- Contract Services revenue increased 34% over prior-year
period
- Middle East revenue up 44% over the trailing
quarter
- Generated $1.0 million in cash from operations in the
quarter
- Long-term debt reduced 46% to a pro forma $3.4 million in
2019, following payment on Hard Rock note subsequent to end of
quarter
Superior Drilling Products, Inc. (NYSE
American: SDPI) (“SDP” or the “Company”), a designer and
manufacturer of drilling tool technologies, today reported
financial results for the third quarter ended September 30, 2019.
Prior-year periods are restated to reflect the write-down of the
Tronco loan asset as of August 2017.
Troy Meier, Chairman and CEO, noted, “We made significant
progress in the Middle East during the quarter, expanding the fleet
of our patented Drill-N-Ream® (DNR) well bore conditioning tool and
building up our team in the region. We have agreements with three
oil field services companies to represent the tool in the Middle
East North Africa region (“MENA”) and are in discussions with
others to extend our reach into that market. Demand for the DNR has
grown quickly as the tool gains acceptance in the region and as
more operators experience the value that our tool generates.”
He added, “In the U.S., our expanded relationship with our
long-time legacy customer continues to drive increased Contract
Services revenue. We are also involved in productive dialogue with
this customer to expand our relationship to include their
representing the DNR in North America and MENA as well. In the
meantime, while the U.S. drill rig count has declined 24% since the
beginning of the year, the Drill-N-Ream continues to be deployed by
many of the major operators, primarily in the Permian Basin. Here,
as in MENA, we believe that the DNR provides measurable cost
savings and improved drilling efficiencies, which is driving demand
for the tool.”
Third Quarter 2019 Review ($ in thousands, except per
share amounts) (See at “Definitions” the composition of
product/service revenue categories.)
($ in thousands, except per share amounts)
Q3 2019 Q3 2018
$Y/YChange % Y/YChange
Q2 2019 $ Seq.Change
% Seq.Change Tool sales/rental
$
1,361
$
1,655
$ (294)
(17.8)%
$ 1,000
$ 361
36.1%
Other Related Tool Revenue
1,834
1,706
128
7.5%
1,573
261
16.6%
Tool Revenue
3,195
3,361
(166)
(4.9)%
2,573
622
24.2%
Contract Services
1,881
1,404
477
34.0%
1,970
(89)
(4.5)%
Total Revenue
$
5,076
$
4,765
$ 311
6.5%
$
4,543
$ 533
11.7%
When compared with the prior-year period, revenue grew 6.5%
driven by increased Contract Services and Other Related Tool
Revenue. Contract services revenue was up 34% to $1.9 million as
demand from the Company’s legacy customer was up for drill bit and
other tool refurbishment and contract manufacturing. Other Related
Tool revenue increased by 7.5% as the continued growth in tool runs
strengthened royalty revenue, and as the durability of the DNR
extended the tool life. This resulted in additional repair and
refurbishments on the existing DNR fleets maintained by our primary
distributor. The extended tool life has delayed the requirement for
replacement tools resulting in lower tool sales. This was partially
offset by increased rental revenue from the Middle East which was
up $283 thousand to $288 thousand in the quarter.
Third Quarter 2019 Operating Expenses
($ in thousands, except per share amounts)
Q3 2019
Q3 2018restated $ Y/YChange
% Y/YChange Q2 2019 $ Seq.Change
% Seq.Change Cost of revenue
$
2,063
$
1,666
$ 397
23.8%
$ 2,014
$ 49
2.4%
As a percent of sales
40.6%
35.0%
40.6%
Selling, general & administrative
2,502
1,867
635
34.0%
1,816
686
37.8%
As a percent of sales
49.3%
39.2%
41.1%
Depreciation & amortization
739
942
(204)
(21.6)%
930
(191)
(20.6)%
Total operating expenses
5,303
4,475
828
18.5%
4,760
543
11.4%
Operating (loss) income
(227)
290
(517)
NM
(217)
(10)
NM
As a % of sales
(4.5)%
6.1%
(1.7)%
Net (loss)
income per share
(418)
128
(545)
NM
(397)
(21)
NM
Diluted (loss) earnings per share
(0.02)
0.01
(0.02)
NM
(0.02)
0.00
NM
Adjusted EBITDA(1)
$
1,083
$
1,365
$ (282)
NM
$
1,074
$
9
0.8%
(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 as a percentage of sales increased on lower
absorption with increased production capacity in Texas, higher tool
maintenance and logistics costs associated with the MENA operations
and product mix.
