- Achieved revenue of $4.0 million, up
$2.9 million over prior-year period
- Operating margin was 10.4%
- Net income was $0.3 million, up $3.4
million from the loss in 2016 second quarter
- Adjusted EBITDA(1) was $1.5 million,
or 36.9% of sales, and up 64% over trailing first quarter
Superior Drilling Products, Inc. (NYSE American:SDPI) (“SDP” or
the “Company”), a designer and manufacturer of drilling tool
technologies, today reported financial results for the second
quarter ended June 30, 2017.
Troy Meier, Chairman and CEO, noted, "We delivered exceptional
results in the quarter from sales of our Drill-N-Ream® (“DnR”) well
bore conditioning tool, increased aftermarket support and
royalties, and solid performance in contract services. Our channel
partner has successfully achieved their June 2017 market share goal
with the DnR and is focused on meeting their year-end goal. Higher
volume and revenue delivered positive bottom line results for
us.”
Second Quarter 2017 Financial Summary
($ in thousands, except per share
amounts)
Q22017
Q22016
$Y/YChange
% Y/YChange
Q12017
$ Seq.Change
% Seq.Change
Tool sales/rental $ 1,609 $ 849 $ 760 89.5 % $ 1,636 $ (27 ) (1.6
)% Other related tool
revenue
877 42 835 1987.4 % 635 242 38.1 % Tool Revenue 2,486 891 1,595
179.0 % 2,270 216 9.5 % Contract Services
1,564 223
1,341 601.3 % 1,099
464 42.2 %
Total
Revenue $ 4,049 $ 1,114 $
2,935 263.4 % $ 3,370 $
680 20.2 % Operating income (loss) 421 (2,956
) 3,378 NM (247 ) 668 NM As a % of sales 10.4 % NM -7.3 % Net
income (loss) $ 307 $ (3,099 ) 3,406 NM $ (386 ) 693 NM Diluted
earnings (loss) per share $ 0.01 $ (0.18 ) $ 0.19 NM $ (0.02 ) $
0.03 NM
Compared with the prior-year period, revenue grew 263% to $4.0
million from an increase in all product categories driven by marked
improvement in the oil & gas industry and the unique
capabilities of the Company’s tools and services. Sequentially,
revenue was up 20% over the trailing first quarter of 2017 from
higher contract services as well as an increase in other related
tool revenue which includes tool maintenance and royalty fees.
Tool revenue grew to $2.5 million, up 179% over the prior-year
period and 9.5% higher than the trailing first quarter. Tool
sales/rental revenue was comprised primarily of tool sales, whereas
in the second quarter of 2016 approximately half of this revenue
was from tool rentals. The Company changed its go-to-market and
business strategy in May 2016. Higher tool revenue year over year
was the result of more tool sales and growing market share. The
increased number of tools deployed drives higher tool maintenance
and royalty fee revenue.
Contract services were $1.6 million, up 601% over the prior-year
period, outpacing a 118% increase in total rig counts over the same
period. When compared with the trailing first quarter, contract
services revenue rose 42% while rig counts increased just 14%.
Special projects for third parties drove the higher rate of growth
in both instances.
Net income of $307 thousand improved $3.4 million over the
prior-year period. Higher revenue, the successful strategic changes
in the Company’s business model and operating leverage from higher
volume led to net income growth.
Second Quarter 2017 Operational Review
($ in thousands)
Q22017
Q22016
Y/YChange
Y/Y %Change
Q12017
Seq.Change
Seq. %Change
Cost of revenue $ 1,491 $ 1,332 $ 159 12.0 %
$
1,180
311 26.4 % As a percent of sales 36.8 % 119.5 % 35.0 % Selling,
general &
administrative
$ 1,237 $ 1,539 $ (301 ) (19.6 )% $ 1,498 (261 ) (17.4 )% As a
percent of sales 30.6 % 138.1 % (25.1 )% 44.5 % Depreciation &
amortization
$ 899 $ 1,200 $ (301 ) $ 938 (39 ) (4.1 )%
Lower cost of revenue as a percentage of sales was a result of
higher volume, as well as the elimination of inventory stocking
points and field representatives required for the previous rental
tool business model. Improved productivity also contributed to
lower cost of revenue as a percentage of sales.
