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 first
quarter ended March 31, 2024. On March 7, 2024, Drilling Tools
International Corp. (“DTI”) (Nasdaq: DTI) and SDP jointly announced
they have entered into a definitive agreement under which DTI
agreed to acquire SDP for total consideration of approximately
$32.2 million. The closing of the transaction is expected to occur
in the third quarter of 2024.
First Quarter 2024 Revenue Review
(See at “Definitions” the composition of product/service revenue
categories.)
($ in thousands)
March 31,2024 December 31,2023
March 31,2023
Change
Sequential
Change
Year/Year
North America
$
4,249
$
3,639
$
5,475
16.8
%
(22.4
)%
International
697
633
806
10.1
%
(13.5
)%
Total Revenue
$
4,946
$
4,273
$
6,281
15.8
%
(21.3
)%
Tool (DNR) Revenue
$
2,981
$
2,512
$
4,254
18.7
%
(29.9
)%
Contract Services
1,965
1,761
2,027
11.6
%
(3.1
)%
Total Revenue
$
4,946
$
4,273
$
6,281
15.8
%
(21.3
)%
The year-over-year change in revenue was impacted by lower tool
sales, which largely reflected the decline in U.S. rig count. The
average U.S. rig count of 623 in the first quarter of 2024 was down
138 rigs, or 18%, from the prior-year period.
The Company’s North America revenue related to tool sales were
up sequentially, largely given the timing of orders from DTI, the
Company’s North American distributor.
International revenue growth was 10% sequentially, demonstrating
the successful advancements of the Company’s operations in the
Middle East (ME), and the increasing rig counts in the ME
region.
For the first quarter of 2024, North America revenue comprised
approximately 86% of total revenue, with remaining sales all within
the ME.
First Quarter 2024 Operating
Results
($ in thousands, except per share amounts)
March 31,2024
December 31,2023 March 31,2023
Change
Sequential
Change
Year/Year
Cost of revenue
$
2,305
$
1,939
$
2,239
18.9
%
3.0
%
As a percent of sales
46.6
%
45.4
%
35.6
%
Selling, general & administrative
$
2,130
$
2,263
$
2,339
(5.8
)%
(8.9
)%
As a percent of sales
43.1
%
53.0
%
37.2
%
Depreciation & amortization
$
351
$
344
$
326
2.0
%
7.7
%
Total operating expenses
$
4,787
$
4,546
$
4,903
5.3
%
(2.4
)%
Operating income (loss)
$
159
$
(273
)
$
1,378
NM
(88.4
)%
As a % of sales
3.2
%
-6.4
%
21.9
%
Other (expense) including income tax
$
(1,982
)
$
5,859
$
(135
)
NM
NM
Net (loss) Income
$
(1,822
)
$
5,586
$
1,513
NM
NM
Diluted earnings per share
$
(0.06
)
$
0.18
$
0.05
Adjusted EBITDA¹
$
839
$
439
$
2,019
91.0
%
(58.4
)%
As a % of sales
17.0
%
10.3
%
32.1
%
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.
The cost of revenue increase reflected the underutilization of
manufacturing resources given the reduced demand, as well as
increased headcount, operating supplies and travel in the ME.
Selling, general and administrative (SG&A) expenses decreased
9% year-over-year, and 6% sequentially, largely due to lower patent
infringement related legal fees.
Included in other expenses and reflected in the net loss for the
first quarter of 2024 was $1.7 million of acquisition related
expenses. These pertained to legal and professional fees in support
of the agreement and plan of merger with DTI. Net income for the
2023 fourth quarter included the release of $6.4 million of
deferred tax asset valuation allowance.
Balance Sheet and Liquidity
For the three months ended March 31, 2024, net cash used in
operating activities was $304 thousand compared with $1.0 million
of cash generated from operations in the first quarter of 2023.
Cash at quarter-end was $2.1 million.
Capital expenditures of $122 thousand in the first quarter of
2024 were largely for equipment for the Company’s ME service and
technology center.
Total debt at quarter-end was $2.1 million.
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.
Additional Information for Superior Drilling Products, Inc.
Shareholders and Where to Find It
This press release relates to a proposed acquisition of Superior
Drilling Products, Inc. ("SDP") by Drilling Tools International
Corporation ("DTI"). In connection with the transaction, DTI filed
a registration statement on Form S-4 on May 10, 2024, which
includes a document that serves as a prospectus of DTI and a proxy
statement of SDP (the "joint proxy statement/prospectus"), and each
party will file other relevant documents regarding the transaction
with the Securities and Exchange Commission (the "SEC"). INVESTORS
AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC CAREFULLY AND IN THEIR ENTIRETY, INCLUDING THE SCHEDULE 13E-3,
WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. A definitive joint proxy statement/prospectus will be
sent to shareholders of SDP. Investors and security holders will be
able to obtain free copies of the registration statement and the
joint proxy statement/prospectus and other relevant documents filed
with the SEC through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with the SEC by
DTI will be available free of charge on the DTI website at
www.drillingtools.com or by contacting DTI by email at
InvestorRelations@drillingtools.com or by mail at 3710 Briarpark
Drive, Suite 150, Houston, TX 77042. Copies of the documents filed
with the SEC by SDP will be available free of charge on the SDP
website at https://sdpi.com or by contacting SDP by email at
dpawlowski@keiadvisors.com or by mail at 1583 S. 1700 E., Vernal UT
84078.
