• Third quarter revenue grew to $3.6 million, up $2.0 million over the prior-year period and up $163 thousand sequentially
  • North America revenue was up 172% and International revenue increased 22% over prior-year period on greater market penetration and improving market conditions
  • Achieved break-even earnings per diluted share with net loss of $6 thousand compared with net loss of $1.7 million
  • Adjusted EBITDA* was $853 thousand or 23.9% as a percent of revenue
  • Strengthened balance sheet subsequent to quarter end with $1.7 million of net proceeds from offering

*Adjusted EBITDA is a non-GAAP measure. See comments regarding the use of non-GAAP measures and the reconciliation of GAAP to non-GAAP measures in the tables of this release

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 of 2021 ended September 30, 2021.

Troy Meier, Chairman and CEO, commented, “Demand for our tools and services is strong and we are working hard to meet our customers’ requirements. We are confident in the value our flagship Drill-N-Ream® well bore conditioning tool brings to the oil & gas production industry. Importantly, our engineering expertise and manufacturing skills are in demand. We are addressing new opportunities to manufacture drilling tools to meet the rising demand and challenging technical requirements of polycrystalline diamond cutters. We believe technical knowledge of drilling technologies, operational strengths and ability to meet demand provide us competitive advantages in these challenging times of severe supply chain constraints and labor shortages.”

Third Quarter 2021 Review ($ in thousands, except per share amounts) (See at “Definitions” the composition of product/service revenue categories.)

($ in thousands, except per share amounts) September 30,2021 June 30,2021 September 30,2020 ChangeSequential ChangeYear/Year North America

 

3,041

 

2,941

 

1,118

3.4

%

172.0

%

International

 

521

 

458

 

429

13.8

%

21.5

%

Total Revenue

$

3,562

$

3,399

$

1,547

4.8

%

130.2

%

Tool Sales/Rental

$

836

$

1,120

 

549

(25.4

)%

52.3

%

Other Related Tool Revenue

 

1,510

 

1,153

 

642

31.0

%

135.2

%

Tool Revenue

 

2,346

 

2,273

 

1,191

3.2

%

97.0

%

Contract Services

 

1,216

 

1,126

 

357

8.0

%

240.6

%

Total Revenue

$

3,562

$

3,399

$

1,547

4.8

%

130.3

%

Revenue increased sequentially $163 thousand, or 5%, and $2.0 million, or 130%, year-over-year. Improvements over both periods reflects higher demand as oil and gas production markets continued to improve and as the Company gains greater market presence.

For the third quarter 2021, approximately 85% of revenue was from North America and approximately 15% from International markets, all within the Middle East. Revenue in North America grew year-over-year from increased tool sales and rentals as well as higher royalty and repair fees. International revenue growth reflects growing market penetration including increased demand from a new International customer gained in the second quarter. Contract Services revenue improved sequentially and year-over-year, reflecting higher demand for both new drilling tools and refurbishments.

Third Quarter 2021 Operating Costs

($ in thousands, except per share amounts) September 30,2021 June 30,2021 September 30,2020 ChangeSequential ChangeYear/Year Cost of revenue

$

1,442

 

$

1,224

 

$

871

 

17.8

%

65.6

%

As a percent of sales

 

40.5

%

 

36.0

%

 

56.3

%

Selling, general & administrative

$

1,551

 

$

1,473

 

$

1,530

 

5.3

%

1.4

%

As a percent of sales

 

43.6

%

 

43.3

%

 

98.9

%

Depreciation & amortization

$

405

 

$

586

 

$

693

 

(30.8

)%

(41.5

)%

Total operating expenses

$

3,399

 

$

3,283

 

$

3,094

 

3.5

%

9.9

%

Operating Income (loss)

$

163

 

$

116

 

$

(1,546

)

40.8

%

110.6

%

As a % of sales

 

4.6

%

 

3.4

%

 

(99.9

)%

Other (expense) income including income tax (expense)

$

(169

)

$

(183

)

$

(185

)

NM

 

NM

 

Net loss

$

(6

)

$

(67

)

$

(1,731

)

NM

 

NM

 

Diluted loss per share

$

(0.00

)

$

(0.00

)

$

(0.07

)

NM

 

NM

 

Adjusted EBITDA(1)

$

853

 

$

957

 

$

(607

)

(10.9

)%

NM

 

As a % of sales

 

23.9

%

 

28.2

%

 

(39.2

)%

(1) Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation expense and unusual items. 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.

Higher costs associated with International sales impacted the cost of revenue. Nonetheless, strong operating leverage from higher volume and continued effective management of costs resulted in a measurable improvement of operating income to $163 thousand, or 4.6% of sales.