Selling, general and administrative expense (SG&A) was down
from the prior-year period due to lower costs related to the
business model change. SG&A decreased when compared with the
trailing first quarter as a result of lower professional fees.
Adjusted EBITDA, or earnings before interest, taxes,
depreciation and amortization, non-cash stock compensation expense
and unusual items, was significantly improved to $1.5 million, or
37% of revenue. For the quarter, Adjusted EBITDA improved $2.6
million over prior-year period and $0.6 million over the trailing
first quarter due to higher sales leading to positive net
income.
The Company believes that when used in conjunction with measures
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”), Adjusted EBITDA, which is a non-GAAP measure,
helps in the understanding of its operating performance. (1)See the
attached tables for important disclosures regarding SDP’s use of
adjusted EBITDA, as well as a reconciliation of net loss to
adjusted EBITDA.
Year-to-Date Review
($ in thousands, except per share amounts)
YTD 2017
YTD2016
$Change
%Change
Revenue $ 7,419 $ 2,559 4,860 189.9 % Selling,
general & administrative 2,735 2,829 (95 ) (3.3 )% As a % of
sales 36.9 % 110.6 % Depreciation & amortization
1,837 2,447 (610 ) (24.9 )% Operating
expenses 7,244 7,629 (385 ) (5.0 )% Operating income (loss)
175 (5,070 ) 5,245 NM Net loss $
(79 ) $ (5,341 ) 5,262 98.5 % Diluted loss per share $ - $
(0.31 ) 0.31 NM
Revenue in the first half of 2017 nearly tripled when compared
with the same period last year. Strong operating leverage from
higher volume combined with cost discipline enabled the improvement
in operating income and margin.
Operating income increased for the same reasons as in the
quarter. Net loss for the first half of 2017 was essentially break
even. Adjusted EBITDA for the six-month period was $2.4 million, a
significant improvement over the prior-year period of ($1.7)
million.
Balance Sheet and Liquidity
Cash and cash equivalents was $1.3 million at June 30, 2017,
down from $2.2 million at the end of 2016, but improved over $0.2
million at the end of June 2016. Cash used in operations was $0.3
million, less than the $0.9 million in the prior-year period. The
higher requirement for cash was primarily related to an increase in
accounts receivable. Accounts receivable were up $2.4 million over
the prior year period due to the measurable increase in sales and
timing of receipts.
Total debt at the end of the quarter was $13.8 million, down
$2.9 million, or 17%, compared with $16.7 million at December 31,
2016.
For the first six months of calendar year 2017, the Company had
capital expenditures of $141 thousand related to equipment
purchases.
Outlook:
Mr. Meier added, “We are excited about our prospects for
continuing growth with the many product initiatives that are in
process. Specifically, we are encouraged with the progress we are
making to identify quality channel partners to take our DnR to
international markets; we believe that our conversations with
prospects indicate a strong interest in many basins around the
world. Our intent is to methodically expand our reach around the
globe with select channel partners in order to retain tool
maintenance and control, which is imperative for the DnR’s
continued success. We are also advancing discussions with several
channel partners regarding the Coiled Tubing Strider, our
completions system tool.”
He concluded, “The Open Hole Strider oscillation system is in
the long-cycle test phase and has been performing well, and we
believe the validation of our technology in the oil field has been
impressive. Looking forward, we believe that Superior Drilling
Products has significantly more potential with the innovation we
can bring to the industry to improve productivity and lower costs
in drilling operations.”
Financial Estimates for 2017:
Revenue: Approximately $14 million to $16 million
Operating margin, excluding amortization: Approximately 16% to 18%
Depreciation: $1.3 million to $1.4 million Amortization:
Approximately $2.4 million Interest Expense: Approximately $950
thousand Capital Expenditures: Approximately $1.2 million, which
includes a lease buyout and financing of a machining center
The Company expects the SG&A run rate to return to a more
normalized $1.4 million per quarter.
