Dril-Quip, Inc. (NYSE: DRQ), (the “Company” or “Dril-Quip”) today
reported operational and financial results for the second quarter
of 2022.
Results for the second quarter of 2022
included:
- Revenue of $94.0 million for the
second quarter of 2022, an increase of $10.8 million from the first
quarter of 2022 driven by higher subsea equipment and downhole
products and services revenue;
- A net loss of $5.6 million, or a
$0.16 loss per share, an improvement of $3.4 million, or $0.10 per
share compared to the first quarter of 2022, due to improved gross
profit and foreign exchange benefits partially offset by higher
restructuring charges;
- Generated adjusted EBITDA of $9.3
million, or 9.9% of revenue; an increase of $6.2 million from the
first quarter of 2022;
- Second quarter
net cash used by operating activities of $9.3 million and free cash
flow of negative $10.6 million, inclusive of $1.4 million of
capital expenditures;
- Booked $49.6 million of new orders
during the second quarter of 2022 net of $7.1 million of
cancellations and adjustments;
- Repurchased $3.8
million of shares at an average price of $24.49 during the second
quarter of 2022. Year-to-date repurchases through the third quarter
of 2022 total approximately $21 million; and
- Announced Scope
1 and Scope 2 GHG emissions reduction target of 50% by the year
2030.
Jeff Bird, Dril-Quip’s President and Chief
Executive Officer, commented, “Our second quarter results reflect
the improving offshore drilling market as well as our commitment to
controlling costs and improving margins. Second quarter revenue was
up approximately 13% sequentially reflecting strength in our
shorter cycle businesses as quick return projects are completed,
customers utilize existing inventory, and we start to see rigs come
back online. Downhole Tools led this with a record quarter and
broad growth across all geographies. Subsea Services also benefited
from strong demand on rework and recertification as rigs start to
come back online. Bookings for our Subsea Products slowed from the
prior quarter as operators continue to evaluate projects in an
uncertain demand environment with historically high inflation. Many
of these projects are targeting second half decisions and are
reflected in our outlook for full year bookings. We
continue to expect revenue growth of 10% for the full year 2022
compared to 2021.
“We believe the foundation of the strong
product-line focused teams that we began forming in early 2022 is
bearing fruit by streamlining customer focus, eliminating excess
costs and improving efficiency. We also continue to
progress on our footprint rationalization plan, including executing
a purchase and sale agreement for the forge facilities at our
Houston, Texas campus. We expect this transaction to close in the
third quarter and anticipate reaching agreements on the two
remaining properties by year-end. For all three transactions, we
expect the combined net proceeds to be in the $40 to $50 million
range. We plan to use a portion of the proceeds from these real
estate sales to make investments in our manufacturing capabilities
to lower costs and improve productivity in the coming years.
“Additionally, in June we announced our
decarbonization targets in alignment with the ambitions of the
Paris Agreement. We are targeting the reduction of Scope 1 and
Scope 2 GHG emissions by more than 50% between 2021 and the target
year 2030. By partnering with our customers and key suppliers, we
will further encourage environmental stewardship through the
broader energy industry. Our strategic focus on innovation and peer
collaborations support these targets as evidenced by our
ground-breaking e-Series products that help our customers reduce
their carbon footprint and by our collaboration with Aker Solutions
to provide optimal carbon capture, utilization and storage
solutions for our customers. I am proud of the work our team has
done to assess our carbon footprint and identify meaningful steps
we can take to reduce our global emissions.
“Looking to the second half of 2022, we believe
our previously set financial targets remain achievable. We are
focused on year-over-year improvements in our bookings, revenue and
profitability and are aligning our activities and structure
accordingly. Ongoing success in these areas would enable us the
opportunity to generate free cash flow to invest in growth and
return cash to shareholders through share repurchases. Our
continuous improvement initiatives, clear strategic vision and
strong balance sheet will lead to a stronger, nimbler Dril-Quip in
the coming quarters and years for the benefit of our shareholders
and stakeholders.”
