- First quarter revenue rose $2.2 million, or 52%, to a record
$6.3 million over the prior-year period and was up 19.5%
sequentially
- Tool revenue grew 54% and Contract Services revenue was up
49%
- Strong operating leverage resulted in measurably improved
operating income of $1.4 million, or 21.9% of sales; Operating
income nearly doubled sequentially
- Achieved net income of $1.5 million or $0.05 per diluted
share
- Adjusted EBITDA* of $2.0 million nearly doubled; Adjusted
EBITDA margin expanded 760 basis points to 32.1%, the highest level
in recent history
- 2023 outlook reaffirmed with revenue between $24 million to $27
million and Adjusted EBITDA* of $6.5 million to $7.5 million
- Company in final stages of retaining advisor to assist with
exploration of strategic alternatives
*Adjusted EBITDA is a non-GAAP measure. See comments regarding
the use of non-GAAP measures and the reconciliation of the first
quarter 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 first
quarter ended March 31, 2023. The Company also announced that its
Board of Directors has initiated a process to evaluate potential
strategic transactions.
“We had an excellent first quarter as strong demand for our
flagship Drill-N-Ream® (DNR) wellbore conditioning tool and
contract services for the manufacture and refurbishment of drill
bits drove record quarterly revenue of $6.3 million. Equally
important was the continued demonstration of the significant
leverage inherent in our operations as Adjusted EBITDA nearly
doubled year-over-year to $2.0 million with EBITDA margin expanding
760 basis points to 32.1%, our highest level in recent history,”
commented Troy Meier, Chairman and CEO.
“Looking ahead, we are making investments to support planned
growth and are poised to capture greater share internationally as
our strengthened Middle East team makes further inroads and
leverages the new service and technology center in that region that
is expected to come online by the end of the second quarter of
2023. On the domestic front, even while the rig count has
flattened, we still see a lot of potential for expanding our
contract services business as larger oil field service companies
look to outsource manufacturing and repair, and recognize the
investments we have made in facility and capacity enhancements,
including the recently completed new machining center.”
Strategic Review
Mr. Meier noted, “The Board and management have vetted a number
of financial advisors and are in the final stages of retaining an
advisor to investigate a range of strategic alternatives with the
intent to maximize shareholder value.”
As part of the process, the Board will consider a full range of
strategic alternatives, including sales, acquisitions, mergers,
divestiture of assets, or other strategic transactions. There can
be no assurance that any offers will be made or accepted, that any
agreement will be executed, or that any transaction will be
consummated, in connection with the strategic alternatives process.
The Company does not intend to make further announcements about the
strategic alternatives process unless and until the Board has
approved a specific transaction or otherwise determines that
further disclosure is appropriate or necessary.
First Quarter 2023 Review (See at
“Definitions” the composition of product/service revenue
categories.)
($ in thousands)
March 31,2023 December
31,2022 March 31,2022 ChangeSequential
ChangeYear/Year North America
5,475
4,529
3,745
20.9
%
46.2
%
International
806
726
385
11.1
%
109.3
%
Total Revenue
$
6,281
$
5,254
$
4,130
19.5
%
52.1
%
Tool (DNR) Revenue
$
4,254
3,348
$
2,769
27.1
%
53.6
%
Contract Services
2,027
1,906
1,361
6.3
%
48.9
%
Total Revenue
$
6,281
$
5,254
$
4,130
19.5
%
52.1
%
Revenue growth reflects the recovery in the North America oil
& gas industry, strengthened market share for the DNR
domestically and internationally, and continued strong demand for
the manufacture and refurbishment of drill bits and other related
tools.
For the first quarter of 2023, North America revenue comprised
approximately 87% of total revenue, with remaining sales all within
the Middle East. Revenue growth in North America was due to
increased tool revenue and strong growth in Contract Services.
International revenue doubled year-over-year, which reflected
improved market conditions and the strengthening of the Company’s
Middle East technical sales and marketing team.
First Quarter 2023 Operating
Costs
($ in thousands, except per share amounts)
March
31,2023 December 31,2022 March 31,2022
ChangeSequential ChangeYear/Year Cost of revenue
$
2,239
$
2,163
$
1,768
3.5
%
26.6
%
As a percent of sales
35.6
%
41.2
%
42.8
%
Selling, general & administrative
$
2,339
$
2,062
$
1,647
13.4
%
42.0
%
As a percent of sales
37.2
%
39.2
%
39.9
%
Depreciation & amortization
$
326
$
328
$
411
(0.6
)%
(20.7
)%
Total operating expenses
$
4,903
$
4,553
$
3,825
7.7
%
28.2
%
Operating Income
$
1,378
$
701
$
305
96.5
%
351.7
%
As a % of sales
21.9
%
13.3
%
7.4
%
Other income (expense) including Income tax
$
135
$
(368
)
$
(155
)
NM
NM
Net Income
$
1,513
$
333
$
150
354.4
%
908.8
%
Diluted earnings per share
$
0.05
$
0.01
$
0.01
Adjusted EBITDA¹
$
2,019
$
1,350
$
1,014
49.6
%
99.1
%
As a % of sales
32.1
%
25.7
%
24.5
%
1Adjusted 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 income to Adjusted
EBITDA.