Increased selling, general and administrative expense (SG&A)
over the prior-year and trailing period was primarily related to an
increase in international sales and marketing expenses,
professional fees, stock compensation expense and long-term
incentive compensation.
Net loss for the quarter was $418 thousand, down from net income
of $128 thousand in the third quarter of 2018. 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 $1.1 million, similar to the prior-year
period.
The Company believes that when used in conjunction with measures
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”), Adjusted EBITDA, which is a non-GAAP measure,
helps in the understanding of its operating performance.
Year-to-Date Review
($ in thousands, except per share amounts)
YTD 2018restated
$ Y/YChange % Y/YChange YTD
2019 Tool sales/rental
$
4,114
$
6,153
$ (2,039)
(33.1)%
Other Related Tool Revenue
5,099
4,809
290
6.0%
Tool Revenue
9,212
10,962
(1,750)
(16.0)%
Contract Services
5,444
3,803
1,641
43.2%
Total Revenue
14,656
14,765
(109)
(0.7)%
Operating expenses
15,187
13,219
1,968
14.9%
Operating (loss) income
(531)
1,546
(2,076)
NM
Net(loss) income
(1,061)
1,023
(2,084)
NM
Diluted (loss) earnings per share
(0.04)
0.04
(0.08)
NM
Adjusted EBITDA(1)
$
3,351
$
4,738
$
(1,387)
(29.3)%
(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.
Revenue in the first nine months of 2019 was relatively
unchanged from the prior-year period. Growth in Contract Services
and Other Related Tool Revenue was up for similar reasons as the
quarter and more than offset lower Tool Sales/Rental revenue. While
tool rentals increased from activity in the Middle East, total tool
sales/rental revenue declined on fewer DNR tool sales in the
U.S.
Operating expenses increased $2.0 million over the prior-year
period due to incremental costs associated with the Middle East
expansion, addition of the Texas service center and the timing of
long term incentive compensation. Operating loss was $0.5 million
in the first nine months of 2019, compared with operating income in
2018 of $1.5 million.
Net loss for the first nine months of 2019 was $1.1 million, or
$(0.04) per diluted share. Adjusted EBITDA(1) for the first nine
months of 2019 was $3.4 million. Adjusted EBITDA margin was 23% in
2019, compared with 32% in 2018.
Balance Sheet and Liquidity
Cash at the end of the quarter was $2.8 million and working
capital was $0.8 million. Capital expenditures were $0.2 million in
the quarter and $0.4 million for the first nine months of 2019. In
addition, approximately $0.6 million of tool inventory was
converted to property, plant and equipment for DNR tools to support
the expansion in MENA for the nine-month period. Also, the Company
acquired a new machine tool turning center to enhance productivity
that was directly financed for $0.2 million.
Total debt at the end of the third quarter was $8.8 million,
down $2.1 million, or 19.2%, compared with $10.9 million at
December 31, 2018. Subsequent to the end of the third quarter, the
Company made its final 2019 payment on the Hard Rock note of $750
thousand in principal plus interest. Following this payment, pro
forma long term debt was $3.4 million, down $2.9 million or 46%
from the end of December 2018. The remaining principal balance on
the Hard Rock note following the October payment was $3.0
million.
In February 2019, the Company secured a new $4.3 million credit
facility comprised of a $0.8 million term loan and a $3.5 million
revolver at prime plus 2% and certain fees. The credit facility
matures on February 20, 2023. At the end of the third quarter,
there was approximately $782 thousand borrowed on the revolver with
a capacity of $1.8 million on the available asset base.
