Dril-Quip, Inc. (NYSE: DRQ), (the “Company” or “Dril-Quip”) today
reported operational and financial results for the third quarter of
2022.
Results for the third quarter of 2022
included:
- Revenue of $88.1 million for the
third quarter of 2022, a decrease of $5.8 million from the second
quarter of 2022 driven by unfavorable foreign exchange rate
impacts, supply chain delays in downhole tools and reduced leasing
revenues in subsea service;
- Net income of $15.2 million, or
$0.45 earnings per share, an increase of $20.8 million, or $0.61
per share compared to the second quarter of 2022, due to the gain
on sale of the Houston forge facility, lower income taxes, and
lower restructuring costs in the period;
- Generated adjusted EBITDA of $7.0
million, or 8.0% of revenue, a decrease of $2.3 million from the
second quarter of 2022;
- Cash and
short-term investments ended the third quarter at $315.6 million.
Third quarter net cash provided by operating activities of $1.0
million and free cash flow of negative $9.2 million, inclusive of
$10.3 million of capital expenditures;
- Closed on the
sale of the Houston forge facility during the third quarter of 2022
driving a net gain on sale of $17.3 million;
- Booked $75.0 million of gross new
orders during the third quarter of 2022. Net of $13.3 million of
cancellations and adjustments, bookings were $61.7 million;
- Repurchased
$11.1 million of shares at an average price of $24.35 during the
third quarter of 2022. Year-to-date repurchases through the third
quarter of 2022 total approximately $21 million; and
- Received
upgraded MSCI ESG rating of an “A” in the quarter.
Jeff Bird, Dril-Quip’s President and Chief
Executive Officer, commented, “Gross bookings in the quarter were
$75.0 million reflecting the ongoing upcycle in the offshore
market, but we were negatively impacted by a large project
cancellation in the period. The geographies of Brazil, Saudi Arabia
and Norway are continued bright spots for the Company and we are
focusing additional resources there to capitalize in 2023 and
beyond. We experienced foreign exchange rate headwinds in the
period which when coupled with supply chain delays in our downhole
tool business, caused us to be slightly lower than our revenue
expectations for the quarter.
“The benefits of our new product-line focused
teams continue to emerge as we are evaluating our 2023 strategies
and key priorities. Our product line leadership is focused on our
customer and supplier partnerships, eliminating excess costs, and
improving operational efficiency and profitability. We also
continue to progress on our footprint rationalization plan, with
the sale of the Houston forge facility closing in the third quarter
netting $17.3 million in proceeds. We continue to anticipate
reaching agreements on the two remaining properties by year-end.
For the remaining two properties for sale, we expect the combined
net proceeds to be in the $20 to $30 million range. We used
approximately $3.7 million of the third quarter sale proceeds to
fund a portion of the manufacturing investment for our subsea
wellhead product line. This will ultimately lower costs and improve
productivity upon installation in late 2023. There is approximately
$18 million remaining on that investment authorization.
“Additionally, I am proud to announce that
Dril-Quip received an upgraded ESG rating by MSCI, Inc. of an “A”
this quarter. This evidences our commitment to reduction in our
greenhouse gas emissions. Tangible progress was also made in the
third quarter with the conversion of our Singapore facilities to
solar power. We are committed to continuously improving our ESG
reporting and the identification of meaningful steps we can take to
reduce our global emissions.
“As we look to the conclusion of this year, we
now expect our full year bookings to grow 15% to 20% compared to
2021, due to the two customer project cancellations in the second
and third quarters. Incremental adjusted EBITDA margins are
expected to be in the 30% - 40% range for the full year 2022. We
are also revising our free cash flow margin target to be break-even
for the full year 2022, due to increased working capital investment
in stocking programs to secure forging supplies.
“As we look forward to 2023, leading indicators
such as tender volume and average quote value have recovered to
pre-pandemic levels. We are well positioned to capitalize on what
is clearly a constructive offshore market and believe the order
trends will continue to accelerate into next year. This will be led
by activity growth in markets such as Brazil, Middle East and the
North Sea across all our product and service lines. We believe that
the strategic moves related to the organization, footprint, and
investment in manufacturing this year, and those we are currently
targeting, will serve to benefit the company in years to come. We
look forward to updating investors on our 2023 outlook and updates
to our strategic initiatives for further improved profitability on
our year-end earnings conference call in February 2023.”
In conjunction with today’s release, the Company
posted a new investor presentation entitled “Third 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 third quarter of
2022 was $88.1 million, down $5.8 million from the second quarter
of 2022 and up $5.1 million compared to the third quarter of 2021.
The sequential decrease was primarily a result of lower product
sales in downhole tools due to supply chain impacts and foreign
exchange rate impacts. Service revenues in subsea also decreased
due to lower rental tool utilization due to the completion of
certain customer projects. The increase in revenue year-over-year
was driven by higher subsea product sales volumes primarily in
Asia-Pacific and Europe. This was partially offset by decreased
downhole tools product revenues.
