- Third quarter revenue was $5.1 million
- Strengthened international technical support group to
capitalize on significant near- and long-term opportunities
- Creating greater value of underlying operations to drive value
for strategic initiatives effort
- Generated strong cash from operations of $3.2 million in the
quarter and $4.1 million year-to-date compared with $1.3 million
during the prior-year period
- Reaffirmed 2023 outlook
Superior Drilling Products, Inc. (NYSE American: SDPI) (“SDP” or
the “Company”), a designer and manufacturer of drilling tool
technologies, today reported financial results for the third
quarter ended September 30, 2023.
Troy Meier, Chairman and CEO, commented, “Our results were solid
considering the significant decline in U.S. rig count throughout
the year. On the international front, we grew year-over-year and
remain excited about the many opportunities to drive future growth.
During the quarter, we continued to improve our international
technical support group, advanced our international ISO quality
standards to enable expansion to the U.A.E. and Saudi Arabia, and
are preparing our new localized service and technology center for
future bit refurbishment work. Ultimately, our efforts are to
create the underlying foundation to better position the Company to
capture opportunities and support our strategic review efforts as
we evaluate options that will drive the greatest value for all
stakeholders.”
He added, “Given the continued pressure on the U.S. market, at
the beginning of the fourth quarter we rationalized our domestic
operations to better match expected near-term demand. These changes
are expected to result in annual expense savings of approximately
$600 thousand, with one-time severance expenses to be recognized in
the fourth quarter of 2023.”
Third Quarter 2023 Revenue Review (See at “Definitions”
the composition of product/service revenue categories.)
($ in thousands)
September 30,2023 June 30,2023
September 30,2022 ChangeSequential
ChangeYear/Year North America
$
4,469
$
4,325
$
4,623
3.3
%
(3.3
)%
International
583
1,042
550
(44.1
)%
6.0
%
Total Revenue
$
5,052
$
5,367
$
5,173
(5.9
)%
(2.3
)%
Tool (DNR) Revenue
$
3,256
$
3,552
$
3,343
(8.3
)%
(2.6
)%
Contract Services
1,796
1,815
1,829
(1.0
)%
(1.8
)%
Total Revenue
$
5,052
$
5,367
$
5,173
(5.9
)%
(2.3
)%
The Company’s North America revenue has been pressured by a
continuing decline in the U.S. rig count, which impacted
Drill-N-Ream® (DNR) tool sales and contract services work. The
average U.S. rig count of 650 in the third quarter of 2023 was down
111 rigs, or 15%, from the prior-year period. After the end of the
third quarter of 2023, the U.S. rig count further declined to
618.
For the third quarter of 2023, North America revenue comprised
approximately 88% of total revenue, with remaining sales all within
the Middle East.
Timing of revenue growth from the Company’s Middle East strategy
contributed to sequential revenue decline for the quarter. While
the U.S. rig count has continued to decline through the year, the
international rig count has increased from 900 rigs at the end of
2022 to 962 rigs at the end of October 2023.
Third Quarter 2023 Operating Results
($ in thousands, except per share amounts)
September 30,2023
June 30,2023 September 30,2022
ChangeSequential ChangeYear/Year Cost of revenue
$
2,004
$
2,013
$
2,231
(0.5
)%
(10.2
)%
As a percent of sales
39.7
%
37.5
%
43.1
%
Selling, general & administrative
$
2,585
$
2,459
$
1,723
5.1
%
50.0
%
As a percent of sales
51.2
%
45.8
%
33.3
%
Depreciation & amortization
$
338
$
349
$
363
(3.4
)%
(6.9
)%
Total operating expenses
$
4,926
$
4,821
$
4,317
2.2
%
14.1
%
Operating Income
$
126
$
546
$
856
(76.9
)%
(85.3
)%
As a % of sales
2.5
%
10.2
%
16.5
%
Other (expense) income including income tax
$
(112
)
$
(223
)
$
(217
)
NA NA
Net Income
$
14
$
323
$
639
(95.7
)%
(97.8
)%
Diluted earnings per share
$
-
$
0.01
$
0.02
(100.0
)%
(100.0
)%
Adjusted EBITDA¹
$
784
$
1,213
$
1,525
(35.4
)%
(48.6
)%
As a % of sales
15.5
%
22.6
%
29.5
%
1Adjusted EBITDA is a non-GAAP measure
defined as earnings before interest, taxes, depreciation, and
amortization, non-cash stock compensation expense, and unusual
items. See the attached tables for important disclosures regarding
SDP’s use of Adjusted EBITDA, as well as a reconciliation of net
income to Adjusted EBITDA.
