- Diversification strategy drove 49% growth in International
revenue to $429 thousand; sequentially, International revenue was
up 28%
- Drill-N-Ream active in Kuwait, Ukraine, Oman, the UAE and
Qatar
- Total annualized cost reductions of approximately $3.5
million implemented year-to-date in response to industry
conditions
- Latest cost reduction efforts reduced cash break even to
$700 thousand per month
- Expects to achieve cash breakeven entering into
2021
Superior Drilling Products, Inc. (NYSE American: SDPI) (“SDP” or
the “Company”), a designer and manufacturer of drilling tool
technologies, today reported financial results for the third
quarter ended September 30, 2020.
Troy Meier, Chairman and CEO, commented, “We are taking measures
to provide for liquidity while keeping our sights on the long term.
Importantly, our results demonstrate that the value of our
Drill-N-Ream® well bore conditioning tool has been gaining traction
internationally even against the temporary headwinds of current
industry conditions. We are now operating in five countries outside
of North America, as we are pulled into more regions by global oil
field service companies who benefit from the economic value of the
DNR technology. In addition, given the documented increase of
drilling efficiencies when using the DNR, we believe it also
contributes to the reduction of environmental impact while drilling
for fossil fuels.”
Third Quarter 2020 Review ($ in thousands, except per
share amounts) (See at “Definitions” the composition of
product/service revenue categories.)
($ in thousands, except per share amounts)
September
30,2020 June 30,2020 September 30,2019 Change
Sequential Change Year/Year North America
1,118
1,689
4,788
(33.8
)%
(76.6
)%
International
429
335
289
27.9
%
48.7
%
Total Revenue
$
1,547
$
2,024
$
5,076
(23.6
)%
(69.5
)%
Tool Sales/Rental
$
549
$
371
$
1,361
48.1
%
(59.7
)%
Other Related Tool Revenue
642
973
1,834
(34.0
)%
(65.0
)%
Tool Revenue
1,191
1,343
3,195
(11.4
)%
(62.7
)%
Contract Services
357
681
1,881
(47.6
)%
(81.0
)%
Total Revenue
$
1,547
$
2,024
$
5,076
(23.6
)%
(69.5
)%
Year-over-year revenue was down $3.5 million, or 70%.
Sequentially, revenue declined about 24%, or $0.5 million
demonstrating improving market conditions given the August 2020 low
point in U. S. rig count. The market was driven to its low point
due to the initial impacts of COVID-19 and the geopolitically
driven imbalance of supply and demand in the global oil market.
Even as production activity declined around the world,
International revenue grew $141 thousand, or 49%, to $429 thousand.
This supported total Tool revenue, which was down just 11.4%, a
much lower rate than the overall market. The Company attributes
these results to the value created from improved drilling
efficiencies provided by the DNR.
International revenue grew to 28% of total revenue in the
quarter compared with 6% the prior-year period.
Additionally, the Company recognized $41 thousand in other
income related to a machine tool lease under an SBA loan that was
forgiven as part of the CARES act.
Third Quarter 2020 Operating Costs
($ in thousands, except per share amounts)
September
30,2020 June 30,2020 September 30,2019 Change
Sequential Change Year/Year Cost of revenue
$
871
$
1,100
$
2,063
(20.8
)%
(57.8
)%
As a percent of sales
56.3
%
54.3
%
40.6
%
Selling, general & administrative
$
1,530
$
1,340
$
2,502
14.2
%
(38.9
)%
As a percent of sales
98.9
%
66.2
%
49.3
%
Depreciation & amortization
$
693
$
680
$
739
1.9
%
(6.1
)%
Total operating expenses
$
3,094
$
3,120
$
5,303
(0.8
)%
(41.7
)%
Operating loss
$
(1,546
)
$
(1,096
)
$
(227
)
NM
NM
As a % of sales
(99.9
)%
(54.1
)%
(4.5
)%
Other (expense) income includingincome tax (expense)
$
(185
)
$
(146
)
$
(191
)
26.9
%
(3.0
)%
Net loss
$
(1,731
)
$
(1,242
)
$
(418
)
NM
NM
Diluted loss per share
$
(0.07
)
$
(0.05
)
$
(0.02
)
NM
NM
Adjusted EBITDA(1)
$
(607
)
$
(222
)
$
1,083
NM
NM
(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 decreased approximately $1.2 million over
the prior-year period reflecting lower volume and lower costs
resulting from the execution of the first two phases of the
Company’s plans to reduce costs to better align with current
demand. As a percentage of revenue, cost of sales was 56% compared
with 41% for prior-year period. The increase reflects lower
absorption of overhead costs on reduced volume.
The 39% decline in selling, general and administrative expense
(SG&A), which includes research and development projects, was
primarily due to Phases I and II of cost reduction measures
initiated in April 2020.
