Subjects: EARNINGS, Conference Call, Webcast
Superior Drilling Products, Inc. Reports Continued Sequential Growth in Revenue to $3.6 Million and Strengthening Profitability in Third Quarter 2021
Superior Drilling Products, Inc. (NYSE American: SDPI) ("SDP" or the "Company"), a designer and manufacturer of drilling tool technologies, today reported financial results for the third quarter of 2021 ended September 30, 2021.
Troy Meier, Chairman and CEO, commented, "Demand for our tools and services is strong and we are working hard to meet our customers' requirements. We are confident in the value our flagship Drill-N-Ream® well bore conditioning tool brings to the oil & gas production industry. Importantly, our engineering expertise and manufacturing skills are in demand. We are addressing new opportunities to manufacture drilling tools to meet the rising demand and challenging technical requirements of polycrystalline diamond cutters. We believe technical knowledge of drilling technologies, operational strengths and ability to meet demand provide us competitive advantages in these challenging times of severe supply chain constraints and labor shortages."
Third Quarter 2021 Review ($ 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 |
Change Sequential |
Change Year/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 |
Change Sequential |
Change Year/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 Stridertm 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,
|
|
September 30,
|
||
| 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,
|
|
September 30,
|
|
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. |
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