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Superior Drilling Products, Inc. Delivers Revenue Growth of 45% to $5.2 million with Expanded Margins in Third Quarter 2022

  • Third quarter revenue increased $1.6 million, or 45%, to $5.2 million over the prior-year period
    • Tool revenue grew 43% and Contract Services revenue was up 51%
  • Strong operating leverage resulted in net income of $639 thousand, or $0.02 per diluted share, compared with a loss in the prior-year period
  • Adjusted EBITDA* was $1.5 million with a margin of 29.5%, up 560 basis points
  • Ended the quarter with $2.0 million in cash and $7.5 million in shareholders’ equity
    • Subsequent to quarter-end, the Company paid off remaining $750 thousand on the Hard Rock note
  • 2022 outlook includes the anticipated sale of the initial phase of the existing DNR tool fleet to support Middle East demand; expecting revenue between $22 million to

    $24 million and Adjusted EBITDA* of $6.5 million to $7.5 million.  Without this sale, expected 2022 revenue would be between $18 million and $20 million and Adjusted EBITDA of $4.0 to $5.0 million.

*Adjusted EBITDA is a non-GAAP measure. See comments regarding the use of non-GAAP measures and the reconciliation of the third 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 third quarter ended September 30, 2022.

“Our third quarter results were solid and near the high end range of our expectations as our teams continued to execute well to meet increasing demand for our tools and services,” commented

Troy Meier, Chairman and CEO.  “Importantly, we have also strengthened the earnings power of the company as we delivered net income of $639 thousand and achieved Adjusted EBITDA of $1.5 million, the highest level in more than four years, which yielded an impressive 29.5% margin.”

He added, “We believe that we continue to position ourselves well for the demand that exists for our Drill-N-Ream® (“DNR”), both domestically and internationally, and our contract services work.  We have enhanced our manufacturing team and processes, and are expanding our capacity and improving our throughput with investments in two new machining centers, one of which came online during the third quarter.  The second machining center is expected to be operational during the first quarter of 2023.  On the international front, we continue to advance our efforts as we have begun the process to setup a refurbishment facility in Dubai and have bolstered our team with a new sales and marketing lead that has made meaningful headway in Kuwait.  We are also looking forward to leveraging our new sales channel partner to drive great exposure throughout the Middle East region.”  

Third Quarter 2022 Review

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

  September 30,

2022
June 30,

2022
September 30,

2021
Change

Sequential
Change

Year/Year
 
North America

 

              4,623

 

              4,021

 

               3,041

15.0

%

52.0

%

International

 

                 550

 

                 520

 

                 521

5.8

%

5.6

%

Total Revenue

 $

           5,173

 $

            4,541

 $

            3,562

13.9

%

45.2

%

           
Tool (DNR) Revenue 

 

              3,343

 

        ��     2,892

 

               2,346

15.6

%

42.5

%

Contract Services

 

              1,829

 

              1,649

 

               1,216

10.9

%

50.5

%

Total Revenue

 $

           5,173

 $

            4,541

 $

            3,562

13.9

%

45.2

%

Revenue growth reflects the continued recovery in the North America oil & gas industry and improving market conditions in the Middle East.  Also contributing was strong demand for the manufacture and refurbishment of drill bits and other related tools for the Company’s long-time legacy customer.

For the third quarter of 2022, North America revenue comprised approximately 89% of total revenue, with remaining revenue all within the Middle East.  Revenue in North America grew 52% year-over-year from increased Tool Revenue and strong growth in Contract Services.   