The Company has reduced its monthly cash burn rate to
approximately $700 thousand through further payroll reductions
beginning October 23, 2020. This is down 22% from the previous
level of approximately $200 thousand per month. The Company expects
that at this rate, and given expected improvements in monthly
revenue, it will achieve cash break even entering into 2021.
Net loss for the quarter was $1.7 million, compared with a net
loss of $418 thousand in the third 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, was a negative $607 thousand.
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.
Year-to-Date Review
Revenue in the first nine months of 2020 was $8.9 million,
compared with $14.0 million in the same period in 2019.
International revenue increased 121% in the first nine months, and
U.S. revenue was down just 47%, while the average U.S. rig count
market declined by 52%. The first nine months of 2020 were impacted
by the effect COVID-19 has had on the demand for oil and gas which
resulted in a significant reduction in drilling activity in the
U.S.
Tool revenue was $6.1 million, down 33%, or $3.1 million, from
the prior-year period. Contract Services revenue decreased
approximately $2.7 million, or 49%, to $2.8 million. Net loss for
the first nine months of 2020 was $2.8 million, or $(0.11) per
diluted share. Adjusted EBITDA(1) for the first nine months of 2020
was $391 thousand. Adjusted EBITDA margin was 4.4% in 2020,
compared with 22.9% in 2019.
Balance Sheet and Liquidity
Cash at the end of the quarter was $1.4 million, up from $1.2
million at the end of 2019, but down from $2.5 million at the end
of the second quarter of 2020. Cash used in operations in the third
quarter of 2020 was $842 thousand.
Total debt at the end of the third quarter was $6.7 million,
down $0.2 million, or 3.6%, compared with $6.9 million at June 30,
2020.
Strategy and outlook
Mr. Meier concluded, “We expect that as the DNR is actively
employed in new basins around the world and we further diversify
our customer base, revenue should improve from here. We are working
to develop the logistical and partnership structures to continue to
penetrate international markets and globally improve how fossil
fuels are produced.”
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, November 13, 2020.
To listen to the archived call, please call (412) 317-6671 and
enter conference ID number 13710951, 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.
Superior Drilling Products, Inc. Consolidated Condensed
Statements Of Operations For the Quarter Ended September 30,
2020 and 2019 (unaudited)
For the Three Months
For the Nine Months Ended September 30, Ended
September 30,
2020
2019
2020
2019
Revenue North America
$
1,118,404
$
4,787,693
$
7,387,847
$
13,957,666
International
429,038
288,522
1,541,746
698,337
Total revenue
$
1,547,442
$
5,076,215
$
8,929,593
$
14,656,003
Operating cost and expenses Cost of revenue
870,655
2,062,803
4,284,716
6,119,429
Selling, general, and administrative expenses
1,529,887
2,501,970
4,887,999
6,387,205
Depreciation and amortization expense
693,259
738,555
2,134,398
2,680,070
Total operating costs and expenses
3,093,801
5,303,328
11,307,113
15,186,704
Operating loss
(1,546,359
)
(227,113
)
(2,377,520
)
(530,701
)
Other income (expense) Interest income
145
12,080
5,775
52,444
Interest expense
(126,482
)
(196,582
)
(450,210
)
(590,805
)
Impairment on asset held for sale
-
(6,143
)
(30,000
)
(6,143
)
Loan forgiveness
41,403
-
41,403
-
Gain on disposition of assets
-
-
142,234
14,147
Total other expense
(84,934
)
(190,645
)
(290,798
)
(530,357
)
Loss before income taxes
(1,631,293
)
(417,758
)
(2,668,318
)
(1,061,058
)
Income tax expense
(99,979
)
-
(106,414
)
-
Net loss
$
(1,731,272
)
$
(417,758
)
$
(2,774,732
)
$
(1,061,058
)
Basic loss earnings per common share
$
(0.07
)
$
(0.02
)
$
(0.11
)
$
(0.04
)
Basic weighted average common shares outstanding
25,555,167
25,074,466
25,469,609
25,042,577
Diluted loss per common share
$
(0.07
)
$
(0.02
)
$
(0.11
)
$
(0.04
)
Diluted weighted average common shares outstanding
25,555,167
25,074,466
25,469,609
25,042,577
Superior Drilling Products, Inc. Consolidated
Condensed Balance Sheets (Unaudited) September
30, 2020 December 31, 2019 Assets Current assets:
Cash $
1,412,370
$
1,217,014
Accounts receivable, net
1,441,783
3,850,509
Prepaid expenses
73,785
139,070
Inventories
943,870
924,032
Asset held for sale
40,000
252,704
Other current assets
-
252,178
Total current assets
3,911,808
6,635,507
Property, plant and equipment, net
