Superior Drilling Products, Inc. Reports Third Quarter 2020 Results
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, 2020.
Troy Meier, Chairman and CEO, commented, “We are taking measures to provide for liquidity while keeping our sights on the long term. Importantly, our results demonstrate that the value of our Drill-N-Ream® well bore conditioning tool has been gaining traction internationally even against the temporary headwinds of current industry conditions. We are now operating in five countries outside of North America, as we are pulled into more regions by global oil field service companies who benefit from the economic value of the DNR technology. In addition, given the documented increase of drilling efficiencies when using the DNR, we believe it also contributes to the reduction of environmental impact while drilling for fossil fuels.”
Third Quarter 2020 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, 2020 |
June 30, 2020 |
September 30, 2019 |
Change Sequential | Change Year/Year | |||||||||||
| North America |
|
1,118 |
|
1,689 |
|
4,788 |
(33.8 |
)% |
(76.6 |
)% |
||||||
| International |
|
429 |
|
335 |
|
289 |
27.9 |
% |
48.7 |
% |
||||||
| Total Revenue | $ |
1,547 |
$ |
2,024 |
$ |
5,076 |
(23.6 |
)% |
(69.5 |
)% |
||||||
| Tool Sales/Rental | $ |
549 |
$ |
371 |
$ |
1,361 |
48.1 |
% |
(59.7 |
)% |
||||||
| Other Related Tool Revenue |
|
642 |
|
973 |
|
1,834 |
(34.0 |
)% |
(65.0 |
)% |
||||||
| Tool Revenue |
|
1,191 |
|
1,343 |
|
3,195 |
(11.4 |
)% |
(62.7 |
)% |
||||||
| Contract Services |
|
357 |
|
681 |
|
1,881 |
(47.6 |
)% |
(81.0 |
)% |
||||||
| Total Revenue | $ |
1,547 |
$ |
2,024 |
$ |
5,076 |
(23.6 |
)% |
(69.5 |
)% |
||||||
Year-over-year revenue was down $3.5 million, or 70%. Sequentially, revenue declined about 24%, or $0.5 million demonstrating improving market conditions given the August 2020 low point in U. S. rig count. The market was driven to its low point due to the initial impacts of COVID-19 and the geopolitically driven imbalance of supply and demand in the global oil market. Even as production activity declined around the world, International revenue grew $141 thousand, or 49%, to $429 thousand. This supported total Tool revenue, which was down just 11.4%, a much lower rate than the overall market. The Company attributes these results to the value created from improved drilling efficiencies provided by the DNR.
International revenue grew to 28% of total revenue in the quarter compared with 6% the prior-year period.
Additionally, the Company recognized $41 thousand in other income related to a machine tool lease under an SBA loan that was forgiven as part of the CARES act.
Third Quarter 2020 Operating Costs
| ($ in thousands, except per share amounts) | September 30, 2020 |
June 30, 2020 |
September 30, 2019 |
Change Sequential | Change Year/Year | ||||||||||||||
| Cost of revenue | $ |
871 |
|
$ |
1,100 |
|
$ |
2,063 |
|
(20.8 |
)% |
(57.8 |
)% |
||||||
| As a percent of sales |
|
56.3 |
% |
|
54.3 |
% |
|
40.6 |
% |
||||||||||
| Selling, general & administrative | $ |
1,530 |
|
$ |
1,340 |
|
$ |
2,502 |
|
14.2 |
% |
(38.9 |
)% |
||||||
| As a percent of sales |
|
98.9 |
% |
|
66.2 |
% |
|
49.3 |
% |
||||||||||
| Depreciation & amortization | $ |
693 |
|
$ |
680 |
|
$ |
739 |
|
1.9 |
% |
(6.1 |
)% |
||||||
| Total operating expenses | $ |
3,094 |
|
$ |
3,120 |
|
$ |
5,303 |
|
(0.8 |
)% |
(41.7 |
)% |
||||||
| Operating loss | $ |
(1,546 |
) |
$ |
(1,096 |
) |
$ |
(227 |
) |
NM |
|
NM |
|
||||||
| As a % of sales |
|
(99.9 |
)% |
|
(54.1 |
)% |
|
(4.5 |
)% |
||||||||||
| Other (expense) income including income tax (expense) |
$ |
(185 |
) |
$ |
(146 |
) |
$ |
(191 |
) |
26.9 |
% |
(3.0 |
)% |
||||||
| Net loss | $ |
(1,731 |
) |
$ |
(1,242 |
) |
$ |
(418 |
) |
NM |
|
NM |
|
||||||
| Diluted loss per share | $ |
(0.07 |
) |
$ |
(0.05 |
) |
$ |
(0.02 |
) |
NM |
|
NM |
|
||||||
| Adjusted EBITDA(1) | $ |
(607 |
) |
$ |
(222 |
) |
$ |
1,083 |
|
NM |
|
NM |
|
||||||
(1)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.