Improved operating income and lower tax expense resulted in breakeven results with a net loss of $6 thousand. The decrease in income tax expense from the prior year was due to a decrease in income in foreign jurisdictions. Adjusted EBITDA(1) improved year-over-year to $853 thousand as a result of increased sales and operating leverage gained from higher volume, while Adjusted EBITDA margin expanded to 23.9%.

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

Cash at the end of the quarter was $2.5 million, up $508 thousand from the end of 2020. Cash provided by operations in the nine months ended September 30, 2021 was $878 thousand. Long-term debt, including the current portion, at quarter-end was $2.6 million, which reflects a principal payment of $750 thousand made on the Hard Rock note during the period. The remaining $750 thousand of principal due on the note is payable on October 5, 2022.

Subsequent to quarter-end, in October 2021, the Company completed an equity offering of 1,739,131 shares of common stock at a price of $1.15 per share. This resulted in net proceeds of approximately $1.7 million to be used for general corporate purposes, which may include capital expenditures, repayment or refinancing of indebtedness, acquisition and repurchases or redemptions of securities.

Definitions and Composition of Product/Service Revenue:

Contract Services Revenue is comprised of repair and manufacturing services for drill bits and other tools or products for customers.

Other Related Tool Revenue is comprised of royalties and fleet maintenance fees.

Tool Sales/Rental revenue is comprised of revenue from either the sale or rent of tools 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 19, 2021. To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13723735, 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

(unaudited)

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2021

 

2020

 

2021

 

2020

  Revenue North America

$

3,040,691

 

$

1,211,987

 

$

8,073,945

 

$

7,816,885

 

International

 

521,229

 

 

335,455

 

 

1,311,735

 

 

1,112,708

 

Total revenue

$

3,561,919

 

$

1,547,442

 

$

9,385,680

 

$

8,929,593

 

  Operating cost and expenses Cost of revenue

 

1,441,943

 

 

870,655

 

 

3,841,713

 

 

4,284,716

 

Selling, general, and administrative expenses

 

1,551,462

 

 

1,529,887

 

 

4,540,134

 

 

4,887,999

 

Depreciation and amortization expense

 

405,225

 

 

693,259

 

 

1,680,804

 

 

2,134,398

 

  Total operating costs and expenses

 

3,398,630

 

 

3,093,801

 

 

10,062,651

 

 

11,307,113

 

  Operating Income (loss)

 

163,289

 

 

(1,546,359

)

 

(676,971

)

 

(2,377,520

)

  Other income (expense) Interest income

 

49

 

 

145

 

 

147

 

 

5,775

 

Interest expense

 

(130,221

)

 

(126,482

)

 

(413,798

)

 

(450,210

)

Loss on Fixed Asset Impairment

 

-

 

 

-

 

 

10,000

 

 

(30,000

)

Net gain/(loss) on sale or disposition of assets

 

-

 

 

-

 

 

(11,187

)

 

142,234

 

Loan Forgiveness

 

-

 

 

41,403

 

 

-

 

 

41,403

 

Total other expense

 

(130,172

)

 

(84,934

)

 

(414,838

)

 

(290,798

)

  Loss before income taxes

$

33,117

 

$

(1,631,293

)

$

(1,091,809

)

$

(2,668,318

)

  Income tax expense

 

(39,327

)

 

(99,979

)

 

(82,976

)

 

(106,414

)

Net loss

$

(6,210

)

$

(1,731,272

)

$

(1,174,785

)

$

(2,774,732

)

  Basic loss per common share

$

(0.00

)

$

(0.07

)

$

(0.05

)

$

(0.11

)

  Basic weighted average common shares outstanding

 

26,154,202

 

 

25,555,167

 

 

25,894,397

 

 

25,469,609

 

  Diluted loss per common Share

$

(0.00

)

$

(0.07

)

$

(0.05

)

$

(0.11

)

  Diluted weighted average common shares outstanding

 

26,195,659

 

 

25,555,167

 

 

25,894,397

 

 

25,469,609

 

Superior Drilling Products, Inc.

Consolidated Condensed Balance Sheets

 

 

 

 

 

September 30, 2021

 

December 31, 2020

(unaudited) Assets Current assets: Cash $

2,469,398

 

$

1,961,441

 

Accounts receivable, net

2,046,073

 

1,345,622

 

Prepaid expenses

266,371

 

90,269

 

Inventories

1,067,738

 

1,020,008

 

Asset held for sale

-

 

40,000

 

Other current assets

47,692

 

40,620

 

Total current assets

5,897,272

 

4,497,960

 

  Property, plant and equipment, net

6,963,777

 

7,535,098

 

Intangible assets, net

277,778

 

819,444

 

Right of use Asset (net of amortizaton)

$

22,192

 

$

99,831

 

Other noncurrent assets

65,880

 

87,490

 

Total assets $

13,226,899

 

$

13,039,823

 