Selling, general and administrative (SG&A) expenses
increased 50% year-over-year largely due to the Company’s
international expansion, which included the hiring of technical
sales and business development personnel and significant
travel-related expenses in support of the business development
activities. Also included in SG&A were legal expenses of $260
thousand due to continuing litigation for the Company’s patent
infringement lawsuit over violations of the patents on its DNR tool
and $80 thousand in fees as part of the Company’s strategic review
process.
Depreciation and amortization expense decreased as a result of
fully amortizing intangible assets and fully depreciating
manufacturing center equipment.
During the third quarter of 2023, the Company received $199
thousand from a non-management shareholder due to short-swing SEC
profit rules. The funds were recognized as other income. Partially
offsetting those gains was a $43 thousand expense due to an early
redemption fee as part of the Company’s debt refinancing during the
quarter.
Balance Sheet and Liquidity On July 28, 2023, the Company
executed a new credit agreement with Vast Bank, National
Association, which included a 5-year, $1.7 million term loan, a
2-year, $750,000 revolving credit line, and a program whereby the
lender can purchase certain accounts receivable. The proceeds from
the receivables program were used to repay the full amount
outstanding under the Company’s prior credit agreement. Total debt
at quarter-end was $2.5 million.
Year-to-date cash generated by operations was $4.1 million
compared with $1.3 million in the year-ago period. Cash at the end
of the quarter was $4.3 million, double the balance from year-end
2022, reflecting improved working capital and the timing associated
with the program whereby the Company’s lender had purchased certain
accounts receivables. After quarter end, in October, SDP made a
$1.2 million payment to its lender as part of the accounts
receivable lending program.
Capital expenditures of $3.1 million year-to-date were largely
in support of the Company’s Middle East operations, which included
the DNR rental tool fleet and the new service and technology center
that opened in the second quarter. The Company expects capital
spending for fiscal 2023 to range between $3.5 million to $4.0
million.
Reaffirmed 2023 guidance (As of November 9, 2023)
Revenue
$22.0 million to $24.0 million
SG&A expense
$9.0 million to $9.5 million (includes
approximately $1.2 million in legal expenses for ongoing patent
infringement litigation)
Adjusted EBITDA1
$5.5 million to $6.5 million
1See “Forward Looking Non-GAAP Financial Measures” below for
additional information about this non-GAAP measure.
Webcast and Conference Call The Company will host a
conference call and live webcast today at 10:00 am Mountain Time
(12:00 pm Eastern Time) to review the results of the quarter and
discuss its corporate strategy and outlook. The discussion will be
accompanied by a slide presentation that will be made available
prior to the conference call on SDP’s website at
www.sdpi.com/events. A question-and-answer session will follow the
formal presentation.
The conference call can be accessed by calling (201) 689-8470.
Alternatively, the webcast can be monitored at www.sdpi.com/events.
A telephonic replay will be available from 2:00 pm MT (4:00 pm ET)
the day of the teleconference until Thursday, November 23, 2023. To
listen to the archived call, please call (412) 317-6671 and enter
conference ID number 13741632 or access the webcast replay at
www.sdpi.com, where a transcript will be posted once available.
Definitions and Composition of Product/Service Revenue:
Tool (DNR) Revenue is the sum of tool sales/rental revenue and
other related tool revenue, which is comprised of royalties and
fleet maintenance fees.
Contract Services revenue is comprised of repair and
manufacturing services for drill bits and other tools or products
for customers.
About Superior Drilling Products, Inc. Superior Drilling
Products, Inc. is an innovative, cutting-edge drilling tool
technology company providing cost saving solutions that drive
production efficiencies for the oil and natural gas drilling
industry. The Company designs, manufactures, repairs, and sells
drilling tools. SDP drilling solutions include the patented
Drill-N-Ream® well bore conditioning tool and the patented Strider™
oscillation system technology. In addition, SDP is a manufacturer
and refurbisher of PDC (polycrystalline diamond compact) drill bits
for leading oil field service companies. SDP operates a
state-of-the-art drill tool fabrication facility, where it
manufactures its solutions for the drilling industry, as well as
customers’ custom products. The Company’s strategy for growth is to
leverage its expertise in drill tool technology and innovative,
precision machining in order to broaden its product offerings and
solutions for the oil and gas industry.
Additional information about the Company can be found at:
www.sdpi.com.
