•  Fourth quarter revenue grew to $4.0 million, up over 2.5 times over the prior-year period and up 11% sequentially
  • Revenue for 2021 increased 27% to $13.3 million driven by strong demand for SDP’s flagship Drill-N-Ream® wellbore conditioning tool and the significant recovery in oil & gas production in North America
  • Achieved net income of $645 thousand for the quarter and Adjusted EBITDA* of $827 thousand, or 20.9% as a percent of revenue
  • Ended year with $6.1 million in shareholders’ equity

*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 fourth quarter of 2021 ended December 31, 2021.

Troy Meier, Chairman and CEO, commented, “We had exceptional growth in demand for our Drill-N-Ream® wellbore conditioning tool (“DNR”) as the number of operators and rigs using the tool continues to grow. It would appear as well that we are now reaching a point where tool fleet replacement is required as tool sales in the quarter picked up measurably.”

He added, “We have been building out our team and focused on training to be able to deliver to demand in 2022. We are working hard to address the challenges of talent management and retention, stay ahead of supply chain constraints and meet our customers’ requirements as demand continues to expand.”

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

($ in thousands) December 31,2021 September 30,2021 December 31,2020 ChangeSequential ChangeYear/Year North America

 

3,546

 

3,041

 

1,203

16.6%

194.7%

International

 

405

 

521

 

338

(22.3)%

19.7%

Total Revenue

$

3,950

$

3,562

$

1,541

10.9%

156.3%

Tool Sales/Rental

$

1,545

$

836

 

342

84.8%

351.7%

Other Related Tool Revenue

 

1,422

 

1,510

 

561

(5.8)%

153.4%

Tool Revenue

 

2,967

 

2,346

 

903

26.5%

228.5%

Contract Services

 

983

 

1,216

 

638

(19.1)%

54.1%

Total Revenue

$

3,950

$

3,562

$

1,541

10.9%

156.3%

Significant growth in revenue year-over-year reflected a strong recovery in the oil & gas industry especially in North America, growing market penetration of the Company’s DNR in North America and the related expanded demand for new drilling tools.

For the fourth quarter 2021, approximately 90% of revenue was from North America and approximately 10% from international markets, all within the Middle East. Revenue in North America grew year-over-year from increased tool revenue and strong growth in Contract Services.

Fourth Quarter 2021 Operating Costs

($ in thousands, except per share amounts) December 31,2021 September 30,2021 December 31,2020 ChangeSequential ChangeYear/Year Cost of revenue

$

1,777

$

1,442

$

821

23.2%

116.5%

As a percent of sales

 

45.0%

 

40.5%

 

53.3%

Selling, general & administrative

$

1,660

$

1,551

$

1,483

7.0%

11.9%

As a percent of sales

 

42.0%

 

43.6%

 

96.2%

Depreciation & amortization

$

423

$

405

$

682

4.3%

(38.0)%

Total operating expenses

$

3,860

$

3,399

$

2,986

13.6%

29.3%

Operating Income (loss)

$

90

$

163

$

(1,445)

(44.7)%

(106.2)%

As a % of sales

 

2%

 

4.6%

 

(94)%

Other (expense) income includingincome tax (expense)

$

555

$

(169)

$

790

(427.2)%

(29.8)%

Net Income (loss)

$

645

$

(6)

$

(655)

NM

NM

Diluted loss per share

$

0.02

$

(0.00)

$

(0.03)

Adjusted EBITDA(1)

$

827

$

853

$

(494)

(3.0)%

(267.4)%

As a % of sales

 

20.9%

 

23.9%

 

NM

(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.

Gross margin was impacted by operating inefficiencies associated with labor shortages and supply chain constraints. Selling, general & administrative expenses were higher as a result of labor constraints and the inflationary impact of wages.

Net income of $645 thousand, or $0.02 per diluted share was primarily due to the recovery of principal and interest of a related party note receivable in the fourth quarter. Adjusted EBITDA(1) improved year-over-year to $827 thousand on higher net income.

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.

Full Year 2021 Review

  ($ in thousands, except per share amounts) December 31,2021 December 31,2020 $ Change % Change Tool sales/rental

$

4,331

$

3,030

$

1,301

42.9%

Other Related Tool Revenue

 

4,917

 

4,021

$

896

22.3%

Tool Revenue

$

9,248

$

7,051

$

2,198

31.2%

Contract Services

 

4,088

 

3,420

$

667

19.5%

Total Revenue

$

13,336

$

10,471

$

2,865

27.4%

Operating expenses

 

13,923

 

14,293

$

(371)

(2.6)%

Operating (loss) income

$

(587)

$

(3,823)

$

3,235

(84.6)%

Net loss

$

(530)

$

(3,430)

$

2,900

(84.6)%

Diluted loss per share

$

(0.02)

$

(0.13)

$

0.11

Adjusted EBITDA(1)

$

2,626

$

(103)

$

2,729

NM

Revenue of $13.3 million grew 27% over the prior year as a result of an improved market combined with strong demand for the Company’s products and services. Revenue in North America was up 35% which more than offset a 8.7% decline in international markets as the Middle East continued to address the global pandemic with containment restrictions.