Webcast and Conference Call
The Company will host a conference call and live webcast today
at 10:00 am MT (12:00 pm ET) to review the financial and operating
results for the quarter and discuss its corporate strategy and
outlook. The discussion will be accompanied by a slide presentation
that will be made available immediately 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 1:00 p.m. MT (3:00
p.m. ET) the day of the teleconference until Friday, August 18,
2017. To listen to the archived call, dial (412) 317-6671 and enter
conference ID number 13665984, or access the webcast replay at
www.sdpi.com, where a transcript will be posted once available.
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
StriderTM oscillation system technology. In addition, SDP is a
manufacturer and refurbisher of PDC (polycrystalline diamond
compact) drill bits for a leading oil field services company. 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, regarding our strategy, future operations, financial
position, estimated revenue and losses, projected costs, prospects,
plans and objectives of management, 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.
Certain statements in this release may constitute forward-looking
statements, including statements regarding the Company’s financial
position, market success with specialized tools, effectiveness of
its sales efforts, success at developing future tools, and the
Company’s effectiveness at executing its business strategy and
plans. 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, our business strategy and prospects
for growth; our cash flows and liquidity; our financial strategy,
budget, projections and operating results; the amount, nature and
timing of capital expenditures; the availability and terms of
capital; competition and government regulations; and general
economic conditions. These and other factors could adversely affect
the outcome and financial effects of the Company’s plans and
described herein.
Superior Drilling Products,
Inc.Consolidated Condensed Statements of
Operations(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30, 2017
2016 2017
2016 Revenue $ 4,049,497
$ 1,114,469 $ 7,419,109 $ 2,559,095
Operating cost and
expenses Cost of revenue 1,491,383 1,331,985 2,672,116
2,352,597 Selling, general, and administrative expenses 1,237,335
1,538,824 2,734,852 2,829,427 Depreciation and amortization expense
899,373 1,200,085 1,837,395
2,446,967
Total operating costs and
expenses 3,628,091 4,070,894
7,244,363 7,628,991
Operating income
(loss) 421,406 (2,956,425 ) 174,746
(5,069,896 )
Other income (expense)
Interest income 82,509 77,952 164,368 156,319 Interest expense
(215,103 ) (377,063 ) (474,128 ) (728,075 ) Other income - 52,225
43,669 108,951 Gain (loss) on sale of assets 17,995
104,599 12,167 191,450
Total other income (expense) (114,599 ) (142,287 )
(253,924 ) (271,355 )
Net income (loss)
$ 306,807 $ (3,098,712 ) $ (79,178 ) $ (5,341,251 )
Basic income (loss) earnings per common share $ 0.01
$ (0.18 ) $ (0.00 ) $ (0.31 )
Basic weighted average
common shares outstanding 24,197,148
17,464,443 24,196,726 17,462,024
Diluted income (loss) per common Share $ 0.01
$ (0.18 ) $ (0.00 ) $ (0.31 )
Diluted weighted average
common shares outstanding 24,197,148
17,464,443 24,196,726 17,462,024
Superior Drilling Products,
Inc.Consolidated Condensed Balance Sheets
June 30, 2017(unaudited)
December 31,2016
Assets Current assets: Cash $ 1,300,891 $ 2,241,902 Accounts
receivable, net 2,875,130 1,038,664 Prepaid expenses 77,589 76,175
Inventories 1,285,738 1,167,692 Assets held for sale - 2,490,000
Other current assets 163,733 13,598
Total current assets 5,703,081 7,028,031 Property, plant and
equipment, net 8,630,237 9,068,359 Intangible assets, net 7,356,111
8,579,444 Related party note receivable 7,746,717 8,296,717 Other
noncurrent assets 15,954 15,954
Total assets $
29,452,100 $
32,988,505 Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $ 746,606 $
1,066,514 Accrued expenses 693,087 449,004 Capital lease obligation