Third Quarter 2022 Operating Costs

($ in thousands, except per share amounts)

  September 30, June 30, September 30, Change Change
 

 

2022

 

 

2022

 

 

2021

 

Sequential Year/Year
  Cost of revenue

 $

           2,231

 

 $

            2,116

 

 $

            1,442

 

5.4

%

54.7

%

       As a percent of sales

 

43.1

%

 

46.6

%

 

40.5

%

   
  Selling, general, & administrative

 $

           1,723

 

 $

            1,894

 

 $

            1,551

 

-9.0

%

11.1

%

       As a percent of sales

 

33.3

%

 

41.7

%

 

43.6

%

   
  Depreciation & amortization

 $

              363

 

 $

              403

 

 $

               405

 

-10.0

%

-10.5

%

Total operating expenses

 $

           4,316

 

 $

            4,413

 

 $

            3,399

 

-2.2

%

27.0

%

Operating income

 $

              856

 

 $

              128

 

 $

               163

 

568.8

%

424.0

%

       As a percent of sales

 

16.6

%

 

2.8

%

 

4.6

%

   
  Other (expense) income including          
    income tax expense

 $

             (217

)

 $

             (184

)

 $

              (169

)

18.0

%

28.1

%

Net income (loss)

 $

              639

 

 $

               (57

)

 $

                 (6

)

NM

 

NM

 

Diluted income (loss) per share

 

0.02

 

 

(0.00

)

 

(0.00

)

   
Adjusted EBITDA(1)

 $

           1,525

 

 $

              831

 

 $

               853

 

83.5

%

78.8

%

       As a percent of sales

 

29.5

%

 

18.3

%

 

23.9

%

   

(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 income (loss) to Adjusted EBITDA.

The year-over-year increase in the cost of revenue as a percent of revenue was the result of global inflationary headwinds and an expansion of the Company’s workforce to accommodate for its current and expected demand.

Selling, general & administrative expenses were 33.3% of revenue, a significant improvement from the prior-year period due to the leverage on higher sales volume. 

Depreciation and amortization expense decreased 10.5% year-over-year to $363 thousand due to fully amortizing a portion of intangible assets and fully depreciating manufacturing center equipment.

Balance Sheet and Liquidity

Cash at the end of the quarter was $2.0 million.  Cash generated by operations for the year-to-date period was $1.3 million compared with $1.4 million in the prior-year period.  Higher net income was offset by working capital timing and an increase in inventory to combat supply chain inefficiencies and in support of the Company’s growth.  Year-to-date capital expenditures of $2.6 million were related to machining capacity expansion, higher maintenance activities, and an increase in the Company’s Middle East DNR rental tool fleet.  The comparable period in 2021 had $589 thousand of capital spending.  The Company refined its capital spending expectations for fiscal 2022 to range between

$3.5 million to $4.0 million.

Total debt was $3.0 million at September 30, 2022.  Subsequent to quarter-end, in October, the Company made the final $750 thousand principal payment on its Hard Rock Note.

2022 Guidance

The full year 2022 expectations reflect the projected impact from the sale of the $3.8 million stage one Middle East DNR fleet to Bin Zayed Petroleum in the fourth quarter of 2022.  

Revenue:  $22 million to $24 million

SG&A:  $7.0 million to $7.3 million

Adjusted EBITDA(1):  $6.5 million to $7.5 million

Without the $3.8 million DNR fleet sale, expected 2022 revenue would be between $18 million and

$20 million and Adjusted EBITDA of $4.0 to $5.0 million.

(1) See “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 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 pm MT (3:00 pm ET) the day of the teleconference until Friday, November 18, 2022.  To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13733329 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® 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.

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 2022 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.

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,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue
North America

 $

      4,622,614

 

 $

      3,040,689

 

 $

    12,388,747

 

 $

      9,527,395

 

International

 

            549,931

 

 

            521,229

 

 

         1,454,805

 

 

         1,384,103

 

Total revenue

 $

      5,172,545

 

 $

      3,561,918

 

 $

    13,843,552

 

 

 $

    10,911,498

 

 
Operating cost and expenses
 
Cost of revenue

 

         2,230,706

 

 

         1,441,943

 

 

         6,114,705

 

 

         3,841,713

 

Selling, general, and administrative expenses

 

