- Annual revenue of $18.2 million, up
$2.7 million over prior year
- Other Related Tool Revenue drove the
growth as a result of a larger deployed tool fleet
- Annual operating income improved to
$300 thousand and net loss per diluted share was at break
even
- Cash generated from operations
nearly doubled over 2017 to $4.6 million
- Expects 24% revenue growth in 2019
at mid-point of revenue guidance
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 fourth
quarter and full-year ended December 31, 2018.
Troy Meier, Chairman and CEO, noted, “2018 was a year of many
successes and significant progress for SDP. Of note, our
Drill-N-Ream® (“DNR”), a strongly patented and unique well bore
conditioning tool, continued to gain ground in both North America
and the Middle East. We believe that our accomplishments strengthen
the foundation from which we can drive further growth:
- We expanded market channels in the
Middle East by signing a market development agreement with Odfjell
Drilling Ltd., which has begun to accelerate our market penetration
in the region.
- We established the capability to
provide service and support within the Middle East through our
services agreement with Smith International Gulf Services,
LLC.
- We increased the size of the tool fleet
we have in the Middle East driven by expectations of strong
demand.
- We opened our new Abilene, Texas
facility which improves the logistics for servicing the Permian and
Eagle Ford basins, among others. It also provides the opportunity
for enhancing our bit repair potential.
- We made substantial progress in the
development of our StriderTM technology, an extended reach tool.
Upon commercialization of this tool, we will provide full service
support from our Abilene, Texas facility.
- And, since year end, we now have a
stronger balance sheet with our debt restructured and greater
financial flexibility with a revolving credit facility to support
our growth working capital requirements.”
He added, “While the fourth quarter was soft, with respect to
DNR tool sales, 2019 has started out strong in both the Middle East
and North America. The DNR’s market acceptance in the Middle East
is expanding quickly and we believe we are positioned to address a
rapid increase in demand. We continue to engage in productive
dialogue with our North American DNR distributor to pursue options
and opportunities to increase domestic market penetration.”
Fourth Quarter 2018 Review ($ in thousands, except per
share amounts)
Q42018
Q4 2017
$Y/Y Change
% Y/Y Change
Q3 2018
$ Seq. Change
% Seq. Change
Tool sales/rental $ 426 $ 1,434 $ (1,007 ) (70.3)% $ 1,655 $
(1,229 ) (74.2) %
Other RelatedTool Revenue
1,754 1,240 513
41.3% 1,706 47 2.7% Tool
Revenue 2,180 2,674 (495 ) (18.5)% 3,361 (1,182 ) (35.2) % Contract
Services 1,301 1,056
245 23.2% 1,404
(103 ) (7.3) %
Total Revenue $
3,481 $ 3,730 $
(249 ) (6.7)% $
4,765 $ (1,285 )
(27.0) %
When compared with the prior-year period, growth in Other
Related Tool Revenue, which is comprised of royalties and fleet
maintenance fees, was the result of a larger fleet of deployed DNR
tools being actively used in drilling operations. This increase,
combined with higher contract services revenue, mostly offset lower
tool sales/rental revenue. While tool rentals increased from
activity in the Middle East, total tool sales/rental revenue
declined on lower DNR tool sales in the U.S. Additionally, the DNR
is demonstrating a longer than previously expected tool life which
has the effect of delaying new tool sales but adds additional
refurbishments per tool. The Company also believes that the
addition of the new service center in Texas created greater
logistical efficiency for its distributor, temporarily reducing the
need to add tools to the deployed fleet.
Fourth Quarter 2018 Operating Expenses
($ in thousands)
Q4 2018
Q4 2017
$ Y/Y Change
% Y/Y Change
Q3 2018
$ Seq. Change
% Seq. Change
Cost of revenue $ 1,670 $ 1,571 $ 99 6.3% $ 1,666 $ 4 0.3% As a
percent of sales 48.0 % 42.1 % 35.0 %
Selling, general &administrative
$ 2,116 $ 1,897 $ 219 11.5% $ 1,867 $ 249 13.3% As a percent of
sales 60.8 % 50.9 % 39.2 %
Depreciation &amortization
$ 940 $ 931 $ 9
0.9% $ 942 (2 ) (0.3) %
Total operatingexpenses
$ 4,726 $ 4,400 $ 326
7.4% $ 4,475 $ 251
5.6%
Operating income (loss)
$ (1,245 ) $ (670 )
$ (575 )
NM
$ 290 $ (1,535 ) NM As a
% of sales (35.8 )% (18.0 )%
6.1 %
Net income (loss) $ (1,357
) $ (786 ) $ (571
) NM $ 225 $ (1,582
) NM
Diluted earnings (loss) per
share
$ (0.05 ) $ (0.03 )
$ (0.02 ) NM $ 0.01
$ (0.06 ) NM Adjusted EBITDA(1)
$ 219 $ 791 $ (572 )
(72.3)% $ 1,365 $ (1,146 ) (83.9)%
The cost of revenue increase represents the impact of lower
volume and a larger cost base from the investment in the new
Abilene, Texas service center. Cost of revenue included a $116
thousand impairment charge related to slow moving raw material
inventory.