2019 Outlook and Guidance Estimates/ 2020 Preliminary
Expectations:
The Company is refining its expectations for 2019 as noted
below.
Revenue:
Approximately $19 million to $19.5
million, about 4%+ increase over 2018
Gross margin:
58% to 61%
SG&A expenses:
Approximately $8.5 million including
non-cash bonus compensation
D&A:
Approximately $3.5 million
Interest Expense:
Approximately $800 thousand
Capital Expenditures:
Approximately $2.0 to $2.5 million,
including inventory conversion and direct financing (Approximately
$0.6 to $0.7 million as capex in Statement of Cash Flows)
Mr. Meier concluded, “We are extremely encouraged with the
progress we have made this year to introduce the Drill-N-Ream into
the Middle East. We believe this progress, combined with our
expanded relationship with our long-term legacy customer will more
than offset the depressed state of the North American oil & gas
industry. We consider ourselves in a good position for growth as we
head into 2020. Our preliminary expectations for 2020 are for
revenue to increase 15% to 20% and for EBITDA margin to be in the
25% to 30% range.”
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 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, November 15, 2019.
To listen to the archived call, please call (412) 317-6671 and
enter conference ID number 13694910, 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 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, 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 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, 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; 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 September 30,
2019 and 2018 (unaudited)
For the Three Months
For the Nine Months Ended Ended September 30,
Ended September 30,
2019
2018 restated
2019
2018restated Revenue
$
5,076,215
$ 4,765,361
$ 14,656,003
$14,764,577
Operating cost and expenses Cost of revenue
2,062,803
1,665,774
6,119,429
5,407,389
Selling, general, and administrative expenses
2,501,970
1,866,833
6,387,205
4,991,481
Depreciation and amortization expense
738,555
942,473
2,680,070
2,820,183
Total operating costs and expenses
5,303,328
4,475,080
15,186,704
13,219,053
Operating (loss) income
(227,113)
290,281
(530,701)
1,545,524
Other income (expense) Interest income
12,080
16,066
52,444
30,080
Interest expense
(196,582)
(178,642)
(590,805)
(552,692)
Fixed asset impairment
(6,143)
-
(6,143)
-
Gain on sale or disposition of assets
-
-
14,147
-
Total other expense
(190,645)
(162,576)
(530,357)
(522,612)
(Loss) income before income taxes
$ (417,758)
$
127,705
$
(1,061,058)
$ 1,022,912
Income tax expense
-
-
-
-
Net (loss) income
$ (417,758)
$
127,705
$
(1,061,058)
$ 1,022,912
Basic (loss) income earnings per common share
$
(0.02)
$
0.01
$
(0.04)
$
0.04
Basic weighted average common shares outstanding
25,074,466
24,542,551
25,042,577
24,537,647
Diluted (loss) income per common Share
$
(0.02)
$
0.01
$
(0.04)
$
0.04
Diluted weighted average common shares outstanding
25,074,466
25,162,445
25,042,577
25,156,629
Superior Drilling Products, Inc. Consolidated Condensed
Balance Sheets (Unaudited)
September 30,2019
December 31, 2018restated Assets
Current assets:
Cash
$
2,791,956
$
4,264,767
Accounts receivable, net
4,098,536
2,273,189
Prepaid expenses
167,464
133,607
Inventories
960,330
1,003,623
Asset held for sale
252,704
-
Total current assets
8,270,990
7,675,186
Property,
plant and equipment, net
7,868,520
8,226,009
Intangible assets, net
2,277,778
3,686,111
Other noncurrent assets
58,028
51,887
Total assets
$
18,475,316
$
19,639,193
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
$
1,270,401
$
717,721
Accrued expenses
1,610,265
631,860
Income tax payable
3,640
3,640
Current portion of long-term debt, net of