In conjunction with today’s release, the Company
posted a new investor presentation entitled “Second Quarter 2022
Supplemental Earnings Information” to its website,
www.dril-quip.com, on the “Events & Presentations” page under
the Investors tab. Investors should note that Dril-Quip announces
material financial information in Securities and Exchange
Commission (“SEC”) filings, press releases and public conference
calls. Dril-Quip may use the Investors section of its website
(www.dril-quip.com) to communicate with investors. It is possible
that the financial and other information posted there could be
deemed to be material information. Information on Dril-Quip’s
website is not part of this release.
Operational and Financial
Results
Revenue, Cost of Sales and Gross Operating
Margin
Consolidated revenue for the second quarter of
2022 was $94.0 million, up $10.8 million from the first quarter of
2022 and up $13.2 million compared to the second quarter of 2021.
The sequential increase was primarily a result of higher subsea and
downhole tool product volumes, primarily subsea wellheads. Service
revenues in both the subsea equipment and downhole tools also
increased. The increase in revenue year-over-year was driven by
higher leasing revenues across most regions related to improved
subsea rental tool utilization due to increased customer activity.
Subsea wellhead product sales volumes also increased year-over-year
as U.S. Gulf of Mexico activity increased.
Cost of sales for the second quarter of 2022 was
$69.7 million, an increase of $5.7 million from the first quarter
of 2022 and an increase of $8.1 million compared to the prior year.
Gross operating margin for the second quarter of 2022 was 25.9%, an
increase from 23.0% in the first quarter of 2022 and an increase
from 23.8% in the second quarter of 2021. The increase in gross
margins sequentially and year-over-year was attributed to increased
absorption of fixed overhead from higher product revenues, an
increase in service revenues and favorable product mix.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”)
expenses for the second quarter of 2022 were $22.5 million, an
increase of $0.1 million compared to the first quarter of 2022 and
a decrease of $7.1 million compared to the second quarter of 2021.
The year-over-year decrease in SG&A is primarily attributable
to lower legal expenses in connection with the FMC Technologies,
Inc. lawsuit and cost reduction initiatives.
Engineering and product development expenses were down $1.0 million
sequentially and year-over-year due to lower research and
development expenses as a result of the completion of investments
in certain strategic projects. We are in the process of
reprioritizing new research and development initiatives.
Net Loss, Adjusted EBITDA and Free Cash Flow
For the second quarter of 2022, the Company
reported a net loss of $5.6 million, or a $0.16 loss per share.
Adjusted EBITDA totaled $9.3 million for the second quarter of 2022
compared to $3.2 million for the first quarter 2022, representing
incremental margins of 57% quarter-over-quarter. The improvement in
adjusted EBITDA sequentially can be attributed to increased
revenues across all product and service lines and favorable product
mix. Adjusted EBITDA for the second quarter of 2022 was up $6.7
million compared to the second quarter of 2021. The increase in
adjusted EBITDA year-over-year can be mostly attributed to
increased revenues, reductions in administrative and engineering
expense and non-recurrence of the adverse impact of the forge
facility lease cancellation.
Net cash used by operations was $9.3 million and
free cash flow was a negative $10.6 million for the second quarter
of 2022. Capital expenditures in the second quarter of 2022 were
approximately $1.4 million, down approximately $0.7 million
compared to the first quarter of 2022. The Company expects that
capital expenditures will increase throughout the remainder of 2022
for rentals tools to support upcoming projects in Latin America and
investments in information technology and manufacturing
equipment.
Share Repurchases
For the three-month period ended June 30, 2022,
the Company purchased 157,101 shares under its share repurchase
plan at an average price of $24.49 per share, totaling $3.8
million, and retired such shares. As of July 27, 2022, the company
year-to-date has purchased 888,197 shares at an average price of
$23.35 per share, totaling $20.8 million and retired such shares.