The $200 thousand increase in selling, general and
administrative expense (SG&A) over the prior-year period
reflects higher investments in research and development,
international market expansion and higher payroll costs, mostly as
a result of the reinstatement of executive salaries and director
fees following the reduction that was instituted in October
2016.
Net loss increased as a result of both lower revenue and the
increase in costs related to investments in growth. Adjusted
EBITDA(1), a non-GAAP measure defined as earnings before interest,
taxes, depreciation and amortization, non-cash stock compensation
expense and unusual items, declined for similar reasons.
The Company believes that when used in conjunction with measures
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”), Adjusted EBITDA, which is a non-GAAP measure,
helps in the understanding of its operating performance. (1)See the
attached tables for important disclosures regarding SDP’s use of
Adjusted EBITDA, as well as a reconciliation of net loss to
Adjusted EBITDA.
Full Year 2018 Review
($ in thousands, except per share amounts)
2018
2017
$Change
% Change
Tool sales/rental $ 6,580 $ 6,691 $ (111 ) (1.7) %
Other Related ToolRevenue
6,562 3,906
2,656 68.0% Tool Revenue 13,142 10,597 2,545 24.0%
Contract Services 5,104 4,999
105 2.1% Total Revenue $
18,245 $ 15,596 $ 2,650
17.0% Operating expenses 17,945 15,371
2,574 16.7% Operating income 300
225 76 33.7% Net loss $ (58 ) $ (279 ) $ 220
NM Diluted loss per share $ (0.00 ) $ (0.01 ) $ 0.01
NM Adjusted EBITDA(1) $ 4,957 $ 4,972 $ (15 ) 0%
Revenue for the full year 2018 increased 17%, or $2.7 million,
over 2017, driven by strong growth in tool revenue as a result of
increased market share, including initial entry into the Middle
East market, combined with increases in royalty and repair revenue
resulting from a significantly larger fleet of DNRs in operation in
2018, compared with 2017. Operating income improved to $300
thousand while operating margin improved 20 basis points despite a
$2.6 million increase in operating expenses supporting the Middle
East expansion, addition of the Texas service center and the
development of the Strider™ oscillation system technology.
Net loss for the full year 2018 improved by $221 thousand to
near breakeven with a loss of $58 thousand. Contributing to the
improvement to the bottom line was an $86 thousand increase in
interest income and a $132 thousand decline in interest expense on
lower debt balances. On a per diluted share basis, net income was
breakeven. Adjusted EBITDA(1) for 2018 was relatively unchanged at
$5.0 million. Adjusted EBITDA margin was 27% in 2018, compared with
32% in 2017.
Balance Sheet and Liquidity
Cash and cash equivalents was $4.3 million at December 31, 2018,
up from $2.4 million at the end of 2017. Cash generated from
operations was $4.6 million, compared with $2.4 million in
2017.
Capital expenditures were $562 thousand in the fourth quarter as
the Company grew its own fleet of tools for the Middle East market.
For the full year, capital expenditures were $745 thousand.
Total debt at the end of the year was $10.9 million, down $1.9
million, or 15.1%, compared with $12.8 million at December 31,
2017.
At December 31, 2018, SDP had working capital of approximately
$1.7 million as a result of refinancing its $4.2 million real
estate loan on its Vernal, Utah corporate headquarters and
manufacturing campus and extending its maturity to February 15,
2021 at a rate of 7.25%.
On February 15, 2019, the Company secured a new $4.3 million
credit facility which included a $0.8 million term loan and a $3.5
million revolver. The $0.8 million term loan is to support the
expansion of the Middle East DNR rental tool fleet.
2019 Outlook and Guidance estimates:
Mr. Meier concluded, “We expect 2019 to be another year of
robust growth. We expect further global market share gains with our
unique well bore conditioning tool will drive that expansion. In
fact, we anticipate revenue will be up almost 24% at the mid-point
of our expected revenue range for the year. We are making sure we
can serve the strong demand for our tool and that we are structured
to provide the necessary service support to ensure its quality in
the field. Our team is energized to excel in the oil & gas
industry with this tool and our Strider Technology oscillation
system.”