  Liabilities and Owners' Equity Current liabilities: Accounts payable $

802,160

 

$

430,014

 

Accrued expenses

1,887,690

 

1,091,519

 

Accrued Income tax

177,822

 

106,446

 

Current portion of Operating Lease Liability

13,832

 

79,313

 

Current portion of Long-term Financial Obligation

63,561

 

61,691

 

Current portion of long-term debt, net of discounts

1,445,230

 

1,397,337

 

Total current liabilities $

4,390,295

 

$

3,166,320

 

  Operating long term liability

8,360

 

20,518

 

Long-term Financial Obligation

4,129,802

 

4,178,261

 

Long-term debt, less current portion, net of discounts

1,118,953

 

1,451,049

 

Total liabilities $

9,647,410

 

$

8,816,148

 

  Stockholders' equity Common stock (26,429,955 and 25,762,342)

26,430

 

25,762

 

Additional paid-in-capital

41,149,551

 

40,619,620

 

Accumulated deficit

(37,596,492

)

(36,421,707

)

Total stockholders' equity $

3,579,489

 

$

4,223,675

 

Total liabilities and shareholders' equity $

13,226,899

 

$

13,039,823

 

Superior Drilling Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

September 30, 2021

 

September 30, 2020

Cash Flows From Operating Activities Net loss $

(1,174,785

)

$

(2,774,732

)

Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense

1,680,800

 

2,134,398

 

Share-based compensation expense

530,599

 

369,843

 

Gain on forgiveness of loan

-

 

(41,403

)

Loss (Gain) on sale or disposition of assets, net

1,187

 

(142,234

)

Impairment on asset held for sale

-

 

30,000

 

Amortization of deferred loan cost

13,893

 

13,894

 

Changes in operating assets and liabilities: Accounts receivable

(700,451

)

2,408,726

 

Inventories

(551,189

)

(942,831

)

Prepaid expenses and other noncurrent assets

(161,564

)

327,968

 

Accounts payable and accrued expenses

1,168,317

 

(100,876

)

Income Tax expense

71,376

 

82,148

 

Other noncurrent assets

-

 

(34,692

)

Other long-term liabilities

-

 

(61,421

)

Net Cash Provided By Operating Activities

878,183

 

1,268,788

 

  Cash Flows From Investing Activities Purchases of property, plant and equipment

(75,541

)

(154,475

)

Proceeds from sale of fixed assets

50,000

 

117,833

 

Net Cash Provided By Investing Activities

(25,541

)

(36,642

)

  Cash Flows From Financing Activities Principal payments on debt

(1,146,309

)

(2,167,539

)

Proceeds received from debt borrowings

-

 

964,120

 

Payments on Revolving Loan

(540,078

)

(1,018,690

)

Proceeds received from Revolving Loan

1,341,702

 

1,185,319

 

Net Cash Provided By (Used In) Financing Activities

(344,685

)

(1,036,790

)

  Net change in Cash

507,957

 

195,356

 

Cash at Beginning of Period

1,961,441

 

1,217,014

 

Cash at End of Period $

2,469,398

 

$

1,412,370

 

  Supplemental information: Cash paid for interest $

410,598

 

$

460,640

 

Inventory converted to property, plant and equipment $

513,558

 

$

922,993

 

Long term debt paid with Sale of Plane $

-

 

$

211,667

 

Assets in Progress (including freight and duty) $

589,099

 

$

-

 

Superior Drilling Products, Inc.

Adjusted EBITDA(1) Reconciliation

(unaudited)

 

 

($, in thousands)

Three Months Ended

 

September 30, 2021

 

September 30, 2020

 

June 30, 2021

  GAAP net loss

$

(6,210

)

$

(1,731,272

)

$

(66,781

)

Add back: Depreciation and amortization

 

405,225

 

 

693,259

 

585,504

 

Interest expense, net

 

130,172

 

 

126,337

 

145,471

 

Share-based compensation

 

196,096

 

 

157,842

 

167,033

 

Net non-cash compensation

 

88,200

 

 

88,200

 

88,200

 

Income tax expense

 

39,327

 

 

99,979

 

26,468

 

Loan Forgiveness

 

-

 

 

(41,403

)

 

-

 

(Gain) Loss on disposition of assets

 

-

 

 

-

 

11,187

 

Non-GAAP adjusted EBITDA(1)

$

852,810

 

$

(607,058

)

$

957,082

 

  GAAP Revenue

$

3,561,919

 

$

1,547,442

 

$

3,399,109

 

Non-GAAP Adjusted EBITDA Margin

 

23.9

%

 

(39.2

)%

 

28.2

%

(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.

 

Investor Relations: Deborah K. Pawlowski, Kei Advisors LLC (716) 843-3908, dpawlowski@keiadvisors.com

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