63,582 217,302 Related party debt 197,922 272,215 Current portion
of long-term debt, net of discounts 1,926,971
2,905,681 Total current liabilities $ 3,628,168 $ 4,910,717
Other long term liability - 820,657 Long-term debt, less
current portion, net of discounts 11,583,939
13,288,701
Total liabilities $
15,212,107 $ 19,020,075
Stockholders' equity Common stock (17,459,605 and 23,961,631)
24,197 24,120 Additional paid-in-capital 38,646,092 38,295,428
Accumulated deficit (24,430,296 ) (24,351,118 ) Total
stockholders' equity $ 14,239,993 $ 13,968,430
Total liabilities and shareholders' equity $
29,452,100 $ 32,988,505
Superior Drilling Products,
Inc.Consolidated Statements of Cash Flows(unaudited)
June 30,2017
June 30,2016
Cash Flows From Operating Activities Net income (loss) $
(79,178 ) $ (5,341,251 ) Adjustments to reconcile net income to net
cash used in operating activities: Depreciation and amortization
expense 1,837,395 2,446,967 Amortization of debt discount 40,110
69,768 Share - based compensation expense 350,741 376,785
Impairment of property, plant and equipment - 361,903 Gain on sale
of assets (12,167 ) (191,450 ) Changes in operating assets and
liabilities: Accounts receivable (1,836,466 ) 1,387,203 Inventories
(118,046 ) (17,514 ) Prepaid expenses and other noncurrent current
assets (151,549 ) (86,281 ) Other noncurrent assets - (12,537 )
Accounts payable and accrued expenses (328,992 ) 134,691 Other long
term liabilities (17,490 ) -
Net
Cash Used In Operating Activities $ (315,642
) $ (871,716 ) Cash
Flows From Investing Activities Purchases of property, plant
and equipment (141,137 ) (315,101 ) Proceeds from sale of fixed
assets 2,483,921 294,242
Net
Cash Used In Investing Activities $ 2,342,784
$ (20,859 ) Cash Flows
From Financing Activities Principal payments on debt (2,740,140
) (1,031,491 ) Principal payments on related party debt (74,293 )
(44,662 ) Principal payments on capital lease obligations (153,720
) (133,403 ) Proceeds received from debt borrowings - 1,000,000
Proceeds from sale of subsidiary - 50,700 Proceeds from payments on
related party note receivable - 22,534 Debt issuance Costs -
(56,188 )
Net Cash Used In Financing
Activities $ (2,968,153 ) $
(192,510 ) Net Decrease in Cash
(941,011 ) (1,085,085 ) Cash at Beginning of Period
2,241,902 1,297,002
Cash at End of
Period $ 1,300,891 $ 211,917
Supplemental information: Cash paid for interest $ 460,842 $
689,409 Non-cash payment of other long term liability by offsetting
related party note receivable $ 550,000 $ - Acquisition of
equipment by issuance of note payable $ 16,557 $ -
Superior Drilling Products,
Inc.Adjusted EBITDA(1)
Reconciliation(unaudited)
Three Months Ended June 30, 2017
March 31, 2017 June 30, 2016
GAAP net income (loss) $
306,807 $ (385,985 ) $
(3,098,712 ) Add back: Depreciation and amortization
899,373 938,022 1,200,085 Impairment of property, plant and
equipment
- - 362,000 Interest expense, net 132,594 177,166 299,111
Share-based compensation 175,361 175,380 114,908 Functional
Drill-N-Ream sales - - 72,000 (Gain) loss on sale of assets
(17,995 ) 5,828 (104,599 )
Non-GAAP adjusted EBITDA(1) $ 1,496,140
$ 910,411 $ (1,155,207 )
GAAP Revenue $ 4,049,497 $ 3,369,612 $ 1,114,469 Non-GAAP EBITDA
Margin 36.9 % 27.0 % -103.7 %
Six Months Ended
June 30, 2017 June 30, 2016 GAAP net income
(loss) $ (79,178 ) $
(5,341,251 ) Add back: Depreciation and amortization
1,837,395 2,446,967 Interest expense, net 309,760 571,756
Share-based compensation 350,741 369,981 Impairment of property,
plant & equipment - 361,903 (Gain) loss on sale of assets
(12,167 ) (191,450 ) Functional Drill-N-Ream sales -
72,000
Non-GAAP Adjusted EBITDA(1)
$ 2,406,551 $ (1,710,094
) GAAP Revenue $ 7,419,109 $ 2,559,095 Non-GAAP
EBITDA Margin 32.4 % -66.8 %
(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: http://www.businesswire.com/news/home/20170811005062/en/
Investor Relations:Kei Advisors LLCDeborah K. Pawlowski,
716-843-3908dpawlowski@keiadvisors.com
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