- Revenue grew 9.5% over the prior
year and 44.7% over the sequential quarter
- Cash generated from quarter
operations nearly doubled to $1.0 million
- Making progress in Middle East
market as runs with the Drill-N-Ream® increase
Superior Drilling Products, Inc. (NYSE American:SDPI) (“SDP” or
the “Company”), a designer and manufacturer of drilling tool
technologies, today reported financial results for the first
quarter ended March 31, 2019.
Troy Meier, Chairman and CEO, noted, “Our performance during the
first quarter showed continued progress despite the challenges in
the domestic oil and gas industry. Revenue growth in the quarter of
9.5% compared with the prior-year period was primarily due to
improved contract terms with our legacy customer that resulted in
greater volumes and higher prices being realized by Contract
Services. In addition, the Middle East market’s adoption of our
patented Drill-N-Ream (“DNR”) well bore conditioning tool is
continuing to advance. While early in our international expansion
efforts, we are excited by this market’s potential and the impact
we expect it will have on 2019 results and beyond.”
He added, “We are furthering our relationships with our market
channel partners in the Middle East as we build data validating the
significant value proposition of the DNR. Similarly, the DNR
continues to demonstrate its economic value in North America and in
particular in the Permian Basin, where it has gained significant
market share. Given industry conditions and efforts to grow market
share, we are evaluating options to broaden our North American
channels to market as well.”
First Quarter 2019 Review ($ in thousands, except per
share amounts)
Q1 2019
Q1 2018
$Y/Y Change
% Y/Y Change
Q4 2018
$ Seq. Change
% Seq. Change
Tool sales/rental $ 1,753 $ 1,992 $ (239) (12.0)% $ 426 $
1,326 311.1 %
Other RelatedTool Revenue
1,691 1,533 158 10.3% 1,754 (62)
(3.5) % Tool Revenue 3,444 3,525 (81) (2.3)% 2,180 1,264
58.0 % Contract Services 1,592 1,075
517 48.1% 1,301 291 22.4 %
Total
Revenue $ 5,036 $ 4,600
$ 436 9.5% $3,481
$ 1,556 44.7 %
When compared with the prior-year period, the increase in
Contract Services revenue, which is comprised of drill bit and
other repair and manufacturing services, was mostly the result of
an enhanced contract with a major customer. Other Related Tool
Revenue, which is comprised of royalties and fleet maintenance
fees, increased due to an increasingly larger fleet of deployed DNR
tools being actively used in drilling operations. These increases
were partially offset by a decrease in Tool sales/rental. 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.
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.
First Quarter 2019 Operating Expenses
($ in thousands)
Q1 2019
Q1 2018
$ Y/Y Change
% Y/Y Change
Q4 2018
$ Seq. Change
% Seq. Change
Cost of revenue $ 2,043 $ 1,799 $ 244 13.6 % $ 1,670 $ 373 22.3 %
As a percent of sales 40.6 % 39.1 % 48.0 %
Selling, general &administrative
$ 2,069 $ 1,698 $ 371 21.9 % $ 2,116 $ (47) (2.2)% As a percent of
sales 41.1 % 36.9 % 60.8 %
Depreciation &amortization
$ 1,011 $ 936 $ 75 8.0 %
$ 940 $ 71 7.6 %
Total operatingexpenses
$ 5,123 $ 4,433 $ 691 15.6 %
$ 4,726 $ 397 8.4 %
Operating income (loss)
$ (87) $ 168 $ (254) NM $
(1,245) $ 1,158 NM As a % of sales
(1.7)% 3.6% (35.8)%
Net income (loss) $ (141)
$ 69 $ (210) NM $ (1,357) $
1,215 NM
Diluted earnings (loss) per
share
$ (0.01) $ 0.00 $ (0.01) NM $
(0.05) $ 0.05 NM Adjusted EBITDA(1)
$ 1,106 $ 1,241 $ (135) (10.8)% $ 219
$ 887 404.6 %
The cost of revenue as a percentage of sales increased as a
result of international start-up investments and the new repair
facility in Abilene, Texas that were offset somewhat by higher
Contract Services volume.
The $371 thousand increase in selling, general and
administrative expense (SG&A) over the prior-year period
reflects higher professional fees, stock compensation expense and
accrued bonuses.
Net loss for the quarter was $141 thousand, while 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.
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.
Balance Sheet and Liquidity
The cash balance at the end of the quarter was $4.3 million and
working capital was $2.1 million. Cash generated from operations
was $1.0 million, compared with $0.5 million in the first quarter
of 2018.
Capital expenditures were $339 thousand in the first quarter and
was primarily for DNR tools to support the expansion in the Middle
East.
Total debt at the end of the first quarter was $10.4 million,
down $0.5 million, or 4.6%, compared with $10.9 million at December
31, 2018. Total principal payments in 2019 on the Hard Rock note
through April 5, 2019 was $1.5 million. The remaining principal
balance on the note following the April payment was $4.5 million.
In February 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 at prime plus 2% and certain fees. The credit facility
matures on February 20, 2023. At the end of the first quarter,
there was approximately $700 thousand outstanding on the revolver
with a capacity of $1.7 million based on the asset base
available.
2019 Outlook and Guidance estimates:
Mr. Meier concluded, “We are focused on the significant market
opportunities for our DNR and Strider Technology™ oscillation
system. We believe our success at developing tools that increase
drilling efficiencies and improve well economics will continue to
be a driver of growth this year and beyond. We have potential with
continued expansion of our market share in the U.S., the measurable
opportunity for international growth and the introduction of the
Strider, which we expect to have rapid market acceptance.”
