- Strong Contract Services demand and Drill-N-Ream®
performance in Middle East drove growth
- Cash generated from operations of $2.2 million in the
quarter
- Company responding rapidly to severe state of the global oil
industry
- Executed amendment to Hard Rock Note deferring $1.5 million
in principal payments into 2021 and 2022
- Exclusivity restrictions for drill bit repair lifted by
legacy customer
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, 2020.
Troy Meier, Chairman and CEO, noted, “We were off to a strong
start early in the year because of the success of the Drill-N-Ream
(DNR) well bore conditioning tool. Even as the oil & gas
industry weakened over the last year, we were on pace to exceed our
earlier expectations for 2020 when the world suddenly changed in
March. The COVID-19 pandemic impact on the oil industry is creating
significant declines in the North American rig count, which had
already been falling. As a result, demand for our products and
services in the U.S. has declined. We are anticipating activity
will slow in the Middle East as well. We believe the actions we
have taken will enable us to weather this storm and be in a solid
position when the market stabilizes. As we previously announced,
cost reductions included the reduction of executives’ salaries and
directors’ fees by 20%, compensation reductions of 5% to 10% for
management and salaried staff, work force reductions and deferral
of product development. In addition, we have implemented hiring
freezes and eliminated discretionary spending.”
He added, “We have been working with our customers to address
their needs while also protecting ours. We are working as well with
our lenders to address our balance sheet and debt service
requirements. The following summarizes our efforts:
- We have negotiated new pricing with our primary U.S. DNR
customer that discounts prices, but increases rates on rush
repairs.
- We have executed an amendment with our legacy Contract Services
customer that eliminated the minimum volume requirements for them,
but also lifted exclusivity restrictions for us.
- We executed on May 6, 2020, an amendment to the Hard Rock Note
that defers the payments for the remaining $1.5 million in
principal due to July 2021 and October 2022. Interest payments will
continue on schedule.
- We are in discussion with our bank regarding extending the
maturity of the mortgage on our Vernal, UT manufacturing campus,
which currently matures on February 2021.”
First Quarter 2020 Review ($ in thousands, except per
share amounts) (See at “Definitions” the composition of
product/service revenue categories.)
($ in thousands, except per share amounts)
March
31,2020 December 31,2019 March 31,2019
ChangeSequential ChangeYear/Year Tool Sales/Rental
$
1,768
$
1,196
$
1,753
47.8%
0.9%
Other Related Tool Revenue
1,845
1,708
1,691
8.0%
9.1%
Tool Revenue
3,613
2,904
3,444
24.4%
4.9%
Contract Services
1,745
1,437
1,592
21.4%
9.6%
Total Revenue
$
5,358
$
4,341
$
5,036
23.4%
6.4%
When compared with the prior-year period, revenue grew 6.4%. The
growth reflected strong performance by the DNR in the Middle East,
higher Other Related Tool revenue from increased DNR activity in
the U.S. and higher demand for Contract Services from the expanded
contract with the Company’s legacy customer. North America revenue
was down just 5% while the average U.S. drill rig count was down
25% in the quarter compared with the prior-year period.
International revenue expanded nearly fourfold to $777
thousand.
Mr. Meier added, “The solid performance of the DNR, demonstrated
by the rapid growth in the Middle East and increased market
penetration in the U.S., despite a significantly reduced market, is
a true testament to the value the tool brings to production
efficiencies and cost reduction at the wellhead.”
First Quarter 2020 Operating Costs
($ in thousands, except per share amounts)
March 31,2020
December 31,2019 March 31,2019
ChangeSequential ChangeYear/Year Cost of revenue
$
2,315
$
2,063
$
2,043
12.2%
13.3%
As a percent of sales
43.2%
47.5%
40.6%
Selling, general & administrative
$
2,018
$
1,901
$
2,069
6.2%
(2.5)%
As a percent of sales
37.7%
43.8%
41.1%
Depreciation & amortization
$
761
$
748
$
1,011
1.7%
(24.8)%
Total operating expenses
$
5,093
$
4,712
$
5,123
8.1%
(0.6)%
Operating Income (loss)
$
265
$
(371)
$
(87)
NM
NM
As a % of sales
4.9%
(8.5)%
(1.7)%
Other (expense) income includingincome tax (expense)
$
(67)
$
533
$
(159)
NM
NM
Net income (loss)
$
198
$
125
$
(246)
58.9%
NM
Diluted earnings (loss) per share
$
0.01
$
0.00
$
(0.01)
57.7%
NM
Adjusted EBITDA(1)
$
1,221
$
621
$
1,194
96.6%
2.2%
(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.
The cost of revenue increased approximately $271 thousand over
the prior-year period on higher volume, as well as employee
severance related costs. As a percentage of revenue, cost of sales
was 43% and 41% for the three months ended March 31, 2020, and
2019, respectively. The increase was due to international start-up
costs and severance costs.