Tool revenue was $9.2 million, up 31%, or $2.2 million, from the prior-year period driven by demand for the DNR, both new tools as well as repair and royalty revenue from DNR activity on more rigs throughout the year. Contract Services revenue increased approximately $667 thousand, or 19%, to $4.1 million for the year as the Company refurbished more tools for its legacy customer.

Operating expenses in 2021 were down $371 thousand, or 3%, compared with 2020. This was primarily as a result of lower amortization expense and the reorganization of the Company’s international business to improve profitability.

Other income in 2021 included $707 thousand for recovery of a related party note receivable, whereas 2020 benefitted from the $933 thousand in forgiveness on SBA loans.

The net loss in 2021 was $530 thousand, or ($0.02) per diluted share, improved over a net loss of $3.4 million, ($0.13) per diluted share in 2020.

Adjusted EBTIDA was $2.6 million in 2021, or 19.7% of revenue. This was up from an Adjusted loss before tax, interest, depreciation and amortization of $103 thousand in 2020.

Balance Sheet and Liquidity

Cash at the end of the quarter was $2.8 million, up $861 thousand from the end of 2020 and up $353 thousand from the trailing third quarter. Cash generated by operations for the year was $526 thousand. Long-term debt, including the current portion, at quarter-end was $2.5 million. The final $750 thousand of principal due on the note is payable on October 5, 2022.

During the quarter, the Company completed an equity offering of 1,739,131 shares of common stock at a price of $1.15 per share, which resulted in net proceeds of approximately $1.7 million.

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, March 18, 2022. To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13727112 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® wellbore 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 Twelve Months

Ended December 31,

 

Ended December 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

  Revenue North America

$

3,545,648

$

1,203,086

$

11,619,593

$

8,590,933

International

 

404,821

 

338,119

 

1,716,556

 

1,879,865

Total revenue

$

3,950,469

$

1,541,205

$

13,336,149

$

10,470,798

  Operating cost and expenses Cost of revenue

 

1,777,130

 

820,961

 

5,618,844

 

5,105,677

Selling, general, and administrative expenses

 

1,660,386

 

1,483,338

 

6,200,522

 

6,371,337

Depreciation and amortization expense

 

422,733

 

681,998

 

2,103,534

 

2,816,396

  Total operating costs and expenses

 

3,860,249

 

2,986,297

 

13,922,900

 

14,293,410

  Operating Income (loss)

 

90,220

 

(1,445,092)

 

(586,751)

 

(3,822,612)

  Other Income (expense) Interest income

 

81

 

28

 

228

 

5,803

Interest expense

 

(125,593)

 

(125,096)

 

(539,390)

 

(575,306)

Recovery of related party note receivable

 

707,112

 

-

 

707,112

 

-

Loss on Fixed Asset Impairment

 

-

 

-

 

-

 

(30,000)

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

 

939

 

32,000

 

(249)

 

174,234

Loan Forgiveness

 

-

 

891,600

 

-

 

933,003

Total other expense

 

582,539

 

798,532

 

167,701

 

507,734

  Income (loss) before income taxes

$

672,759

$

(646,560)

$

(419,050)

$

(3,314,878)

  Income tax expense

 

(27,875)

 

(8,582)

 

(110,751)

 

(114,996)

Net Income (loss)

$

644,884

$

(655,142)

 

(529,801)

 

(3,429,874)

  Basic income (loss) per common share

$

0.02

$

(0.03)

$

(0.02)

$

(0.13)

  Basic weighted average common shares outstanding

 

27,816,874

 

25,650,846

 

26,378,967

 

25,515,166

  Diluted income (loss) per common Share

$

0.02

$

(0.03)

$

(0.02)

$

(0.13)

  Diluted weighted average common shares outstanding

 

26,153,334

 

25,650,846

 

26,378,967

 

25,515,166

Superior Drilling Products, Inc.

Consolidated Condensed Balance Sheets

  December 31, 2021 December 31, 2020 (unaudited) Assets Current assets: Cash $

2,822,100

$

1,961,441

Accounts receivable, net

2,871,932

1,345,622

Prepaid expenses

435,595

90,269

Inventories

1,174,635

1,020,008

Asset held for sale

-

40,000

Other current assets

55,159

40,620

  Total current assets

7,359,421

4,497,960

  Property, plant and equipment, net

6,930,329

7,535,098

Intangible assets, net

236,111

819,444

Right of use Asset (net of amortization) $

20,518

$

99,831

Other noncurrent assets

65,880

87,490

Total assets $

14,612,259

$

13,039,823

  Liabilities and Owners' Equity Current liabilities: Accounts payable $

1,139,091

$

430,015

Accrued expenses

467,462

1,091,518

Accrued Income tax

206,490

106,446

Current portion of Operating Lease Liability

13,716

79,313

Current portion of Long-term Financial Obligation

65,678

61,691

Current portion of long-term debt, net of discounts

2,195,759

1,397,337

-

-

Total current liabilities $

4,088,196

$

3,166,320

  Operating long term liability

6,802

20,518

Long-term Financial Obligation

4,112,658

4,178,261

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

256,675

1,451,049

Total liabilities $

8,464,331

$

8,816,148

  Shareholders' equity Common stock (28,218,316 and 25,762,342)

