. Given the dramatic impact of the COVID-19 pandemic across industries and geographic regions, we cannot predict the magnitude it may have on our lenders’ ability to meet their commitments to us, and any failure to do so would have a material adverse effect on our liquidity and financial position.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our principal executive officer and principal financial officer have concluded that our current disclosure controls and procedures were effective as of March 31, 2020 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II — OTHER INFORMATION
ITEM  1. LEGAL PROCEEDINGS
We are the subject of certain legal proceedings and claims arising in the ordinary course of business from time to time. Management cannot predict the ultimate outcome of such legal proceedings and claims. While the legal proceedings and claims may be asserted for amounts that may be material should an unfavorable outcome be the result, management does not currently expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations. In addition, management monitors our legal proceedings and claims on a quarterly basis and establishes and adjusts any reserves as appropriate to reflect our assessment of the then-current status of such matters.
ITEM 1A. RISK FACTORS
In addition to the risks related to our business set forth under “Risk Factors” in our Form 10-K for the year ended December 31, 2019, our business is subject to the following risks:
The ongoing COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, results of operations and financial condition, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on our business, liquidity, results of operations and financial condition.
The recent worldwide outbreak of COVID-19, the uncertainty regarding the impact of COVID-19 and various governmental actions taken to mitigate the impact of COVID-19, have resulted in a decline in demand for oil and natural gas. To the extent that the outbreak of COVID-19 continues to negatively impact demand and OPEC members and other oil exporting nations fail to implement agreed to production cuts or other actions that are sufficient to support and stabilize commodity prices, we expect our business, operating results and financial condition to remain depressed with further declines in activity levels possible.
Given the nature and significance of the COVID-19 pandemic on demand for oil, and the uncertainty regarding the length of this impact, our business is subject to substantial risks outside of our control, which include, but are not limited to:
disruption to our supply chain for equipment, supplies and materials essential to our business;
notices from customers or suppliers arguing that their non-performance under our contracts with them is permitted as a result of force majeure or other reasons;
reductions in our borrowing base under our revolving line of credit related to delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies;
a need to preserve liquidity, which could result in reductions or delays to planned maintenance capital expenditures or failure to pursue other business opportunities;
actions by the lenders under our revolving credit facility that additional borrowings will not be permitted as a result of the occurrence of a material adverse effect caused by the COVID-19 pandemic;
actions by the lenders under our term loan that additional borrowings pursuant to our $15 million term loan accordion will not be permitted as a result of the occurrence of a material adverse effect caused by the COVID-19 pandemic;
our ability to comply with minimum liquidity and springing fixed charge coverage ratio covenants contained in our credit facilities;
cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;
litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;
additional reductions to our workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;
additional asset impairments, including an impairment of the carrying value of our assets as demand for our contract drilling services decreases;
infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate; and
changes in the regulation of the production of hydrocarbons, such as the imposition of limitations on the production of oil and gas by states in our target markets or other jurisdictions, that may result in additional limits on demand for our contract drilling services.