The 2.5% decline in selling, general and administrative expense
(SG&A) was primarily due to a decrease in stock compensation
expense and accrued bonus expense.
Depreciation and amortization expense decreased approximately
25% to $761 thousand due to lower amortization expense as a result
of fully amortizing a portion of intangible assets in May 2019.
Chris Cashion, Chief Financial Officer commented, “As a result
of the actions the Company has taken in response to the impact of
COVID-19 on the global oil industry, we have reduced our cash burn
to approximately $1.1 million.”
Net income for the quarter was $198 thousand, up from a net loss
of $246 thousand in the first quarter of 2019. Adjusted EBITDA(1),
a non-GAAP measure defined as earnings before interest, taxes,
depreciation and amortization, non-cash stock compensation expense
and unusual items, decreased as a percent of revenue by 93 basis
points to 22.8% compared with the first quarter of 2019.
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.
Balance Sheet and Liquidity
The Cash balance at the end of the quarter was $3.3 million, up
from $1.2 million at the end of 2019. The increase was the result
of the reduction in accounts receivables and strong cash from
operations. Cash generated from operations was $2.2 million,
compared with $0.9 million in the first quarter of 2019.
Capital expenditures were $38 thousand in the first quarter and
was primarily for tools to support the expansion in the Middle
East. In addition, approximately $48 thousand of finished DNR
inventory was converted to property, plant and equipment to serve
the Middle East.
Total debt at the end of the first quarter was $7.6 million,
down $0.4 million, or 4.0%, compared with $8.0 million at December
31, 2019.
Following the end of the quarter, the Company made a $750,000
principal payment on the Hard Rock Note. On May 6, 2020, the
Company executed an amendment to its Hard Rock Note that was
effective April 16, 2020. Under the amended and restated note, the
maturity date of the Hard Rock Note was extended to October 5,
2022. The amendment provides for the last two principal payments of
$750,000 each for the remaining $1.5 million balance to be extended
to July 5, 2021 and October 5, 2022. Quarterly interest will accrue
as of the effective date of the amendment at a rate of 8.0% per
annum compared with the previous 7.25% interest rate. Accrued
interest will continue to be paid on the unchanged quarterly
schedule.
Definitions and Composition of Product/Service
Revenue:
Contract Services Revenue is comprised of drill bit and other
repair and manufacturing services.
Other Related Tool Revenue is comprised of royalties and fleet
maintenance fees.
Tool Sales/Rental revenue is comprised of revenue from either
the sale of tools or tools rented to customers.
Tool Revenue is the sum of Other Related Tool Revenue and Tool
Sales/Rental revenue.
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 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 1:00 p.m. MT (3:00 p.m.
ET) the day of the teleconference until Friday, May 15, 2020. To
listen to the archived call, please call (412) 317-6671 and enter
conference ID number 13700720, 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, including, without limitations, 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 duration of the COVID-19 pandemic and related impact
on the oil and natural gas industry, 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; 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
FINANCIAL TABLES FOLLOW.
Superior Drilling Products, Inc. Consolidated Condensed
Statements Of Operations For the Quarter Ended March 31,
2020 and 2019 (unaudited)
For the Three Months Ended
March 31,
2020
2019
Revenue North America
$
4,580,510
$
4,828,277
International
777,253
208,069
Total revenue
$
5,357,763
$
5,036,346
Operating cost and expenses Cost of revenue
2,314,508
2,043,028
Selling, general, and administrative expenses
2,017,899
2,069,040
Depreciation and amortization expense
760,764
1,011,105
Total operating costs and expenses
5,093,171
5,123,173
Operating Income (loss)
264,592
(86,827
)
Other income (expense) Interest income
4,688
18,933
Interest expense
(177,258
)
(177,982
)
Loss on Fixed Asset Impairment
(30,000
)
-
Gain (loss) on sale or disposition of assets
142,234
-
Total other expense
(60,336
)
(159,049
)
Income (loss) Before Income Taxes
$
204,256
$
(245,876
)
Income tax expense
(6,210
)
-
Net Income (loss)
$
198,046
$
(245,876
)
Basic income (loss) earnings per common share
$
0.01
$