The cost of revenue decreased approximately $1.2 million over the prior-year period reflecting lower volume and lower costs resulting from the execution of the first two phases of the Company’s plans to reduce costs to better align with current demand. As a percentage of revenue, cost of sales was 56% compared with 41% for prior-year period. The increase reflects lower absorption of overhead costs on reduced volume.
The 39% decline in selling, general and administrative expense (SG&A), which includes research and development projects, was primarily due to Phases I and II of cost reduction measures initiated in April 2020.
The Company has reduced its monthly cash burn rate to approximately $700 thousand through further payroll reductions beginning October 23, 2020. This is down 22% from the previous level of approximately $200 thousand per month. The Company expects that at this rate, and given expected improvements in monthly revenue, it will achieve cash break even entering into 2021.
Net loss for the quarter was $1.7 million, compared with a net loss of $418 thousand in the third quarter of 2019. Adjusted EBITDA(1), a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation expense and unusual items, was a negative $607 thousand.
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.
Year-to-Date Review
Revenue in the first nine months of 2020 was $8.9 million, compared with $14.0 million in the same period in 2019. International revenue increased 121% in the first nine months, and U.S. revenue was down just 47%, while the average U.S. rig count market declined by 52%. The first nine months of 2020 were impacted by the effect COVID-19 has had on the demand for oil and gas which resulted in a significant reduction in drilling activity in the U.S.
Tool revenue was $6.1 million, down 33%, or $3.1 million, from the prior-year period. Contract Services revenue decreased approximately $2.7 million, or 49%, to $2.8 million. Net loss for the first nine months of 2020 was $2.8 million, or $(0.11) per diluted share. Adjusted EBITDA(1) for the first nine months of 2020 was $391 thousand. Adjusted EBITDA margin was 4.4% in 2020, compared with 22.9% in 2019.
Balance Sheet and Liquidity
Cash at the end of the quarter was $1.4 million, up from $1.2 million at the end of 2019, but down from $2.5 million at the end of the second quarter of 2020. Cash used in operations in the third quarter of 2020 was $842 thousand.
Total debt at the end of the third quarter was $6.7 million, down $0.2 million, or 3.6%, compared with $6.9 million at June 30, 2020.
Strategy and outlook
Mr. Meier concluded, “We expect that as the DNR is actively employed in new basins around the world and we further diversify our customer base, revenue should improve from here. We are working to develop the logistical and partnership structures to continue to penetrate international markets and globally improve how fossil fuels are produced.”
Definitions and Composition of Product/Service Revenue:
Contract Services Revenue is comprised of drill bit and other repair and manufacturing services.
Other Related Tool Revenue is comprised of royalties and fleet maintenance fees.
Tool Sales/Rental revenue is comprised of revenue from either the sale of tools or tools rented 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 13, 2020. To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13710951, 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 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.
| Superior Drilling Products, Inc. | ||||||||||||||||
| Consolidated Condensed Statements Of Operations | ||||||||||||||||
| For the Quarter Ended September 30, 2020 and 2019 | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|||||
| Revenue | ||||||||||||||||
| North America | $ |
1,118,404 |
|
$ |
4,787,693 |
|
$ |
7,387,847 |
|
$ |
13,957,666 |
|
||||
| International |
|
429,038 |
|
|
288,522 |
|
|
1,541,746 |