         1,723,221

 

 

         1,551,462

 

 

         5,264,270

 

 

         4,540,134

 

Depreciation and amortization expense

 

            362,773

 

 

            405,225

 

 

         1,176,151

 

 

         1,680,804

 

 
Total operating costs and expenses

 

         4,316,700

 

 

         3,398,630

 

 

       12,555,126

 

 

       10,062,651

 

 
Operating Income (Loss)

 

            855,845

 

 

            163,289

 

 

         1,288,426

 

 

           (676,971

)

 
Other income (expense)
   Interest income

 

              10,544

 

 

                     49

 

 

              13,720

 

 

                   147

 

   Interest expense

 

           (154,108

)

 

           (130,221

)

 

           (410,707

)

 

           (413,798

)

   Gain (Loss) on disposition of assets, net

 

             (29,381

)

 

                      -

 

 

(51,527

)

 

(1,187

)

Total other expense

 

           (172,945

)

 

           (130,172

)

 

           (448,514

)

 

           (414,838

)

 
Income (loss) before income taxes

 

            682,900

 

 

              33,117

 

 

            839,912

 

 

        (1,091,809

)

   Income tax expense

 

             (44,169

)

 

             (39,327

)

 

           (107,852

)

 

             (82,976

)

Net income (loss)

 $

         638,731

 

 $

            (6,210

)

 $

         732,060

 

 $

     (1,174,785

)

 
Basic income (loss) per common share

 $

               0.02

 

 $

              (0.00

)

 $

               0.03

 

 $

              (0.05

)

 
Basic weighted average common shares outstanding

 

       28,845,456

 

 

       26,154,202

 

 

       28,440,722

 

 

       25,894,397

 

.
Diluted income (loss) per common Share

 $

               0.02

 

 $

              (0.00

)

 $

               0.03

 

 $

              (0.05

)

 
Diluted weighted average common shares outstanding

 

       28,855,456

 

 

       26,154,202

 

 

       28,450,722

 

 

       25,894,397

Superior Drilling Products, Inc.
Consolidated Condensed Balance Sheets
 
September 30, 2022 December 31, 2021
(unaudited)
Assets
Current assets:
 Cash   $ 

           2,046,754

 

 $ 

2,822,100

 

 Accounts receivable, net 

           4,083,645

 

2,871,932

 

 Prepaid expenses 

             564,176

 

435,595

 

 Inventories 

           1,623,051

 

1,174,635

 

 Other current assets   

             774,799

 

 

55,159

 

 Total current assets 

           9,092,425

 

7,359,421

 

Property, plant and equipment, net

           8,427,003

 

6,930,329

 

Intangible assets, net

             111,111

 

236,111

 

Right of use Asset (net of amortizaton)

             688,673

 

20,518

 

Other noncurrent assets  

             111,519

 

 

65,880

 

 
 Total assets   $ 

18,430,731

 

 $ 

14,612,259

 

 
Liabilities and Owners' Equity
Current liabilities:
 Accounts payable   $ 

           1,264,952

 

 $ 

1,139,091

 

 Accrued expenses 

             883,572

 

467,462

 

 Accrued Income tax 

             264,081

 

206,490

 

 Current portion of Operating Lease Liability 

             202,350

 

13,716

 

 Current portion of Long-term Financial Obligation 

               72,344

 

65,678

 

 Current portion of long-term debt, net of discounts 

           2,319,727

 

2,195,759

 

 Current portion of Deferred Income 

               63,281

 

   

-

 

 Total current liabilities 

5,070,307

 

4,088,196

 

Operating Lease Liability

             486,323

 

6,802

 

Long-term Financial Obligation

           4,057,537

 

4,112,658

 

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

             684,038

 

256,675

 

Deferred Income

             611,719

 

     
 
 Total liabilities 

10,909,924

 

8,464,331

 

 
Shareholders' equity
 Common stock (28,235,001 and 25,762,342) 