Revenue:
$21 million to $24 million
Gross margin:
58% to 61%
SG&A expenses:
$8.0 million to $9.0 million
D&A:
$4.0 million to $4.3 million
Interest Expense:
Approximately $780 thousand
Capital Expenditures:
Approximately $2.8 million
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 Thursday, March 14,
2019. To listen to the archived call, dial (412) 317-6671 and enter
conference ID number 13686204, 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 Strider™
oscillation system technology. In addition, SDP is a manufacturer
and refurbisher of PDC (polycrystalline diamond compact) drill bits
for a leading oil field service 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, success at expansion in the Middle
East, options available for market channels in North America,
commercialization of the Strider technology, the success of the
Company’s business strategy and prospects for growth; 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; and general economic conditions. These and other
factors could adversely affect the outcome and financial effects of
the Company’s plans and described herein.
FINANCIAL TABLES FOLLOW.
Superior Drilling Products,
Inc.Consolidated Condensed Statements Of
Operationsfor the Year Ended December 31, 2018 and
2017(unaudited)
For the Three Months
Ended December 31,
For the Year Ended
Ended December 31,
2018 2017
2018 2017 Revenue
$ 3,480,635 $ 3,730,010 $ 18,245,212 $
15,595,659
Operating cost and expenses
Cost of revenue 1,669,955 1,571,367 7,077,344 5,960,223 Selling,
general, and administrative expenses 2,115,951 1,897,092 7,107,432
5,734,315 Depreciation and amortization expense 940,048
931,368 3,760,231
3,676,598
Total operating costs and expenses
4,725,954 4,399,827 17,945,007
15,371,136
Operating income
(loss) (1,245,319 ) (669,817 ) 300,205
224,523
Other income (expense)
Interest income 127,059 91,601 432,753 346,926 Interest expense
(220,988 ) (207,351 ) (773,680 ) (905,990 ) Other income - - -
43,669 Gain (loss) on sale or disposition of assets (14,013
) - (14,013 ) 12,167 Total other
expense (107,942 ) (115,750 ) (354,940 )
(503,228 )
Income before income taxes $
(1,353,261 ) $ (785,567 ) $ (54,735 ) $ (278,705 ) Income tax
expense (3,640 ) - (3,640 ) -
Net loss $ (1,356,901 ) $
(785,567 ) $ (58,375 ) $ (278,705 )
Basic income (loss) earnings per common
share
$ (0.05 ) $ (0.03 ) $ (0.00 ) $ (0.01 )
Basic weighted
average common shares outstanding 24,820,600
24,416,577 24,608,967 24,268,409
Diluted income (loss) per common
share
$ (0.05 ) $ (0.03 ) $ (0.00 ) $ (0.01 )
Diluted weighted
average common shares outstanding 24,820,600
24,416,577 24,608,967 24,268,409
Superior Drilling Products,
Inc.Consolidated Condensed Balance
Sheets(Unaudited)
December 31, 2018
December 31, 2017
Assets Current assets: Cash $ 4,264,767 $ 2,375,179
Accounts receivable, net 2,273,189 2,667,042 Prepaid expenses
133,607 111,530 Inventories 1,003,623 1,196,813 Total
current assets 7,675,186 6,350,564 Property, plant and
equipment, net 8,226,009 8,809,348 Intangible assets, net 3,686,111
6,132,778 Related party note receivable 7,367,212 7,367,212 Other
noncurrent assets 51,887 15,954
Total assets $
27,006,405 $
28,675,856
Liabilities and Shareholders' Equity Current
liabilities: Accounts payable $ 717,721 $ 1,021,469 Accrued
expenses 631,860 543,758 Income tax payable 3,640 - Current portion
of long-term debt, net of discounts 4,578,759 6,101,678
Total current liabilities $ 5,931,980 $ 7,666,905
Long-term debt, less current portion, net of discounts 6,296,994
6,706,375
Total liabilities $
12,228,974 $ 14,373,280 Stockholders'
equity Common stock (25,018,098 and 24,535,334) 25,018 24,535
Additional paid-in-capital 39,440,611 38,907,864 Accumulated
deficit (24,688,198 ) (24,629,823 ) Total
stockholders' equity $ 14,777,431 $ 14,302,576
Total liabilities and shareholders' equity $
27,006,405 $ 28,675,856
Superior Drilling Products,
Inc.Consolidated Condensed Statement of Cash FlowsFor
The Years Ended December 31, 2018 and
2017(Unaudited)
December 31, 2018 December 31,
2017 Cash Flows From Operating Activities
Net Loss
$ (58,375 ) $ (278,705 ) Adjustments to reconcile net loss to net
cash provided by operating activities: Depreciation and
amortization expense 3,760,231 3,676,598 Amortization of debt
discount 77,641 79,424 Share based compensation expense 518,956
612,851 Income tax expense 3,640 - Impairment of inventories