7,859,200
8,045,692
Intangible assets, net
1,111,111
1,986,111
Right of use assets
146,450
-
Deferred tax asset
34,692
-
Other noncurrent assets
83,114
93,619
Total assets $
13,146,375
$
16,760,929
Liabilities and Owners' Equity Current liabilities:
Accounts payable $
663,090
$
945,414
Accrued expenses
843,197
683,832
Customer deposits
-
61,421
Income tax payable
98,028
15,880
Current portion of operating lease liability
108,104
-
Current portion of long-term debt, net of discounts
4,760,252
4,102,543
Total current liabilities
6,472,671
5,809,090
Operating lease liability
38,346
-
Long-term debt, less current portion, net of discounts
1,937,271
3,848,863
Total liabilities
8,448,288
9,657,953
Shareholders’ equity Common stock - $0.001 par value;
100,000,000 shares authorized;25,434,776 and 25,418,126 shares
issued and outstanding
25,617
25,418
Additional paid-in-capital
40,439,035
40,069,391
Accumulated deficit
(35,766,565)
(32,991,833)
Total shareholders’ equity
4,698,087
7,102,976
Total liabilities and shareholders' equity $
13,146,375
$
16,760,929
Superior Drilling Products, Inc. Consolidated
Condensed Statement of Cash Flows For The Nine Months Ended
September 30, 2020 and 2019 (Unaudited)
September 30, 2020 September 30, 2019 Cash Flows
From Operating Activities Net loss $
(2,774,732
)
$
(1,061,058
)
Adjustments to reconcile net income (loss) to net cash used in
operating activities: Depreciation and amortization expense
2,134,398
2,680,070
Share based compensation expense
369,843
473,717
Impairment on asset held for sale
30,000
6,143
Gain on disposition of assets
(142,234
)
(14,147
)
Gain on forgiveness of loan
(41,403
)
-
Amortization of deferred loan costs
13,894
10,561
Changes in operating assets and liabilities: Accounts receivable
2,408,726
(1,825,347
)
Inventories
(942,831
)
(539,586
)
Prepaid expenses and other noncurrent assets
327,968
(39,998
)
Accounts payable, accrued expenses and income tax payable
(18,728
)
1,531,085
Other noncurrent assets
(34,692
)
-
Other long term liabilities
(61,421
)
-
Net Cash From Operating Activities
1,268,788
1,221,440
Cash Flows From Investing Activities Purchases of
property, plant and equipment
(154,475
)
(392,691
)
Proceeds from sale of fixed assets
117,833
-
Net Cash From Investing Activities
(36,642
)
(392,691
)
Cash Flows From Financing Activities Principal
payments on debt
(2,167,539
)
(3,813,443
)
Proceeds received from debt borrowings
964,120
800,000
Payments on revolving loan
(1,018,690
)
(735,019
)
Proceeds received on revolving loan
1,185,319
1,517,005
Debt issuance costs
-
(70,103
)
Net Cash From Financing Activities
(1,036,790
)
(2,301,560
)
Net Change in Cash
195,356
(1,472,811
)
Cash at Beginning of Period
1,217,014
4,264,767
Cash at End of Period $
1,412,370
$
2,791,956
Supplemental information: Cash paid for Interest $
460,640
$
673,251
Acquisition of equipment by issuance of note payable
-
183,378
Inventory converted to property, plant and equipment
922,993
582,879
Reduction of debt with sale of asset
211,667
-
Superior Drilling Products,
Inc.
Adjusted EBITDA(1)
Reconciliation
(unaudited)
($, in thousands)
Three Months Ended September
30,2020 September 30,2019 June 30, 2020
GAAP net loss
$
(1,731,272
)
$
(417,758
)
$
(1,241,506
)
Add back: Depreciation and amortization
693,259
738,555
680,375
Inventory write off
-
6,143
-
Interest expense, net
126,337
184,502
145,528
Share-based compensation
157,842
155,749
105,005
Net non-cash compensation
88,200
415,438
88,200
Income tax expense
99,979
-
225
Gain on disposition of assets
(41,403
)
-
-
Non-GAAP adjusted EBITDA(1)
$
(607,058
)
$
1,082,629
$
(222,173
)
GAAP Revenue
$
1,547,442
$
5,076,215
$
2,024,388
Non-GAAP Adjusted EBITDA Margin
-39.2
%
21.3
%
-11.0
%
Nine Months Ended September 30,2020
September 30,2019 GAAP net loss
$
(2,774,732
)
$
(1,061,058
)
Add back: Depreciation and amortization
2,134,398
2,680,070
Inventory write off
-
142,143
Interest expense, net
444,435
538,361
Share-based compensation
369,843
473,717
Net non-cash compensation
264,600
591,838
Income tax expense
106,414
-
Gain on disposition of assets
(153,637
)
(14,147
)
Non-GAAP adjusted EBITDA(1)
$
391,321
$
3,350,924
GAAP Revenue
$
8,929,593
$
14,656,003
Non-GAAP Adjusted EBITDA Margin
4.4
%
22.9
%
(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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201106005091/en/
For more information, contact investor relations: Deborah
K. Pawlowski, Kei Advisors LLC (716) 843-3908,
dpawlowski@keiadvisors.com
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