Higher volume combined with favorable mix, improved processes
and operational efficiencies are resulting in enhanced leverage
despite continued investments in people, inflationary pressures,
and higher legal expenses. Selling, general & administrative
(SG&A) expenses were 37.2% of revenue, down 270 basis points
year-over-year, and down 200 basis points sequentially. SG&A
expenses in the first quarter of 2023 included $360 thousand of
legal expenses due to continuing litigation for the Company’s
patent infringement lawsuit over violations of the patents on its
DNR tool.
Depreciation and amortization expense decreased approximately
21% year-over-year to $326 thousand as a result of fully amortizing
a portion of intangible assets and fully depreciating manufacturing
center equipment.
Other income in 2023 included $350 thousand for the recovery of
a related party note receivable, whereas the comparable 2022
periods did not have a similar benefit.
Balance Sheet and Liquidity
Cash at the end of the quarter was $2.0 million. Cash generated
by operations for the quarter was $1.0 million compared with $1.1
million in the year-ago period.
Capital expenditures of $1.6 million were related to the
completion of the domestic machining capacity expansion, higher
maintenance activities, and in support of the Company’s Middle East
operations, which included the DNR rental tool fleet and the new
service and technology center. The Company has revised its expected
capital spending for fiscal 2023 to range between $3.5 million to
$4.0 million, from the previous expected range of $3.0 million to
$3.5 million.
Total debt at quarter-end was $1.6 million.
2023 Guidance
Revenue: $24.0 million to $27.0
million
SG&A: $9.0 million to $10.0
million (includes approximately $1 million in legal expenses for
ongoing patent infringement litigation)
Adjusted EBITDA1: $6.5 million to $7.5
million
1See “Forward Looking Non-GAAP Financial Measures” below for
additional information about this non-GAAP measure.
Webcast and Conference Call
The Company will host a conference call and live webcast today
at 6:30 am Mountain Time (8:30 am Eastern Time) 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 11:00 am MT (1:00 pm ET)
the day of the teleconference until Thursday, May 18, 2023. To
listen to the archived call, please call (412) 317-6671 and enter
conference ID number 13738117 or access the webcast replay at
www.sdpi.com, where a transcript will be posted once available.
Definitions and Composition of Product/Service
Revenue:
Tool (DNR) Revenue is the sum of tool sales/rental revenue and
other related tool revenue, which is comprised of royalties and
fleet maintenance fees.
Contract Services revenue is comprised of repair and
manufacturing services for drill bits and other tools or products
for customers.
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 Company’s
strategic review process, 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.
Forward Looking Non-GAAP Financial Measures
Forward-looking adjusted EBITDA is a non-GAAP measure. The
Company is unable to present a quantitative reconciliation of these
forward-looking non-GAAP financial measures to their most directly
comparable forward-looking GAAP financial measure because such
information is not available, and management cannot reliably
predict the necessary components of such GAAP measures without
unreasonable effort largely because forecasting or predicting our
future operating results is subject to many factors out of our
control or not readily predictable. In addition, the Company
believes that such reconciliations would imply a degree of
precision that would be confusing or misleading to investors. The
unavailable information could have a significant impact on the
Company’s fiscal 2023 and future financial results. This non-GAAP
financial measure is a preliminary estimate and is subject to risks
and uncertainties, including, among others, changes in connection
with purchase accounting, quarter-end and year-end adjustments. Any
variation between the Company’s actual results and preliminary
financial data set forth in this presentation may be material.
Superior Drilling Products,
Inc.
Consolidated Condensed
Statements of Operations
(unaudited)
Three Months Ended March
31,
2023
2022
Revenue North America
$
5,475,061
$
3,745,014
International
806,153
385,150
Total Revenue
$
6,281,214
$
4,130,164
Operating cost and expenses Cost of revenue
$
2,238,597
$
1,767,903
Selling, general, and administrative expenses
2,338,841
1,646,643
Depreciation and amortization expense
326,014
410,733
Total operating cost and expenses
$
4,903,452
$
3,825,279
Operating income
$
1,377,762
$
304,885
Other income (expense) Interest income
16,898
197
Interest expense
(154,091
)
(123,861
)
Recovery of related party note receivable
350,262
-
Total other income (expense)
213,069
(123,664
)
Income before income taxes
1,590,831
181,221
Income tax expense
(77,612
)
(31,384
)
Net income
$
1,513,219
$
149,837
Earnings per common share - basic
$
0.05
$
0.01
Weighted average common shares outstanding - basic
29,245,080
28,235,001
Earnings per common share - diluted
$
0.05
$
0.01
Weighted average common shares outstanding - diluted
29,305,216
28,305,101
Superior Drilling Products,
Inc.