|
|
698,337 |
|
||||
| Total revenue | $ |
1,547,442 |
|
$ |
5,076,215 |
|
$ |
8,929,593 |
|
$ |
14,656,003 |
|
||||
| Operating cost and expenses | ||||||||||||||||
| Cost of revenue |
|
870,655 |
|
|
2,062,803 |
|
|
4,284,716 |
|
|
6,119,429 |
|
||||
| Selling, general, and administrative expenses |
|
1,529,887 |
|
|
2,501,970 |
|
|
4,887,999 |
|
|
6,387,205 |
|
||||
| Depreciation and amortization expense |
|
693,259 |
|
|
738,555 |
|
|
2,134,398 |
|
|
2,680,070 |
|
||||
| Total operating costs and expenses |
|
3,093,801 |
|
|
5,303,328 |
|
|
11,307,113 |
|
|
15,186,704 |
|
||||
| Operating loss |
|
(1,546,359 |
) |
|
(227,113 |
) |
|
(2,377,520 |
) |
|
(530,701 |
) |
||||
| Other income (expense) | ||||||||||||||||
| Interest income |
|
145 |
|
|
12,080 |
|
|
5,775 |
|
|
52,444 |
|
||||
| Interest expense |
|
(126,482 |
) |
|
(196,582 |
) |
|
(450,210 |
) |
|
(590,805 |
) |
||||
| Impairment on asset held for sale |
|
- |
|
|
(6,143 |
) |
|
(30,000 |
) |
|
(6,143 |
) |
||||
| Loan forgiveness |
|
41,403 |
|
|
- |
|
|
41,403 |
|
|
- |
|
||||
| Gain on disposition of assets |
|
- |
|
|
- |
|
|
142,234 |
|
|
14,147 |
|
||||
| Total other expense |
|
(84,934 |
) |
|
(190,645 |
) |
|
(290,798 |
) |
|
(530,357 |
) |
||||
| Loss before income taxes |
|
(1,631,293 |
) |
|
(417,758 |
) |
|
(2,668,318 |
) |
|
(1,061,058 |
) |
||||
| Income tax expense |
|
(99,979 |
) |
|
- |
|
|
(106,414 |
) |
|
- |
|
||||
| Net loss | $ |
(1,731,272 |
) |
$ |
(417,758 |
) |
$ |
(2,774,732 |
) |
$ |
(1,061,058 |
) |
||||
| Basic loss earnings per common share | $ |
(0.07 |
) |
$ |
(0.02 |
) |
$ |
(0.11 |
) |
$ |
(0.04 |
) |
||||
| Basic weighted average common shares outstanding |
|
25,555,167 |
|
|
25,074,466 |
|
|
25,469,609 |
|
|
25,042,577 |
|
||||
| Diluted loss per common share | $ |
(0.07 |
) |
$ |
(0.02 |
) |
$ |
(0.11 |
) |
$ |
(0.04 |
) |
||||
| Diluted weighted average common shares outstanding |
|
25,555,167 |
|
|
25,074,466 |
|
|
25,469,609 |
|
|
25,042,577 |
|
||||
| Superior Drilling Products, Inc. | |||||||
| Consolidated Condensed Balance Sheets | |||||||
| (Unaudited) | |||||||
| September 30, 2020 | December 31, 2019 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash | $ | 1,412,370 |
$ | 1,217,014 |
|||
| Accounts receivable, net | 1,441,783 |
3,850,509 |
|||||
| Prepaid expenses | 73,785 |
139,070 |
|||||
| Inventories | 943,870 |
924,032 |
|||||
| Asset held for sale | 40,000 |
252,704 |
|||||
| Other current assets | - |
252,178 |
|||||
| Total current assets | 3,911,808 |
6,635,507 |
|||||
| Property, plant and equipment, net | 7,859,200 |
8,045,692 |
|||||
| Intangible assets, net | 1,111,111 |
1,986,111 |
|||||
| Right of use assets | 146,450 |
- |
|||||
| Deferred tax asset | 34,692 |
- |
|||||
| Other noncurrent assets | 83,114 |
93,619 |
|||||
| Total assets | $ | 13,146,375 |
$ | 16,760,929 |
|||
| Liabilities and Owners' Equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 663,090 |
$ | 945,414 |
|||
| Accrued expenses | 843,197 |
683,832 |
|||||
| Customer deposits | - |
61,421 |
|||||
| Income tax payable | 98,028 |
15,880 |
|||||
| Current portion of operating lease liability | 108,104 |
- |
|||||
| Current portion of long-term debt, net of discounts | 4,760,252 |
4,102,543 |
|||||
| Total current liabilities | 6,472,671 |
5,809,090 |
|||||
| Operating lease liability | 38,346 |
- |
|||||
| Long-term debt, less current portion, net of discounts | 1,937,271 |
3,848,863 |
|||||
| Total liabilities | 8,448,288 |
9,657,953 |
|||||
| Shareholders’ equity | |||||||
| Common stock - $0.001 par value; 100,000,000 shares authorized; 25,434,776 and 25,418,126 shares issued and outstanding |
25,617 |
25,418 |
|||||
| Additional paid-in-capital | 40,439,035 |
40,069,391 |
|||||
| Accumulated deficit | (35,766,565) |
(32,991,833) |
|||||
| Total shareholders’ equity | 4,698,087 |
7,102,976 |
|||||
| Total liabilities and shareholders' equity | $ | 13,146,375 |