Safe Harbor Regarding Forward Looking Statements This
news release contains forward-looking statements and information
that are subject to a number of risks and uncertainties, many of
which are beyond our control. All statements, other than statements
of historical fact included in this release, including, without
limitations, the Company’s strategic review process, the continued
impact of COVID-19 on the business, the Company’s strategy, future
operations, success at developing future tools, the Company’s
effectiveness at executing its business strategy and plans,
financial position, estimated revenue and losses, projected costs,
prospects, plans and objectives of management, and ability to
outperform are forward-looking statements. The use of words
“could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,”
“may,” “continue,” “predict,” “potential,” “project”, “forecast,”
“should” or “plan, and similar expressions are intended to identify
forward-looking statements, although not all forward -looking
statements contain such identifying words. These statements reflect
the beliefs and expectations of the Company and are subject to
risks and uncertainties that may cause actual results to differ
materially. These risks and uncertainties include, among other
factors, the effectiveness of success at expansion in the Middle
East, options available for market channels in North America, the
deferral of the commercialization of the Strider technology, the
success of the Company’s business strategy and prospects for
growth; the market success of the Company’s specialized tools,
effectiveness of its sales efforts, its cash flow and liquidity;
financial projections and actual operating results; the amount,
nature and timing of capital expenditures; the availability and
terms of capital; competition and government regulations; the
duration of the COVID-19 pandemic and related impact on the oil and
natural gas industry; and general economic conditions. These and
other factors could adversely affect the outcome and financial
effects of the Company’s plans and described herein. The Company
undertakes no obligation to revise or update any forward-looking
statements to reflect events or circumstances after the date
hereof.
Forward Looking Non-GAAP Financial Measures
Forward-looking adjusted EBITDA is a non-GAAP measure. The Company
is unable to present a quantitative reconciliation of these
forward-looking non-GAAP financial measures to their most directly
comparable forward-looking GAAP financial measure because such
information is not available, and management cannot reliably
predict the necessary components of such GAAP measures without
unreasonable effort largely because forecasting or predicting our
future operating results is subject to many factors out of our
control or not readily predictable. In addition, the Company
believes that such reconciliations would imply a degree of
precision that would be confusing or misleading to investors. The
unavailable information could have a significant impact on the
Company’s fiscal 2023 and future financial results. This non-GAAP
financial measure is a preliminary estimate and is subject to risks
and uncertainties, including, among others, changes in connection
with purchase accounting, quarter-end, and year-end adjustments.
Any variation between the Company’s actual results and preliminary
financial data set forth in this presentation may be material.
FINANCIAL TABLES FOLLOW
Superior Drilling Products, Inc.
Consolidated Condensed Statements of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended
September 30,
2023
2022
2023
2022
Revenue North America
$
4,469,415
$
4,622,614
$
14,269,529
$
12,388,746
International
582,788
549,931
2,431,237
1,454,806
Total Revenue
$
5,052,203
$
5,172,545
$
16,700,766
$
13,843,552
Operating cost and expenses Cost of revenue
$
2,003,791
$
2,230,705
$
6,256,918
$
6,114,705
Selling, general, and administrative expenses
2,584,740
1,723,221
7,381,020
5,264,270
Depreciation and amortization expense
337,653
362,773
1,013,116
1,176,151
Total operating cost and expenses
$
4,926,184
$
4,316,699
$
14,651,054
$
12,555,126
Operating income
$
126,019
$
855,846
$
2,049,712
$
1,288,426
Other income (expense) Interest income
9,272
10,544
39,926
13,720
Interest expense
(200,485
)
(154,108
)
(484,442
)
(410,707
)
Other income
198,894
-
198,894
-
Other expense
(43,000
)
-
(43,000
)
-
Recovery of related party note receivable
-
-
350,262
-
Loss on sale or disposition of assets
-
(29,381
)
-
(51,527
)
Total other (expense) income
(35,319
)
(172,945
)
61,640
(448,514
)
Income before income taxes
90,700
682,901
2,111,352
839,912
Income tax expense
(76,861
)
(44,169
)
(261,127
)
(107,852
)
Net income
$
13,839
$
638,732
$
1,850,225
$
732,060
Earnings per common share - basic
$
-
$
0.02
$
0.06
$
0.03
Weighted average common shares outstanding - basic
29,895,347
28,845,456
29,409,602
28,440,722
. Earnings per common share - diluted
$
-
$
0.02
$
0.06
$
0.03
Weighted average common shares outstanding - diluted
29,965,145
28,855,456
29,479,400
28,450,722
Superior Drilling Products, Inc.