The Company has approximately $103 million remaining of the current
authorization by the Board of Directors. The Company continues to
evaluate the amount and timing of its share repurchases as part of
the Company’s overall capital allocation strategy.
About Dril-Quip
Dril-Quip is a developer, manufacturer and
provider of highly engineered equipment, service and innovative
technologies for use in the energy industry.
Forward-Looking Statements
Statements contained herein relating to future
operations and financial results that are forward-looking
statements, including those related to market conditions,
anticipated project bookings, expected timing of completing
strategic restructuring, anticipated timing of delivery of new
orders, anticipated revenues, costs, cost synergies and savings,
possible acquisitions, new product offerings and related revenues,
share repurchases and expectations regarding operating results, are
based upon certain assumptions and analyses made by the management
of the Company in light of its experience and perception of
historical trends, current conditions, expected future developments
and other factors. These statements are subject to risks beyond the
Company’s control, including, but not limited to, the impact of the
ongoing COVID-19 pandemic, the effects of actions taken by third
parties, including, but not limited to, governmental authorities,
customers, contractors and suppliers, in response to the COVID-19
pandemic, the impact of actions taken by the Organization of
Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust
their production levels, the general volatility of oil and natural
gas prices and cyclicality of the oil and gas industry, declines in
investor and lender sentiment with respect to, and new capital
investments in, the oil and gas industry, project terminations,
suspensions or scope adjustments to contracts, uncertainties
regarding the effects of new governmental regulations, the
Company’s international operations, operating risks, the impact of
our customers and the global energy sector shifting some of their
asset allocation from fossil-fuel production to renewable energy
resources, and other factors detailed in the Company’s public
filings with the SEC. Investors are cautioned that any such
statements are not guarantees of future performance and actual
outcomes may vary materially from those indicated.
Non-GAAP Financial
Information
Adjusted Net Income (Loss), Adjusted Diluted
EPS, Free Cash Flow and Adjusted EBITDA are non-GAAP measures.
Adjusted Net Income (Loss) and Adjusted Diluted
EPS are defined as net income (loss) and earnings per share,
respectively, excluding the impact of foreign currency gains or
losses as well as other significant non-cash items and certain
charges and credits.
Free Cash Flow is defined as net cash provided
by operating activities less cash used in the purchase of property,
plant and equipment.
Adjusted EBITDA is defined as net income
excluding income taxes, interest income and expense, depreciation
and amortization expense, stock-based compensation, non-cash gains
or losses from foreign currency exchange rate changes as well as
other significant non-cash items and other adjustments for certain
charges and credits.
The Company believes that these non-GAAP
measures enable it to evaluate and compare more effectively the
results of our operations period over period and identify operating
trends by removing the effect of its capital structure from its
operating structure. In addition, the Company believes that these
measures are supplemental measurement tools used by analysts and
investors to help evaluate overall operating performance, ability
to pursue and service possible debt opportunities and make future
capital expenditures. Adjusted Net Income (Loss), Adjusted EBITDA
and Free Cash Flow do not represent funds available for our
discretionary use and are not intended to represent or to be used
as a substitute for net income or net cash provided by operating
activities, as measured under U.S. generally accepted accounting
principles (“GAAP”).
See “Unaudited Non-GAAP Financial Measures”
below for additional information concerning non-GAAP financial
information, including a reconciliation of the non-GAAP financial
information presented in this press release to the most directly
comparable financial information presented in accordance with GAAP.
Non-GAAP financial information supplements and should be read
together with, and is not an alternative or substitute for, the
Company’s financial results reported in accordance with GAAP.
Because non-GAAP financial information is not standardized, it may
not be possible to compare these financial measures with other
companies’ non-GAAP financial measures.