(0.01
)
Basic weighted average common shares outstanding
25,418,126
25,018,098
Diluted income (loss) per common Share
$
0.01
$
(0.01
)
Diluted weighted average common shares outstanding
25,418,126
25,018,098
Superior Drilling Products, Inc. Consolidated
Condensed Balance Sheets (unaudited)
March 31, 2020 December 31, 2019 Assets
Current assets: Cash
$
3,349,252
$
1,217,014
Accounts receivable, net
3,225,090
3,850,509
Prepaid expenses
94,856
139,070
Inventories
1,179,247
924,032
Asset held for sale
40,000
252,704
Other current assets
-
252,178
Total current assets
7,888,445
6,635,507
Property, plant and equipment, net
7,657,789
8,045,692
Intangible assets, net
1,694,445
1,986,111
Right of use Asset (net of amortizaton)
$
238,791
$
-
Other noncurrent assets
93,619
93,619
Total assets
$
17,573,089
$
16,760,929
Liabilities and Owners' Equity Current liabilities:
Accounts payable
$
1,551,104
$
945,414
Accrued expenses
716,790
683,832
Customer Deposits
-
61,421
Income tax payable
22,090
15,880
Current portion of Operating Lease Liability
149,811
-
Current portion of long-term debt, net of discounts
5,054,692
4,102,543
Total current liabilities
$
7,494,487
$
5,809,090
Operating Lease Liability
88,980
-
Long-term debt, less current portion, net of discounts
2,581,604
3,848,863
Total liabilities
$
10,165,071
$
9,657,953
Stockholders' equity Common stock (25,418,126 and
25,418,126)
25,418
25,418
Additional paid-in-capital
40,176,387
40,069,391
Accumulated deficit
(32,793,787
)
(32,991,833
)
Total stockholders' equity
$
7,408,018
$
7,102,976
Total liabilities and shareholders' equity
$
17,573,089
$
16,760,929
Superior Drilling Products, Inc. Consolidated Condensed
Statement of Cash Flows For The Quarters Ended March 31,
2020 and 2019 (unaudited)
March 31,2020
December 31,2019 Cash Flows From Operating Activities
Net Income (Loss)
$
198,046
$
(936,423
)
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization expense
760,764
3,428,403
Share-based compensation expense
106,996
629,180
Loss on disposition of rental fleet
-
37,568
Loss (Gain) on sale or disposition of assets
(142,234
)
(15,647
)
Impairment on asset held for sale
30,000
6,143
Amortization of deferred loan cost
4,631
14,942
Changes in operating assets and liabilities: Accounts receivable
625,419
(1,577,320
)
Inventories
(303,122
)
(680,904
)
Prepaid expenses and other noncurrent assets
296,392
(299,373
)
Accounts payable and accrued expenses
660,731
257,533
Income Tax expense
6,210
12,240
Other long-term liabilities
(61,421
)
61,421
Net Cash Provided By Operating Activities
2,182,412
937,763
Cash Flows From Investing Activities Purchases of
property, plant and equipment
(37,850
)
(509,055
)
Proceeds from sale of fixed assets
117,833
-
Net Cash Provided By (Used In) Investing Activities
79,983
(509,055
)
Cash Flows From Financing Activities Principal
payments on debt
(975,440
)
(4,746,145
)
Proceeds received from debt borrowings
72,520
1,150,000
Payments on Revolving Loan
(39,461
)
(1,924,939
)
Proceeds received from Revolving Loan
812,224
2,118,226
Debt issuance Costs
-
(73,603
)
Net Cash Used In Financing Activities
(130,157
)
(3,476,461
)
Net change in Cash
2,132,238
(3,047,753
)
Cash at Beginning of Period
1,217,014
4,264,767
Cash at End of Period
$
3,349,252
$
1,217,014
Supplemental information: Cash paid for interest
$
182,369
$
577,814
Non-cash payment of other liabilities by offsetting recovery of
related-party note receivable
$
-
$
377,746
Inventory converted to property, plant and equipment
$
47,907
$
-
Long term debt paid with Sale of Plane
$
211,667
$
-
Superior Drilling Products,
Inc.
Adjusted EBITDA(1)
Reconciliation
(unaudited)
($, in thousands)
Three Months Ended March
31,2020 March 31,2019 December 31,2019
GAAP net income
$
198,046
$
(245,876
)
$
124,634
Add back: Depreciation and amortization
760,764
1,011,105
748,333
Interest expense, net
172,570
159,049
165,397
Share-based compensation
106,996
181,852
155,464
Net non-cash compensation
88,200
88,200
88,200
Income tax expense
6,210
-
18,550
(Gain) Loss on disposition of assets
(112,234
)
-
(1,500
)
Recovery of Related Party Note Receivable
-
-
(678,148
)
Non-GAAP adjusted EBITDA(1)
$
1,220,552
$
1,194,330
$
620,930
GAAP Revenue
$
5,357,763
$
5,036,346
$
4,341,010
Non-GAAP Adjusted EBITDA Margin
22.8%
23.7%
14.3%
(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/20200508005065/en/
For more information, contact investor relations: Deborah
K. Pawlowski, Kei Advisors LLC (716) 843-3908,
dpawlowski@keiadvisors.com
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