Consolidated Condensed Balance
Sheets
Three Months Ended March
31,
2023
2022
ASSETS Current Assets Cash
$
1,955,903
$
2,158,025
Accounts receivable
3,959,754
3,241,221
Prepaid expenses
356,696
367,823
Inventories
2,248,861
2,081,260
Asset held for sale
-
216,000
Other current assets
152,219
140,238
Total current assets
8,673,433
8,204,567
Property, plant and equipment, net
10,241,092
8,576,851
Intangible assets, net
27,778
69,444
Right of use assets (net of amortization)
606,323
638,102
Other noncurrent assets
112,619
111,519
Total assets
$
19,661,245
$
17,600,483
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities Accounts payable
$
1,664,491
$
1,043,581
Accrued expenses
782,054
891,793
Accrued income tax
427,165
351,618
Current portion of operating lease liability
51,182
44,273
Current portion of financial obligation
76,406
74,636
Current portion of long-term debt, net of discounts
1,157,879
1,125,864
Other current liabilities
-
216,000
Total current liabilities
4,159,177
3,747,765
Operating lease liability, less current portion
493,296
523,375
Long-term financial obligation, less current portion
4,017,280
4,038,022
Long-term debt, less current portion, net of discounts
489,303
529,499
Deferred income
675,000
675,000
Total liabilities
9,834,056
9,513,661
Shareholders’ equity Common stock - $0.001 par value;
100,000,000 shares authorized; 29,245,080 shares issued and
outstanding
29,245
29,245
Additional paid-in-capital
44,171,076
43,943,928
Accumulated deficit
(34,373,132
)
(35,886,351
)
Total shareholders’ equity
9,827,189
8,086,822
Total liabilities and shareholders’ equity
$
19,661,245
$
17,600,483
Superior Drilling Products,
Inc.
Consolidated Statements of
Cash Flows
(unaudited)
Three Months Ended March
31,
2023
2022
Cash Flows from Operating Activities Net income
$
1,513,219
$
149,837
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization expense
326,013
410,733
Share-based compensation expense
227,148
210,133
Amortization of right-of-use assets
51,257
-
Amortization of deferred loan cost
3,087
4,631
Changes in operating assets and liabilities: Accounts receivable
(718,533
)
(283,974
)
Inventories
(167,601
)
150,290
Prepaid expenses and other current assets
(1,954
)
186,508
Accounts payable, accrued expenses, and other liabilities
(262,803
)
248,560
Income tax payable
75,547
6,388
Net cash provided by operating activities
1,045,380
1,083,106
Cash Flows From Investing Activities Purchases of
property, plant and equipment
(1,567,524
)
(919,127
)
Proceeds from recovery of related party note receivable
350,262
-
Net cash used in investing activities
(1,217,262
)
(919,127
)
Cash Flows from Financing Activities Principal
payments on debt
(213,905
)
(131,978
)
Payments on revolving loan
(472,089
)
(21,541
)
Proceeds received from revolving loan
655,754
21,533
Net cash used in financing activities
(30,240
)
(131,986
)
Net (decrease) increase in cash
(202,122
)
31,993
Cash at beginning of period
2,158,025
2,822,100
Cash at end of period
$
1,955,903
$
2,854,093
Superior Drilling Products,
Inc.
Adjusted EBITDA1
Reconciliation
(unaudited)
Three Months Ended
March 31, 2023
March 31, 2022
December 31, 2022
GAAP net income
$
1,513,219
$
149,837
$
333,096
Add back: Depreciation and amortization
326,014
410,733
327,825
Interest expense, net
137,193
123,664
148,962
Share-based compensation
227,148
210,133
232,921
Net non-cash compensation
88,200
88,200
88,200
Income tax expense
77,612
31,384
87,117
Recovery of Related Party Note Receivable
(350,262
)
-
-
Impairment of asset
-
-
130,375
Loss on disposition of assets
-
-
1,550
Non-GAAP adjusted EBITDA¹
$
2,019,124
$
1,013,951
$
1,350,046
GAAP Revenue
$
6,281,214
$
4,130,164
$
5,254,136
Non-GAAP Adjusted EBITDA Margin
32.1
%
24.5
%
25.7
%
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/20230511005327/en/
Deborah K. Pawlowski / Craig P. Mychajluk Kei Advisors LLC
716-843-3908 / 716-843-3832 dpawlowski@keiadvisors.com /
cmychajluk@keiadvisors.com
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