Consolidated Condensed Balance Sheets
(unaudited) September 30, 2023 December 31,
2022 ASSETS Current Assets Cash
$
4,314,674
$
2,158,025
Accounts receivable
2,438,674
3,241,221
Prepaid expenses
533,329
367,823
Inventories
3,219,033
2,081,260
Other current assets
307,161
140,238
Total current assets
10,812,871
7,988,567
Property, plant and equipment, net
11,099,485
8,576,851
Intangible assets, net
-
69,444
Right of use assets (net of amortization)
505,739
638,102
Other noncurrent assets
199,816
111,519
Assets held for sale
-
216,000
Total assets
$
22,617,911
$
17,600,483
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities Accounts payable
$
2,910,443
$
1,043,581
Accrued expenses
945,248
891,793
Accrued income tax
553,177
351,618
Current portion of operating lease liability
53,066
44,273
Current portion of financial obligation
81,259
74,636
Current portion of long-term debt, net of discounts
753,334
1,125,864
Other current liabilities
-
216,000
Total current liabilities
5,296,527
3,747,765
Operating lease liability, less current portion
334,410
523,375
Long-term financial obligation, less current portion
3,976,278
4,038,022
Long-term debt, less current portion, net of discounts
1,702,976
529,499
Deferred income
675,000
675,000
Total liabilities
11,985,191
9,513,661
Shareholders’ equity Common stock - $0.001 par value;
100,000,000 shares authorized; 29,245,080 shares issued and
outstanding
30,391
29,245
Additional paid-in-capital
44,638,455
43,943,928
Accumulated deficit
(34,036,126
)
(35,886,351
)
Total shareholders’ equity
10,632,720
8,086,822
Total liabilities and shareholders’ equity
$
22,617,911
$
17,600,483
Superior Drilling Products, Inc.
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30,
2023
2022
Cash Flows from Operating Activities Net income
$
1,850,225
732,060
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization expense
1,013,115
1,176,151
Share-based compensation expense
689,265
640,816
Loss on sale or dispositon of assets
-
28,515
Loss on dispositon of rental fleet
-
23,012
Right-of-use amortization
157,291
-
Amortization of deferred loan cost
(84,277
)
13,893
Changes in operating assets and liabilities: Accounts receivable
802,547
(1,211,713
)
Inventories
(1,137,773
)
(446,866
)
Prepaid expenses and other current assets
(420,726
)
(777,457
)
Accounts payable, accrued expenses, and other liabilities
1,022,423
1,100,571
Income tax payable
201,559
57,591
Net cash provided by operating activities
4,093,649
1,336,573
Cash Flows From Investing Activities Purchases of
property, plant and equipment
(3,123,770
)
2,600,902
Proceeds from recovery of related party note receivable
350,262
-
Net cash used in investing activities
(2,773,508
)
2,600,902
Cash Flows from Financing Activities Principal
payments on debt
(425,505
)
(508,146
)
Proceeds received from debt borrowings
2,072,406
997,134
Payments on revolving loan
(1,645,427
)
(633,440
)
Proceeds from exercised options
6,408
-
Proceeds received from revolving loan
828,626
633,435
Net cash used in financing activities
836,508
488,983
Net increase (decrease) in cash
2,156,649
(775,346
)
Cash at beginning of period
2,158,025
2,822,100
Cash at end of period
$
4,314,674
$
2,046,754
Superior Drilling Products, Inc.
Adjusted EBITDA Reconciliation (unaudited)
Three Months Ended September 30, 2023 June 30,
2023 September 30, 2022 GAAP net income
(loss)
$
13,839
$
323,167
$
638,732
Add back: Depreciation and amortization
337,653
349,446
362,773
Interest expense, net
191,213
116,111
143,564
Share-based compensation
232,446
229,671
218,217
Net non-cash compensation
88,200
88,200
88,200
Income tax expense
76,861
106,654
44,169
Disgorgement of short-swing profits
(198,894
)
-
-
Debt termination fee
43,000
-
-
Loss on disposition of assets
-
-
29,381
Non-GAAP adjusted EBITDA¹
$
784,318
$
1,213,249
$
1,525,036
GAAP Revenue
$
5,052,203
$
5,367,350
$
5,172,545
Non-GAAP Adjusted EBITDA Margin
15.5
%
22.6
%
29.5
%
1 Adjusted EBITDA represents net income adjusted for income
taxes, interest, depreciation and amortization and other items as
noted in the reconciliation table. The Company believes Adjusted
EBITDA is an important supplemental measure of operating
performance and uses it to assess performance and inform operating
decisions. However, Adjusted EBITDA is not a GAAP financial
measure. The Company’s calculation of Adjusted EBITDA should not be
used as a substitute for GAAP measures of performance, including
net cash provided by operations, operating income, and net income.
The Company’s method of calculating Adjusted EBITDA may vary
substantially from the methods used by other companies and
investors are cautioned not to rely unduly on it.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231109678684/en/
For more information, contact investor relations: Deborah
K. Pawlowski / Craig P. Mychajluk Kei Advisors LLC 716-843-3908 /
716-843-3832 dpawlowski@keiadvisors.com /
cmychajluk@keiadvisors.com
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