Investor Relations Contact
Erin Fazio, Director of Corporate Development, Investor
Relations &
FP&A(713) 939-7711Erin_Fazio@dril-quip.com
|
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|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Comparative
Condensed Consolidated Income Statement |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
June 30, 2022 |
|
March 31, 2022 |
|
June 30, 2021 |
|
|
(In
thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
Products |
$ |
61,979 |
|
|
$ |
55,642 |
|
|
$ |
55,860 |
|
|
Services |
|
19,596 |
|
|
|
17,499 |
|
|
|
17,536 |
|
|
Leasing |
|
12,403 |
|
|
|
9,996 |
|
|
|
7,401 |
|
|
Total revenues |
|
93,978 |
|
|
|
83,137 |
|
|
|
80,797 |
|
|
Costs and
expenses: |
|
|
|
|
|
|
Cost of sales |
|
69,663 |
|
|
|
63,995 |
|
|
|
61,539 |
|
|
Selling, general and administrative |
|
22,498 |
|
|
|
22,393 |
|
|
|
29,593 |
|
|
Engineering and product development |
|
2,720 |
|
|
|
3,676 |
|
|
|
3,722 |
|
|
Restructuring and other charges |
|
5,765 |
|
|
|
32 |
|
|
|
1,000 |
|
|
(Gain) loss on sale of property, plant and equipment |
|
(380 |
) |
|
|
(114 |
) |
|
|
82 |
|
|
Foreign currency transaction gains |
|
(2,419 |
) |
|
|
(1,254 |
) |
|
|
(475 |
) |
|
Total costs and expenses |
|
97,847 |
|
|
|
88,728 |
|
|
|
95,461 |
|
|
Operating
loss |
|
(3,869 |
) |
|
|
(5,591 |
) |
|
|
(14,664 |
) |
|
Interest
income |
|
573 |
|
|
|
203 |
|
|
|
63 |
|
|
Interest
expense |
|
(99 |
) |
|
|
(54 |
) |
|
|
(59 |
) |
|
Income tax
provision |
|
2,175 |
|
|
|
3,496 |
|
|
|
4,407 |
|
|
Net
loss |
$ |
(5,570 |
) |
|
$ |
(8,938 |
) |
|
$ |
(19,067 |
) |
|
Loss per
share |
|
|
|
|
|
|
Basic |
$ |
(0.16 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.54 |
) |
|
Diluted |
$ |
(0.16 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.54 |
) |
|
Depreciation
and amortization |
$ |
7,670 |
|
|
$ |
7,559 |
|
|
$ |
7,343 |
|
|
Capital
expenditures |
$ |
1,363 |
|
|
$ |
2,066 |
|
|
$ |
3,524 |
|
|
Weighted
Average Shares Outstanding |
|
|
|
|
|
|
Basic |
|
34,476 |
|
|
|
34,494 |
|
|
|
35,387 |
|
|
Diluted |
|
34,476 |
|
|
|
34,494 |
|
|
|
35,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Comparative
Condensed Consolidated Balance Sheets |
|
(Unaudited) |
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|
|
|
|
(In
thousands) |
|
Assets: |
|
|
|
|
Cash and cash equivalents |
$ |
320,784 |
|
$ |
355,451 |
|
Other current assets |
|
427,079 |
|
|
390,098 |
|
PP&E, net |
|
179,938 |
|
|
216,200 |
|
Other assets |
|
45,765 |
|
|
48,677 |
|
Total
assets |
$ |
973,566 |
|
$ |
1,010,426 |
|
Liabilities and Equity: |
|
|
|
|
Current liabilities |
$ |
84,856 |
|
$ |
93,663 |
|
Deferred Income taxes |
|
4,234 |
|
|
3,925 |
|
Other long-term liabilities |
|
15,787 |
|
|
15,730 |
|
Total
liabilities |
|
104,877 |
|
|
113,318 |
|
Total
stockholders equity |
|
868,689 |
|
|
897,108 |
|
Total
liabilities and equity |
$ |
973,566 |
|
$ |
1,010,426 |
|
|
|
|
|
Dril-Quip,
Inc. |