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If any of these risk factors were to come to fruition, they could have a material adverse effect on our business, liquidity, results of operations and financial condition.
Due to the adverse effects of the COVID-19 pandemic on the oil and gas industry, our operating rig count is dropping rapidly, and we cannot assure you when it will stabilize or begin to improve. Depending upon the duration of this decline and the length of time it takes for our operating rig count to improve, this could have a material adverse effect on our business, liquidity, results of operations and financial condition.
During the first quarter of 2020, our operating rig count reached a peak of 22 rigs. Since that time, market deterioration caused by COVID-19 has caused our customers to reduce drilling activity, which has resulted in our operating rig count to begin to rapidly decline. Currently, based upon customer actions to date, we would expect our operating rig count to fall to six rigs by the end of the second quarter of 2020, however, due to the lack of visibility and confidence towards customer intentions, we cannot assure you that our operating rig count will not fall below these levels. For example, our current backlog of contracts stands at 3.2 average rigs during the third quarter of 2020 and 1.8 average rigs during the fourth quarter of 2020, and none of our current drilling contracts have terms extending into 2021 or beyond. We also cannot assure you if or when market conditions will improve and if or when our operating rig count will begin to improve or reach pre-COVID-19 levels. A substantially lower operating rig count could have materially adverse effect on our business, liquidity, results of operations and financial condition.
Due to the adverse effects of the COVID-19 pandemic on the oil and gas industry, we expect our cash flows from operations to decrease dramatically, which could have a material adverse effect on our business, liquidity, results of operations and financial condition.
As a result of the ongoing decline in our operating rig count and associated dayrate pressure and margin contraction in the current oil and gas operating environment we expect that our cash flows from operations will decrease dramatically, and that we will need to draw on our existing sources of available liquidity until market conditions begin to improve in order to maintain operations and make required non-operating expenditures. Current sources of liquidity at March 31, 2020 include $9.8 million of cash, other net working capital of $0.9 million, $8.6 million of availability under our revolving credit facility and $15 million available under our term loan accordion. In addition, on April 27, 2020, we entered into the $10 million PPP Loan pursuant to the Paycheck Protection Program (the “PPP”). We will use the proceeds of the loan for payroll costs, rent, utilities, mortgage interests, and other permitted purposes. We currently believe that these sources of liquidity are sufficient to fund or operations for the next twelve months. However, due to the uncertainty regarding the duration of the COVID-19 pandemic and its effects on the oil and gas industry, we cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels. As a result, we cannot assure that our current sources of financial liquidity will be sufficient to fund our operations, and any failure to do so could have a material adverse effect on our business, liquidity, results of operations and financial condition.
Our business and operations are dependent upon various third parties and counterparties who may be adversely affected by the COVID-19 pandemic which could have a material adverse effect on our business, liquidity, results of operations and financial condition.
We expect all of our customers, lenders and suppliers are being adversely affected in some fashion by the COVID-19 pandemic. Although we are not currently experiencing any material disruption in payments by customers at this time, given the dramatic impact the COVID-19 pandemic has had on the oil and gas industry and our customers, there is no assurance that our customers’ financial position will not be adversely impacted which could result in payment delays and payment defaults. Availability under our revolving line of credit is based upon a borrowing base determined by the level of our accounts receivable, with uncollectable amounts or amounts greater than 90 days past excluded from consideration. As a result, delays in payment or payment defaults by any of our customers could have a material adverse impact on our financial liquidity. Similarly, our suppliers may not extend credit to us or require less favorable payment terms or face similar challenges with their own suppliers. We also are reliant upon our third-party lenders’ ability to meet their commitments under our existing credit facilities. Given the dramatic impact of the COVID-19 pandemic across industries and geographic regions, we cannot predict the magnitude it may have had or may have in the future on our lenders’ ability to meet their commitments to us, and any failure to do so by them would have a material adverse effect on our business, liquidity, results of operations and financial condition.
As a result of the significant downturn in the oil and gas business and demand for our contract drilling services caused by the COVID-19 pandemic, we may lose our listing on the New York Stock Exchange, which could have a material adverse effect on the market value of our common stock.


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Under New York Stock Exchange listing requirements, in order to maintain our listing status we are required to maintain at all times a minimum 30-day trading average public market capitalization of $15 million.  Unlike certain other listing standards tied to minimum share price, there is no cure period or grace period associated with this listing standard.  In response to the substantial negative impact the COVID-19 pandemic has caused, the New York Stock Exchange granted a temporary waiver from compliance with this standard through June 30, 2020.  As of May 5, 2020, we estimated that our 30-day average public float was approximately $13.8 million.  Because we cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic will continue or when, or if, oil and gas prices and demand for our contract drilling services will begin to improve or return to pre-COVID-19 levels, we cannot assure you that our common stock will remain listed on the New York Stock Exchange , which could have a material adverse effect on the trading value of our common stock and our ability to raise additional funds through new issuances.

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ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                                                                                                                                                  
Issuer Purchases of Equity Securities
In the second quarter of 2019, our Board of Directors authorized a stock repurchase program of up to $10.0 million.
The following table provides information relating to shares repurchased by the Company and affiliated purchasers during the three months ended March 31, 2020.
 
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program
 
Approximate Dollar Value of Shares That May Yet be Purchased Under the Program
January 1 - January 31

 
$

 

 
$
9,191,336

February 1 - February 29

 
$

 

 
$
9,191,336

March 1 - March 31
14,443

 
$
4.61

 
14,443

 
$
9,124,711

Total
14,443

 
$
4.61

 
14,443

 
$
9,124,711


ITEM  3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM  4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM  5. OTHER INFORMATION
None.

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6. EXHIBITS
Exhibit
Number
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.CAL*
 
XBRL Calculation Linkbase Document
 
 
 
101.DEF*
 
XBRL Definition Linkbase Document
 
 
 
101.INS*
 
XBRL Instance Document
 
 
 
101.LAB*
 
XBRL Labels Linkbase Document
 
 
 
101.PRE*
 
XBRL Presentation Linkbase Document
 
 
 
101.SCH*
 
XBRL Schema Document

*
Filed with this report


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
INDEPENDENCE CONTRACT DRILLING, INC.
 
By:
/s/ J. Anthony Gallegos, Jr.
 
 
Name:
J. Anthony Gallegos, Jr.
 
 
Title:
President and Chief Executive Officer (Principal Executive Officer)
 
By:
/s/ Philip A. Choyce
 
 
Name:
Philip A. Choyce
 
 
Title:
Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)
 
By:
/s/ Michael J. Harwell
 
 
Name:
Michael J. Harwell
 
 
Title:
Vice President - Finance and Chief Accounting Officer (Principal Accounting Officer)
Date: May 7, 2020

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