Participants in the Solicitation
DTI and SDP and their respective directors and executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies from the
SDP shareholders in connection with the proposed transaction.
Information about the directors and executive officers of DTI is
set forth in its Annual Report on Form 10-K for the year ended
December 31, 2023, which was filed with the SEC on March 28, 2024,
and in other documents filed with the SEC by DTI and its executive
officers and directors. Information about the directors and
executive officers of SDP is set forth in its Annual Report on Form
10-K for the year ended December 31, 2023, which was filed with the
SEC on March 15, 2024, and in other documents filed with the SEC by
SDP and its executive officers and directors.
These documents can be obtained free of charge from the sources
indicated above. Additional information regarding the participants
in the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the joint proxy statement/prospectus and Schedule
13e-3 and other relevant materials in connection with the
transaction to be filed with the SEC when they become available.
Information concerning the interests of the participants in the
solicitation, which may, in some cases, be different than those of
SDP’s shareholders generally, will be set forth in the joint
prospectus/proxy statement relating to the proposed transaction and
the Schedule 13e-3 when they become available. Investors should
read the proxy statement/prospectus and Schedule 13e-3 carefully
before making any voting or investment decisions.
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 limitation, statements regarding
the proposed transaction, 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," "plan or "will," 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; general economic
conditions; the conditions to the completion of the proposed
transaction, including obtaining Company shareholder approval and
the regulatory approvals required for the transaction on the
anticipated schedule or at all, financing for the transaction may
not be obtained by DTI on favorable terms or at all, the closing of
the proposed transaction may not occur or could be delayed, either
as a result of litigation related to the transaction or otherwise
or result in significant costs of defense, indemnification, and
liability, the risk that the cost savings and any other synergies
from the transaction may not be fully realized by DTI or may take
longer or cost more to be realized than expected, including that
the transaction may not be accretive to DTI within the expected
timeframe or the extent anticipated, completing the transaction may
distract DTI and Company management from other important matters,
the possibility that any or all of the various conditions to the
consummation of the proposed transaction may not be satisfied or
waived, including the failure to receive any required regulatory
approvals from any applicable governmental entities (or any
conditions, limitations or restrictions placed on such approvals),
the possibility that competing offers or acquisition proposals for
the Company will be made, the occurrence of any event, change or
other circumstance that could give rise to the termination of the
definitive transaction agreement relating to the proposed
transaction, including in circumstances, which would require a
party to pay a termination fee, the effect of the announcement or
pendency of the proposed transaction on the Company’s ability to
attract, motivate or retain key executives and employees, its
ability to maintain relationships with its customers, suppliers and
other business counterparties, or its operating results and
business generally, risks related to the proposed transaction
diverting management’s attention from the Company’s or DTI’s
ongoing business operations, the amount of costs, fees and expenses
related to the proposed transaction, the risk that the Company’s or
DTI’s stock price may decline significantly if the proposed
transaction is not consummated, the risk of shareholder litigation
in connection with the proposed transaction, including resulting
expense or delay. These and other risks and uncertainties
separately provided to you and indicated from time to time
described in filings and potential filings by the Company with the
Securities and Exchange Commission 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.
FINANCIAL TABLES FOLLOW
Superior Drilling Products,
Inc.
Consolidated Condensed
Statements of Operations
(unaudited)
Three Months Ended March 31,
2024
2023
Revenue North America
$
4,249,150
$
5,475,061
International
697,066
806,153
Total Revenue
$
4,946,216
$
6,281,214
Operating cost and expenses Cost of revenue
$
2,305,068
$
2,238,597
Selling, general, and administrative expenses
2,130,488
2,338,841
Depreciation and amortization expense
351,213
326,014
Total operating cost and expenses
$
4,786,769
$
4,903,452
Operating income
$
159,447
$
1,377,762
Other income (expense) Interest income
20,691
16,898
Interest expense
(194,008
)
(154,091
)
Acquisition expense
(1,748,277
)
-
Recovery of related party note receivable
-
350,262
Loss on disposition of assets
(5,819
)
-
Total other (expense) income
(1,927,413
)
213,069
(Loss) Income before income taxes
(1,767,966
)
1,590,831
Income tax expense
(54,422
)
(77,612
)
Net (loss) income
$
(1,822,388
)
$
1,513,219
(Loss) Earnings per common share - basic
$
(0.06
)
$
0.05
Weighted average common shares outstanding - basic
30,391,244
29,245,080
(Loss) Earnings per common share - diluted
$
(0.06
)
$
0.05
Weighted average common shares outstanding - diluted
30,391,244
29,276,716
Superior Drilling Products,
Inc.