Cost of sales for the third quarter of 2022 was
$65.7 million, a decrease of $4.0 million from the second quarter
of 2022 and an increase of $2.9 million compared to the prior year.
Gross operating margin for the third quarter of 2022 was 25.4%, a
slight decrease from 25.9% in the second quarter of 2022 and an
increase from 24.3% in the third quarter of 2021. The improvement
in gross margins year-over-year is primarily attributed to
increased absorption of fixed costs and favorable revenue mix.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”)
expenses for the third quarter of 2022 were $22.4 million,
essentially flat compared to the second quarter of 2022 and a
decrease of $2.8 million compared to the third 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 decreased administrative costs associated with the
importation tax settlement under the Brazilian tax amnesty program.
Engineering and product development expenses were down $0.1 million
sequentially and down $0.9 million 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 Income, Adjusted EBITDA and Free Cash
Flow
For the third quarter of 2022, the Company
reported net income of $15.2 million, or $0.45 earnings per share.
Adjusted EBITDA totaled $7.0 million for the third quarter of 2022
compared to $9.3 million for the second quarter 2022. The decline
in adjusted EBITDA sequentially can be attributed to decreased
revenues across all product lines and subsea services. Adjusted
EBITDA for the third quarter of 2022 was up $3.1 million compared
to the third quarter of 2021. The increase in adjusted EBITDA
year-over-year can be mostly attributed to increased revenues and
reductions in administrative and engineering expense.
Net cash provided by operations was $1.0 million
and free cash flow was a negative $9.2 million for the third
quarter of 2022. Capital expenditures in the third quarter of 2022
were approximately $10.3 million, up approximately $8.9 million
compared to the second quarter of 2022 due to investments in
manufacturing equipment.
Share Repurchases
For the three-month period ended September 30,
2022, the Company purchased 457,467 shares under its share
repurchase plan at an average price of $24.35 per share, totaling
$11.1 million, and retired such shares. As of September 30, 2022,
the company year-to-date has purchased 888,197 shares at an average
price of $23.41 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 impact of general economic conditions,
including inflation, on economic activity and on our operations,
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
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Comparative
Condensed Consolidated Income Statement |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
September 30, 2022 |
|
June 30, 2022 |
|
September 30, 2021 |
|
|
(In
thousands, except per share data) |
|
Revenues: |
|
|
|
|
|
|
Products |
$ |
58,508 |
|
|
$ |
61,979 |
|
|
$ |
53,622 |
|
|
Services |
|
20,443 |
|
|
|
19,596 |
|
|
|
19,560 |
|
|
Leasing |
|
9,190 |
|
|
|
12,403 |
|
|
|
9,815 |
|
|
Total revenues |
|
88,141 |
|
|
|
93,978 |
|
|
|
82,997 |
|
|
Costs and
expenses: |
|
|
|
|
|
|
Cost of sales |
|
65,710 |
|
|
|
69,663 |
|
|
|
62,834 |
|
|
Selling, general and administrative |
|
22,431 |
|
|
|
22,498 |
|
|
|
25,265 |
|
|
Engineering and product development |
|
2,645 |
|
|
|
2,720 |
|
|
|
3,510 |
|
|
Restructuring and other charges |
|
2,180 |
|
|
|
5,765 |
|
|
|
- |
|
|
Gain on sale of property, plant and equipment |
|
(17,276 |
) |
|
|
(380 |
) |
|
|
(13 |
) |
|
Foreign currency transaction gains |
|
(1,901 |
) |
|
|
(2,419 |
) |
|
|
(1,663 |
) |
|
Total costs and expenses |
|
73,789 |
|
|
|
97,847 |
|
|
|
89,933 |
|
|
Operating
income (loss) |
|
14,352 |
|
|
|
(3,869 |
) |
|
|
(6,936 |
) |
|
Interest
income |
|
379 |
|
|
|
573 |
|
|
|
188 |
|
|
Interest
expense |
|
(131 |
) |
|
|
(99 |
) |
|
|
(94 |
) |
|
Income tax
provision (benefit) |