discounts
4,591,811
4,578,759
Total current liabilities
$
7,476,117
$
5,931,980
Long-term
debt, less current portion, net of discounts
4,176,321
6,296,994
Total liabilities
$
11,652,438
$
12,228,974
Stockholders'
equity Common stock
(25,018,098 and 24,535,334)
25,098
25,018
Additional paid-in-capital
39,914,248
39,440,611
Accumulated deficit
(33,116,468)
(32,055,410)
Total stockholders' equity
$
6,822,878
$
7,410,219
Total liabilities and shareholders'
equity
$
18,475,316
$
19,639,193
Superior Drilling Products, Inc. Consolidated Condensed
Statement of Cash Flows For The Nine Months Ended September
30, 2019 and 2018 (Unaudited) September
30, 2019 September 30,
2018restated Cash Flows From Operating Activities
Net (loss) income
$
(1,061,058)
$
1,022,912
Adjustments to reconcile net loss to net cash provided by
operating activities: Depreciation and amortization
expense
2,680,070
2,820,183
Amortization of debt discount and deferred loan cost
10,561
43,459
Share based compensation expense
473,717
372,211
Income tax expense
-
-
Impairment of property, plant and equipment
6,143
-
Impairment of inventories
-
41,396
Gain on sale of assets
(14,147)
-
Changes in operating assets and liabilities:
Accounts receivable
(1,825,347)
38,150
Inventories
(539,586)
121,484
Prepaid expenses and other current assets
(39,998)
(308,072)
Accounts payable and accrued expenses
1,531,085
(181,515)
Net Cash Provided By Operating Activities
$
1,221,440
$
3,970,208
Cash Flows From Investing Activities Purchases
of property, plant and equipment
(392,691)
(183,263)
Net Cash Used In Investing Activities
(392,691)
(183,263)
Cash Flows From Financing Activities Principal
payments on debt
(3,813,443)
(1,887,061)
Proceeds from debt borrowings
800,000
-
Principal payments on revolving loans
(735,019)
-
Proceeds from revolving loans
1,517,005
-
Debt issuance costs
(70,103)
-
Net Cash Used In Financing Activities #
(2,301,560)
(1,887,061)
Net (Decrease) Increase in Cash
(1,472,811)
1,899,884
Cash at Beginning of Period
4,264,767
2,375,179
Cash at End of Period
$
2,791,956
$
4,275,063
Supplemental information: Cash paid for interest
$
673,251
$
488,112
Acquisition of equipment by issuance of note payable
$
183,378
$
-
Inventory converted to property, plant and equipment
$
582,879
$
-
Superior Drilling
Products, Inc.
Adjusted EBITDA(1)
Reconciliation (unaudited)
Three Months Ended September 30, 2019
September 30, 2018restated June 30, 2019
GAAP net (loss) income
$
(417,758)
$
127,705
$
(397,424)
Add back: Depreciation and amortization
738,555
942,473
930,410
Impairment of assets
6,143
-
136,000
Interest expense, net
184,502
162,576
194,810
Share-based compensation
155,749
131,867
136,115
Net non-cash compensation
415,438
-
88,200
Gain on disposition of assets
-
-
(14,147)
Income tax expense (benefit)
-
-
-
Non-GAAP adjusted EBITDA(1)
$
1,082,629
$
1,364,621
$
1,073,964
GAAP Revenue
$
5,076,215
$
4,765,361
$
4,543,442
Non-GAAP Adjusted EBITDA Margin
21.3%
28.6%
23.6%
Nine Months Ended September 30, 2019
September 30, 2018restated GAAP net (loss)
income
$
(1,061,058)
$
1,022,912
Add back: Depreciation and amortization
2,680,070
2,820,183
Impairment of assets
142,143
-
Share-based compensation
473,717
372,211
Net non-cash compensation
591,838
-
Interest expense, net
538,361
522,612
(Gain) loss on disposition of assets
(14,147)
-
Income tax expense (benefit)
-
-
Non-GAAP Adjusted EBITDA(1)
$
3,350,924
$
4,737,918
GAAP Revenue
$
14,656,003
$
14,764,577
Non-GAAP Adjusted EBITDA Margin
22.9%
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/20191107006172/en/
For more information, contact investor relations: Deborah
K. Pawlowski, Kei Advisors LLC (716) 843-3908,
dpawlowski@keiadvisors.com
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