Consolidated Condensed Balance
Sheets
March 31,
December 31,
2024
2023
ASSETS Current Assets Cash
$
2,080,224
$
2,670,626
Accounts receivable
2,355,947
2,670,361
Prepaid expenses
323,214
335,152
Inventories
2,695,666
2,706,491
Other current assets
433,090
373,587
Total current assets
7,888,141
8,756,217
Property, plant and equipment, net
11,037,332
11,242,251
Right of use assets (net of amortization)
395,453
451,094
Deferred tax asset
6,407,195
6,387,240
Other noncurrent assets
199,816
199,816
Total assets
$
25,927,937
$
27,036,618
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities Accounts payable
$
1,775,936
$
1,547,619
Accrued expenses
1,300,744
870,060
Accrued income tax
651,081
626,455
Current portion of operating lease liability
55,019
54,034
Current portion of long-term financial obligation
86,685
83,648
Current portion of long-term debt, net of discounts
543,771
635,273
Total current liabilities
4,413,236
3,817,089
Operating lease liability, less current portion
278,751
325,480
Long-term financial obligation, less current portion
3,930,595
3,954,373
Long-term debt, less current portion, net of discounts
1,557,351
1,609,868
Deferred income
675,000
675,000
Total liabilities
10,854,933
10,381,810
Shareholders’ equity Common stock (30,391,240 and
28,235,001)
30,391
30,391
Additional paid-in-capital
45,315,307
45,074,723
Accumulated deficit
(30,272,694
)
(28,450,306
)
Total shareholders’ equity
15,073,004
16,654,808
Total liabilities and shareholders’ equity
$
25,927,937
$
27,036,618
Superior Drilling Products,
Inc.
Consolidated Statements of
Cash Flows
(unaudited)
Three Months Ended March 31,
2024
2023
Cash Flows from Operating Activities Net (loss)
income
$
(1,822,388
)
1,513,219
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization expense
351,215
326,014
Amortization of right-of-use assets
55,641
51,257
Share-based compensation expense
240,584
227,148
Deferred tax asset
(19,955
)
-
Loss on disposition of rental fleet
2,806
-
Loss on sale or dispositon of assets
3,013
-
Amortization of deferred loan cost
4,519
3,087
Changes in operating assets and liabilities: Accounts receivable
314,414
(718,533
)
Inventories
10,825
(167,601
)
Prepaid expenses and other current assets
(47,565
)
(1,954
)
Accounts payable, accrued expenses, and other liabilities
578,315
(262,804
)
Income Tax expense
24,626
75,547
Net cash (used in) provided by operating activities
$
(303,950
)
$
1,045,380
Cash Flows From Investing Activities Purchases of
property, plant and equipment
(122,483
)
(1,567,524
)
Proceeds on sale of assets
5,310
-
Proceeds from recovery of related party note receivable
-
350,262
Net cash used in investing activities
$
(117,173
)
$
(1,217,262
)
Cash Flows from Financing Activities Principal
payments on debt
(241,985
)
(213,905
)
Proceeds received from debt borrowings
72,706
-
Payments on revolving loan
-
(472,089
)
Proceeds received from revolving loan
-
655,754
Net cash used in financing activities
$
(169,279
)
$
(30,240
)
Net decrease in cash
(590,403
)
(202,122
)
Cash at beginning of period
2,670,626
2,158,025
Cash at end of period
$
2,080,223
$
1,955,903
Superior Drilling Products,
Inc.
Adjusted EBITDA
Reconciliation
Three Months Ended March 31, 2024 December 31,
2023 March 31, 2023 GAAP net income
$
(1,822,388
)
$
5,585,820
$
1,513,219
Add back: Depreciation and amortization
351,215
344,322
326,014
Interest expense, net
173,317
183,984
137,193
Share-based compensation
240,584
237,373
227,148
Net non-cash compensation
88,200
88,200
88,200
Income tax expense (benefit)
54,422
(6,312,108
)
77,612
Recovery of Related Party Note Receivable
-
198,894
(350,262
)
Employee Severance Cost
-
42,294
-
Acquistion expense
1,748,277
-
-
Loss on disposition of assets
5,819
70,663
-
Non-GAAP adjusted EBITDA¹
$
839,446
$
439,442
$
2,019,124
GAAP Revenue
$
4,946,216
$
4,272,784
$
6,281,214
Non-GAAP Adjusted EBITDA Margin
17.0
%
10.3
%
32.1
%
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/20240514270979/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
Superior Drilling Products (AMEX:SDPI)
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