|
Reconciliation of Net Income (Loss) to Adjusted Net Income
(Loss) and Adjusted Diluted Earnings (Loss) per Share |
|
and Adjusted
Diluted Earnings (Loss) per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss) and EPS: |
Three months
ended |
|
|
June 30, 2022 |
|
March 31, 2022 |
|
June 30, 2021 |
|
|
Effect on net income (loss) (after-tax) |
|
Impact on diluted earnings (loss) per share |
|
Effect on net income (loss) (after-tax) |
|
Impact on diluted earnings (loss) per share |
|
Effect on net income (loss) (after-tax) |
|
Impact on diluted earnings (loss) per share |
|
|
|
|
|
(In
thousands, except per share amounts) |
|
Net loss |
$ |
(5,570 |
) |
|
$ |
(0.16 |
) |
|
$ |
(8,938 |
) |
|
$ |
(0.26 |
) |
|
$ |
(19,067 |
) |
|
$ |
(0.54 |
) |
|
Adjustments
(after tax): |
|
|
|
|
|
|
|
|
|
|
|
|
Reverse the effect of foreign currency transaction gains |
|
(1,911 |
) |
|
|
(0.06 |
) |
|
|
(991 |
) |
|
|
(0.03 |
) |
|
|
(375 |
) |
|
|
(0.01 |
) |
|
Restructuring and other costs, including severance |
|
4,554 |
|
|
|
0.13 |
|
|
|
25 |
|
|
|
- |
|
|
|
790 |
|
|
|
0.02 |
|
|
(Gain) loss on sale of property, plant and equipment |
|
(300 |
) |
|
|
(0.01 |
) |
|
|
(90 |
) |
|
|
- |
|
|
|
65 |
|
|
|
- |
|
|
Adjusted net
loss |
$ |
(3,227 |
) |
|
$ |
(0.10 |
) |
|
$ |
(9,994 |
) |
|
$ |
(0.29 |
) |
|
$ |
(18,587 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Reconciliation of Net Income (Loss) to Adjusted
EBITDA |
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
Three months ended |
|
|
June 30, 2022 |
|
March 31, 2022 |
|
June 30, 2021 |
|
|
(In
thousands) |
|
Net loss |
$ |
(5,570 |
) |
|
$ |
(8,938 |
) |
|
$ |
(19,067 |
) |
|
Add: |
|
|
|
|
|
|
Interest (income) expense, net |
|
(474 |
) |
|
|
(149 |
) |
|
|
(4 |
) |
|
Income tax provision |
|
2,175 |
|
|
|
3,496 |
|
|
|
4,407 |
|
|
Depreciation and amortization expense |
|
7,670 |
|
|
|
7,559 |
|
|
|
7,343 |
|
|
Restructuring and other costs, including severance |
|
5,765 |
|
|
|
32 |
|
|
|
7,250 |
|
|
(Gain) loss on sale of property, plant and equipment |
|
(380 |
) |
|
|
(114 |
) |
|
|
82 |
|
|
Foreign currency transaction gains |
|
(2,419 |
) |
|
|
(1,254 |
) |
|
|
(475 |
) |
|
Stock compensation expense |
|
2,573 |
|
|
|
2,527 |
|
|
|
3,079 |
|
|
Adjusted
EBITDA |
$ |
9,340 |
|
|
$ |
3,159 |
|
|
$ |
2,615 |
|
|
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Reconciliation of Net Cash Provided by Operating Activities
to Free Cash Flow |
|
|
|
|
|
|
|
|
Free
Cash Flow: |
Three months ended |
|
|
June 30, 2022 |
|
March 31, 2022 |
|
June 30, 2021 |
|
|
|
|
|
(In
thousands) |
|
Net cash provided (used) by operating activities |
$ |
(9,281 |
) |
|
$ |
(10,928 |
) |
|
$ |
11,343 |
|
|
Less: |
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
(1,363 |
) |
|
|
(2,066 |
) |
|
|
(3,112 |
) |
|
Free cash
flow |
$ |
(10,644 |
) |
|
$ |
(12,994 |
) |
|
$ |
8,231 |
|
|
|
|
|
|
|
|
|
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