|
(610 |
) |
|
|
2,175 |
|
|
|
4,301 |
|
|
Net income
(loss) |
$ |
15,210 |
|
|
$ |
(5,570 |
) |
|
$ |
(11,143 |
) |
|
Income
(Loss) per share |
|
|
|
|
|
|
Basic |
$ |
0.45 |
|
|
$ |
(0.16 |
) |
|
$ |
(0.31 |
) |
|
Diluted |
$ |
0.44 |
|
|
$ |
(0.16 |
) |
|
$ |
(0.31 |
) |
|
Depreciation
and amortization |
$ |
7,123 |
|
|
$ |
7,670 |
|
|
$ |
7,899 |
|
|
Capital
expenditures |
$ |
10,283 |
|
|
$ |
1,363 |
|
|
$ |
2,303 |
|
|
Weighted
Average Shares Outstanding |
|
|
|
|
|
|
Basic |
|
33,948 |
|
|
|
34,476 |
|
|
|
35,387 |
|
|
Diluted |
|
34,232 |
|
|
|
34,476 |
|
|
|
35,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Comparative
Condensed Consolidated Balance Sheets |
|
(Unaudited) |
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
|
(In
thousands) |
|
Assets: |
|
|
|
|
Cash and cash equivalents |
$ |
290,279 |
|
$ |
355,451 |
|
Short-term investments |
|
25,287 |
|
|
- |
|
Other current assets |
|
430,192 |
|
|
390,098 |
|
PP&E, net |
|
181,359 |
|
|
216,200 |
|
Other assets |
|
43,407 |
|
|
48,677 |
|
Total
assets |
$ |
970,524 |
|
$ |
1,010,426 |
|
Liabilities and Equity: |
|
|
|
|
Current liabilities |
$ |
89,287 |
|
$ |
93,663 |
|
Deferred Income taxes |
|
3,918 |
|
|
3,925 |
|
Other long-term liabilities |
|
12,482 |
|
|
15,730 |
|
Total
liabilities |
|
105,687 |
|
|
113,318 |
|
Total
stockholders equity |
|
864,837 |
|
|
897,108 |
|
Total
liabilities and equity |
$ |
970,524 |
|
$ |
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 |
|
September 30, 2022 |
|
June 30, 2022 |
|
September 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 income (loss) |
$ |
15,210 |
|
|
$ |
0.44 |
|
|
$ |
(5,570 |
) |
|
$ |
(0.16 |
) |
|
$ |
(11,143 |
) |
|
$ |
(0.31 |
) |
Adjustments
(after tax): |
|
|
|
|
|
|
|
|
|
|
|
Reverse the effect of foreign currency transaction gains |
|
(1,502 |
) |
|
|
(0.04 |
) |
|
|
(1,911 |
) |
|
|
(0.06 |
) |
|
|
(1,314 |
) |
|
|
(0.04 |
) |
Restructuring and other costs, including severance |
|
1,722 |
|
|
|
0.05 |
|
|
|
4,554 |
|
|
|
0.13 |
|
|
|
- |
|
|
|
- |
|
Gain on sale of property, plant and equipment |
|
(13,648 |
) |
|
|
(0.40 |
) |
|
|
(300 |
) |
|
|
(0.01 |
) |
|
|
(10 |
) |
|
|
- |
|
Adjusted net
income (loss) |
$ |
1,782 |
|
|
$ |
0.05 |
|
|
$ |
(3,227 |
) |
|
$ |
(0.10 |
) |
|
$ |
(12,467 |
) |
|
$ |
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Reconciliation of Net Income (Loss) to Adjusted
EBITDA |
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
Three months ended |
|
|
September 30, 2022 |
|
June 30, 2022 |
|
September 30, 2021 |
|
|
(In
thousands) |
|
Net income (loss) |
$ |
15,210 |
|
|
$ |
(5,570 |
) |
|
$ |
(11,143 |
) |
|
Add: |
|
|
|
|
|
|
Interest (income) expense, net |
|
(248 |
) |
|
|
(474 |
) |
|
|
(94 |
) |
|
Income tax provision (benefit) |
|
(610 |
) |
|
|
2,175 |
|
|
|
4,301 |
|
|
Depreciation and amortization expense |
|
7,123 |
|
|
|
7,670 |
|
|
|
7,899 |
|
|
Restructuring and other costs, including severance |
|
2,180 |
|
|
|
5,765 |
|
|
|
1,400 |
|
|
Gain on sale of property, plant and equipment |
|
(17,276 |
) |
|
|
(380 |
) |
|
|
(13 |
) |
|
Foreign currency transaction gains |
|
(1,901 |
) |
|
|
(2,419 |
) |
|
|
(1,663 |
) |
|
Stock compensation expense |
|
2,569 |
|
|
|
2,573 |
|
|
|
3,276 |
|
|
Adjusted
EBITDA |
$ |
7,047 |
|
|
$ |
9,340 |
|
|
$ |
3,963 |
|
|
|
|
|
|
|
|
|
Dril-Quip,
Inc. |
|
Reconciliation of Net Cash Provided by Operating Activities
to Free Cash Flow |
|
|
|
|
|
|
|
|
Free
Cash Flow: |
Three months ended |
|
|
September 30, 2022 |
|
June 30, 2022 |
|
September 30, 2021 |
|
|
(In
thousands) |
|
Net cash provided (used) by operating activities |
$ |
1,042 |
|
|
$ |
(9,281 |
) |
|
$ |
9,323 |
|
|
Less: |
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
(10,283 |
) |
|
|
(1,363 |
) |
|
|
(2,303 |
) |
|
Free cash
flow |
$ |
(9,241 |
) |
|
$ |
(10,644 |
) |
|
$ |
7,020 |
|
|
|
|
|
|
|
|
|
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