29,245

 

28,235

 

 Additional paid-in-capital 

43,711,009

 

43,071,201

 

 Accumulated deficit   

(36,219,447

)

 

(36,951,508

)

Total shareholders' equity  

7,520,807

 

 

6,147,928

 

 
 Total liabilities and shareholders' equity   $ 

18,430,731

 

 $ 

14,612,259

Superior Drilling Products, Inc.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
 
For the Nine Months
Ended September 30,

2022

 

2021

 

Cash Flows From Operating Activities
 Net Income (Loss)   $ 

732,060

 

 $ 

(1,174,785

)

 Adjustments to reconcile net income to net cash used in operating activities: 
 Depreciation and amortization expense 

1,176,151

 

1,680,804

 

 Stock-based compensation expense 

640,816

 

530,595

 

 Loss on disposition of rental fleet

23,012

 

 -

 

 Loss / (Gain) on sale or dispositon of assets

28,515

 

1,187

 

 Amortization of deferred loan cost 

13,893

 

13,893

 

 Changes in operating assets and liabilities: 
 Accounts receivable 

(1,211,713

)

(700,451

)

 Inventories 

(446,866

)

(37,631

)

 Prepaid expenses and other current and noncurrent assets 

(893,860

)

(161,564

)

 Accounts payable and accrued expenses 

1,216,974

 

1,168,317

 

 Income Tax expense   

57,591

 

   

71,376

 

Net Cash Provided By Operating Activities  

1,336,573

 

 

1,391,741

 

 
Cash Flows From Investing Activities
 Purchases of propety, plant and equipment 

(2,600,902

)

(589,099

)

 Proceeds from sale of fixed assets   

 -

 

 

50,000

 

Net Cash Provided By (Used In) Investing Activities  

(2,600,902

)

 

(539,099

)

 
Cash Flows From Financing Activities
 Principal payments on debt 

(508,146

)

(1,146,309

)

 Proceeds received from debt borrowings 

997,134

 

 -

 

 Payments on revolving loan 

(633,440

)

(540,078

)

 Proceeds received from revolving loan 

633,435

 

1,341,702

 

Net Cash Used In Financing Activities  

488,983

 

 

(344,685

)

 
Net change in Cash

(775,346

)

507,957

 

Cash at Beginning of Period

2,822,100

 

1,961,441

 

Cash at End of Period  $ 

2,046,754

 

$

2,469,398

Superior Drilling Products, Inc.

Adjusted EBITDA(1) Reconciliation

(unaudited)

Three Months Ended
September 30, 2022 September 30, 2021 June 30, 2022
GAAP net income (loss)

 $

                  638,731

 

 $

                     (6,210

)

 $

                  (56,510

)

Add back
    Depreciation and amortization

 

                     362,773

 

 

                     405,225

 

 

                    402,648

 

    Interest expense, net

 

                     143,564

 

 

                     130,172

 

 

                    129,760

 

    Share-based compensation

 

                     218,217

 

 

                     196,096

 

 

                    212,469

 

    Net non-cash compensation

 

                       88,200

 

 

                       88,200

 

 

                      88,200

 

    Income tax expense

 

                       44,169

 

 

                       39,327

 

 

                      32,299

 

    (Gain) Loss on disposition of assets

 

                       29,381

 

 

                             -

 

 

                      22,146

 

Non-GAAP adjusted EBITDA(1)

 $

               1,525,035

 

 $

                  852,810

 

 $

                  831,012

 

 
GAAP Revenue

 $

               5,172,545

 

 $

               3,561,919

 

 $

               4,540,842

 

Non-GAAP Adjusted EBITDA Margin

 

29.5

%

 

23.9

%

 

18.3

%

  (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.

Contacts

For more information, contact investor relations:

Deborah K. Pawlowski

Kei Advisors LLC

(716) 843-3908

dpawlowski@keiadvisors.com

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