28,218

25,762

Additional paid-in-capital

43,071,218

40,619,620

Accumulated deficit

(36,951,508)

(36,421,707)

Total stockholders' equity $

6,147,928

$

4,223,675

Total liabilities and shareholders' equity $

14,612,259

$

13,039,823

Superior Drilling Products, Inc. Consolidated Statement of Cash Flows (Unaudited)

 

December 31,2021

 

December 31,2020 Cash Flows From Operating Activities

 

Net Loss $

(529,801)

$

(3,429,874)

Adjustments to reconcile net income to net cash used in operating activities:

 

Depreciation and amortization expense

2,103,534

 

2,816,396

Amortization debt discount

 

Share - based compensation expense

756,743

 

550,573

Loss on disposition of rental fleet

-

 

23,649

Loss (Gain) on sale or dispositon of assets

249

 

(174,234)

Gain on Forgiveness of loan

-

 

(933,003)

Impairment on asset held for sale

-

 

30,000

Amortization of deferred loan cost

18,522

 

18,525

Changes in operating assets and liabilities:

 

Accounts receivable

(1,526,310)

 

2,504,887

Inventories

(143,590)

 

(95,976)

Prepaid expenses and other noncurrent assets

(338,255)

 

266,488

Accounts payable and accrued expenses

85,020

 

(85,630)

Income Tax expense

100,044

 

90,566

Other long term liabilities

-

 

(61,421)

Net Cash Provided By Operating Activities

526,156

 

1,520,946

 

Cash Flows From Investing Activities

 

Purchases of property, plant and equipment

(936,718)

 

(1,167,346)

Proceeds from sale of fixed assets

50,000

 

149,833

Net Cash Provided By Investing Activities

(886,718)

 

(1,017,513)

 

Cash Flows From Financing Activities

 

Principal payments on debt

(1,277,730)

 

(2,350,783)

Proceeds received from debt borrowings

-

 

72,520

Proceeds received from SBA Paycheck Protection Program (PPP)

-

 

891,600

Payments on Revolving loan

(895,787)

 

(1,179,768)

Proceeds received from Revolving loan

1,697,427

 

1,185,319

Proceeds from financing obligation

-

 

1,622,106

Proceeds from Issuance of Common Stock

1,697,311

 

-

Net Cash Provided By (Used In) Financing Activities

1,221,221

 

240,994

 

Net change in Cash

860,659

 

744,427

Cash at Beginning of Period

1,961,441

 

1,217,014

Cash at End of Period $

2,822,100

$

1,961,441

 

Supplemental information:

 

Cash paid for interest $

530,898

$

576,854

Non-cash payment of other liabilities by offsetting recovery ofrelated-party note receivable $

707,112

$

-

Long term debt paid with Sale of Plane $

-

$

211,667

Superior Drilling Products, Inc.

Adjusted EBITDA(1) Reconciliation

(unaudited)

  ($, in thousands) Three Months Ended December 31,2021 December 31,2020 September 30,2021   GAAP net income (loss)

$

644,884

$

(655,142)

$

$

(6,210)

Add back: Depreciation and amortization

 

422,733

 

681,998

 

405,225

Interest expense, net

 

125,512

 

125,068

 

130,172

Share-based compensation

 

226,144

 

180,730

 

196,096

Net non-cash compensation

 

88,200

 

88,200

 

88,200

Income tax expense

 

27,875

 

8,582

 

39,327

Recovery of Related Party Note Receivable

 

(707,112)

 

-

 

-

Loan Forgiveness

 

-

 

(891,600)

 

-

(Gain) Loss on disposition of assets

 

(939)

 

(32,000)

 

-

Non-GAAP adjusted EBITDA(1)

$

827,297

$

(494,164)

$

852,810

  GAAP Revenue

$

3,950,469

$

1,541,205

$

3,561,919

Non-GAAP Adjusted EBITDA Margin

 

20.9%

 

NM

 

23.9%

  Year Ended December 31,2021 December 31,2020   GAAP net loss

$

(529,801)

$

(3,429,874)

Add back: Depreciation and amortization

 

2,103,534

 

2,816,396

Interest expense, net

 

539,162

 

569,503

Share-based compensation

 

756,743

 

550,573

Net non-cash compensation

 

352,800

 

352,800

Income tax expense

 

110,751

 

114,996

Impairment on asset held for sale

 

-

 

30,000

Gain on disposition of assets

 

(249)

 

(174,234)

Loan forgiveness

 

-

 

(933,003)

Inventory impairment

 

-

 

-

Recovery of related party note receivable

 

(707,112)

 

-

Non-GAAP adjusted EBITDA(1)

$

2,625,828

$

(102,843)

  GAAP Revenue

$

13,336,149

$

10,470,798

Non-GAAP Adjusted EBITDA Margin

 

19.7%

 

(1.0)%

(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.

For more information, contact investor relations: Deborah K. Pawlowski Kei Advisors LLC (716) 843-3908 dpawlowski@keiadvisors.com

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