Revenue:
$21 million to $23 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, May 16,
2019. To listen to the archived call, dial (412) 317-6671 and enter
conference ID number 13689835, 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, 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.
Superior Drilling Products, Inc.
Consolidated Condensed Statements Of Operations For the
Quarter Ended March 31, 2019 and 2018 (unaudited)
For
the Three Months Ended March 31, 2019
2018 Revenue $ 5,036,346 $ 4,600,293
Operating cost and expenses Cost of revenue 2,043,028
1,798,944 Selling, general, and administrative expenses 2,069,040
1,697,663 Depreciation and amortization expense 1,011,105
936,027
Total operating costs and expenses
5,123,173 4,432,634
Operating income
(loss) (86,827) 167,659
Other income
(expense) Interest income 123,386 92,428 Interest expense
(177,982) (191,553) Total other expense
(54,596) (99,125)
Income (loss) before income
taxes $ (141,423) $ 68,534 Income tax expense - -
Net
(loss) income $ (141,423) $ 68,534
Basic income
(loss) earnings per common share $ (0.01) $ 0.00
Basic weighted average common shares outstanding
25,018,098 24,535,155
Diluted income (loss) per
common Share $ (0.01) $ 0.00
Diluted weighted average
common shares outstanding 25,018,098 25,140,467
Superior Drilling Products, Inc.
Consolidated Condensed Balance Sheets (Unaudited)
March 31, 2019 December 31, 2018
Assets Current assets: Cash $ 4,346,466 $ 4,264,767 Accounts
receivable, net 2,778,901 2,273,189 Prepaid expenses 110,869
133,607 Interest Receivable 104,453 - Inventories 1,231,753
1,003,623 Other current assets 158,131 - Total
current assets 8,730,573 7,675,186 Property, plant and
equipment, net 8,165,336 8,226,009 Intangible assets, net 3,074,444
3,686,111 Related party note receivable 7,367,212 7,367,212 Other
noncurrent assets 51,887 51,887
Total assets $
27,389,452 $
27,006,405 Liabilities and
Shareholders' Equity Current liabilities: Accounts payable $
1,341,800 $ 717,721 Accrued expenses 904,687 631,860 Income tax
payable 3,640 3,640 Current portion of long-term debt, net of
discounts 4,357,957 4,578,759 Total current liabilities $
6,608,084 $ 5,931,980 Long-term debt, less current portion,
net of discounts 5,963,508 6,296,994
Total liabilities
$ 12,571,592 $ 12,228,974
Stockholders' equity Common stock (25,018,098 and 24,535,334)
25,018 25,018 Additional paid-in-capital 39,622,463 39,440,611
Accumulated deficit (24,829,621) (24,688,198) Total
stockholders' equity $ 14,817,860 $ 14,777,431
Total liabilities
and shareholders' equity $ 27,389,452 $
27,006,405 Superior Drilling
Products, Inc. Consolidated Condensed Statement of Cash
Flows For The Quarter Ended March 31, 2019 and 2018
(Unaudited) March 31, 2019
March 31, 2018 Cash Flows From Operating
Activities Net Loss $ (141,423) $ 68,534 Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense 1,011,105 936,027
Amortization of debt discount and deferred loan cost 1,603 17,061
Share based compensation expense 181,852 137,017 Income tax expense
- - Impairment of inventories - 41,396 Loss (gain) on sale of
assets - - Changes in operating assets and liabilities: Accounts
receivable (505,712) (556,004) Inventories (228,130) (6,079)
Prepaid expenses and other current assets (239,846) (54,991)
Accounts payable and accrued expenses 896,906 (62,113) Other
long-term liabilities - -
Net Cash Provided
By Operating Activities $
976,355 $
520,848 Cash Flows From Investing Activities
Purchases of property, plant and equipment (338,765) (94,780)
Proceeds from sale of fixed assets - -
Net
Cash Provided By (Used In) Investing Activities
(338,765) (94,780)
Cash Flows From
Financing Activities Principal payments on debt (1,993,172)
(625,905) Proceeds from debt borrowings 800,000 - Principal
payments on revolving loans (301,969) - Prroceeds from revolving
loans 1,000,000 - Debt issuance costs (60,750)
-
Net Cash Used In Financing Activities # (555,891)
(625,905)
Net Increase in Cash 81,699
(199,837) Cash at Beginning of Period 4,264,767
2,375,179
Cash at End of Period $ 4,346,466 $
2,175,342 Supplemental information: Cash paid for interest $
247,865 $ 210,065
Superior Drilling Products,
Inc.
Adjusted EBITDA(1)
Reconciliation
(unaudited)
Three Months Ended March 31, 2019
March 31, 2018 December 31, 2018
GAAP net income $ (141,423) $
68,534
$ (1,356,901) Add back: Depreciation and amortization
1,011,105 936,027
940,048 Interest expense, net 54,596 99,125
93,929 Share-based compensation 181,852 137,017
146,745 Net non-Cash compensation - -
377,746 Loss on disposition of assets - -
14,013 Income tax expense (benefit) - -
3,640
Non-GAAP adjusted EBITDA(1) $
1,106,130 $ 1,240,703
$ 219,220 GAAP Revenue $ 5,036,346 $ 4,600,293
$ 3,480,635 Non-GAAP Adjusted EBITDA Margin 22.0% 27.0% 6.3%
(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/20190509005275/en/
For more information, contact investor relations:Deborah
K. PawlowskiKei Advisors LLC(716)
843-3908dpawlowski@keiadvisors.com
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