116,396 - Loss (gain) on sale of assets 14,013 (12,167 ) Changes in
operating assets and liabilities: Accounts receivable 393,853
(1,628,378 ) Inventories 77,760 (29,121 ) Prepaid expenses and
other current assets (58,010 ) (21,757 ) Accounts payable and
accrued expenses (215,646 ) 13,990 Other long-term liabilities
- (53,355 )
Net Cash Provided By Operating
Activities $
4,630,459 $
2,359,380
Cash Flows From Investing Activities Purchases of
property, plant and equipment (745,204 ) (936,118 ) Proceeds from
sale of fixed assets - 2,483,921
Net
Cash Provided By (Used In) Investing Activities (745,204
) 1,547,803
Cash Flows From Financing
Activities Principal payments on debt (2,009,941 ) (3,482,311 )
Principal payments on capital lease obligations - (217,302 )
Principal payments on related party debt - (74,293 ) Proceeds from
exercised stock options 14,274 -
Net
Cash Used In Financing Activities
(1,995,667 ) (3,773,906 )
Net Increase in Cash
1,889,588 133,277 Cash at Beginning of Period 2,375,179
2,241,902
Cash at End of Period $
4,264,767 $ 2,375,179 Supplemental
information: Cash paid for interest $ 577,814 $ 851,671
Non-cash payment of other long-term
liability and interest by offsetting related party note
receivable
$ 377,746 $ 1,267,711 Acquisition of equipment by issuance of note
payable $ - $ 16,557
Superior Drilling Products,
Inc.Adjusted EBITDA(1)
Reconciliation(unaudited)
Three Months Ended
December 31, 2018 December 31, 2017
September 30, 2018 GAAP net
income $ (1,356,901) $ (785,567)
$ 225,194 Add back: Depreciation and amortization
940,048 931,368
942,473 Interest expense, net 93,929 115,750
65,087 Share-based compensation 146,745 114,467
131,867 Net non-Cash compensation 377,746 414,497
- Loss on disposition of assets 14,013 -
- Income tax expense (benefit) 3,640 -
-
Non-GAAP adjusted EBITDA(1) $
219,220 $ 790,515
$ 1,364,621 GAAP Revenue $ 3,480,635 $
3,730,010
$ 4,765,361 Non-GAAP Adjusted EBITDA Margin 6.3% 21.2% 28.6%
Year Ended December 31, 2018 December 31,
2017 GAAP net income $ (58,375)
$ (278,705) Add back: Depreciation and amortization
3,760,231 3,676,598 Share-based compensation 518,956 612,851 Net
non-cash compensation 377,746 414,497 Interest expense, net 340,927
559,064 Provision for income tax expense 3,640 - (Gain) loss on
disposition of assets 14,013 (12,167)
Non-GAAP
Adjusted EBITDA(1) $ 4,957,138 $
4,972,138 GAAP Revenue $ 18,245,212 $ 15,595,659
Non-GAAP Adjusted EBITDA Margin 27.2% 31.9%
(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.
Superior Drilling Products,
Inc.Adjusted Income from Operations(1)
Reconciliation(unaudited)
Three Months Ended December 31, 2018
September 30, 2018 December 31,
2017 Income (loss) from operations $
(1,245,319) $ 290,281
$ (669,817) Add back: Atypical bonus expense 716,786
-
587,500 Inventory impairment 116,396 -
-
Non-GAAP adjusted income from operations $
(412,137) $ 290,281
$ (82,317) GAAP Revenue $ 3,480,635 $
4,765,361
$ 3,730,010 Adjusted Operating Margin -11.8% 6.1% -2.2%
Year Ended 31-Dec-18 31-Dec-17
Income (loss) from operations $ 300,205
$ 224,523 Add back: Atypical bonus expense 716,786
587,500 Inventory impairment 116,396 -
Non-GAAP
adjusted income from operations $ 1,133,387
$ 812,023 GAAP Revenue $ 18,245,212 $
15,595,659 Adjusted Operating Margin 6.2% 5.2%
(1) Adjusted income from operations is defined as income from
operations as reported, adjusted for certain items and to apply a
normalized tax rate. Adjusted income from operations is not a
measure determined in accordance with generally accepted accounting
principles in the United States, commonly known as GAAP and may not
be comparable to the measures as used by other companies.
Nevertheless, the Company believes that providing non-GAAP
information, such as adjusted income from operations, is important
for investors and other readers of the Company’s financial
statements and assists in understanding the comparison of the
current quarter’s and current year's income from operations to the
historical periods' income from operations, as well as facilitates
a more meaningful comparison of the Company’s net income and
diluted EPS to that of other companies.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190307005113/en/
Deborah K. PawlowskiKei Advisors LLC(716)
843-3908dpawlowski@keiadvisors.com
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