$ | 16,760,929 |
|||
| Superior Drilling Products, Inc. | ||||||||
| Consolidated Condensed Statement of Cash Flows | ||||||||
| For The Nine Months Ended September 30, 2020 and 2019 | ||||||||
| (Unaudited) | ||||||||
| September 30, 2020 | September 30, 2019 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (2,774,732 |
) |
$ | (1,061,058 |
) |
||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 2,134,398 |
|
2,680,070 |
|
||||
| Share based compensation expense | 369,843 |
|
473,717 |
|
||||
| Impairment on asset held for sale | 30,000 |
|
6,143 |
|
||||
| Gain on disposition of assets | (142,234 |
) |
(14,147 |
) |
||||
| Gain on forgiveness of loan | (41,403 |
) |
- |
|
||||
| Amortization of deferred loan costs | 13,894 |
|
10,561 |
|
||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 2,408,726 |
|
(1,825,347 |
) |
||||
| Inventories | (942,831 |
) |
(539,586 |
) |
||||
| Prepaid expenses and other noncurrent assets | 327,968 |
|
(39,998 |
) |
||||
| Accounts payable, accrued expenses and income tax payable | (18,728 |
) |
1,531,085 |
|
||||
| Other noncurrent assets | (34,692 |
) |
- |
|
||||
| Other long term liabilities | (61,421 |
) |
- |
|
||||
| Net Cash From Operating Activities | 1,268,788 |
|
1,221,440 |
|
||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of property, plant and equipment | (154,475 |
) |
(392,691 |
) |
||||
| Proceeds from sale of fixed assets | 117,833 |
|
- |
|
||||
| Net Cash From Investing Activities | (36,642 |
) |
(392,691 |
) |
||||
| Cash Flows From Financing Activities | ||||||||
| Principal payments on debt | (2,167,539 |
) |
(3,813,443 |
) |
||||
| Proceeds received from debt borrowings | 964,120 |
|
800,000 |
|
||||
| Payments on revolving loan | (1,018,690 |
) |
(735,019 |
) |
||||
| Proceeds received on revolving loan | 1,185,319 |
|
1,517,005 |
|
||||
| Debt issuance costs | - |
|
(70,103 |
) |
||||
| Net Cash From Financing Activities | (1,036,790 |
) |
(2,301,560 |
) |
||||
| Net Change in Cash | 195,356 |
|
(1,472,811 |
) |
||||
| Cash at Beginning of Period | 1,217,014 |
|
4,264,767 |
|
||||
| Cash at End of Period | $ | 1,412,370 |
|
$ | 2,791,956 |
|
||
| Supplemental information: | ||||||||
| Cash paid for Interest | $ | 460,640 |
|
$ | 673,251 |
|
||
| Acquisition of equipment by issuance of note payable | - |
|
183,378 |
|
||||
| Inventory converted to property, plant and equipment | 922,993 |
|
582,879 |
|
||||
| Reduction of debt with sale of asset | 211,667 |
|
- |
|
||||
Superior Drilling Products, Inc. |
|||||||||||
Adjusted EBITDA(1) Reconciliation |
|||||||||||
(unaudited) |
|||||||||||
| ($, in thousands) | Three Months Ended | ||||||||||
| September 30, 2020 |
September 30, 2019 |
June 30, 2020 | |||||||||
| GAAP net loss | $ |
(1,731,272 |
) |
$ |
(417,758 |
) |
$ |
(1,241,506 |
) |
||
| Add back: | |||||||||||
| Depreciation and amortization |
|
693,259 |
|
|
738,555 |
|
|
680,375 |
|
||
| Inventory write off |
|
- |
|
|
6,143 |
|
|
- |
|
||
| Interest expense, net |
|
126,337 |
|
|
184,502 |
|
|
145,528 |
|
||
| Share-based compensation |
|
157,842 |
|
|
155,749 |
|
|
105,005 |
|
||
| Net non-cash compensation |
|
88,200 |
|
|
415,438 |
|
|
88,200 |
|
||
| Income tax expense |
|
99,979 |
|
|
- |
|
|
225 |
|
||
| Gain on disposition of assets |
|
(41,403 |
) |
|
- |
|
|
- |
|
||
| Non-GAAP adjusted EBITDA(1) | $ |
(607,058 |
) |
$ |
1,082,629 |
|
$ |
(222,173 |
) |
||
| GAAP Revenue | $ |
1,547,442 |
|
$ |
5,076,215 |
|
$ |
2,024,388 |
|
||
| Non-GAAP Adjusted EBITDA Margin |
|
-39.2 |
% |
|
21.3 |
% |
|
-11.0 |
% |
||
| Nine Months Ended | |||||||||||
| September 30, 2020 |
September 30, 2019 |
||||||||||
| GAAP net loss | $ |
(2,774,732 |
) |
$ |
(1,061,058 |
) |
|||||
| Add back: | |||||||||||
| Depreciation and amortization |
|
2,134,398 |
|
|
2,680,070 |
|
|||||
| Inventory write off |
|
- |
|
|
142,143 |
|
|||||
| Interest expense, net |
|
444,435 |
|
|
538,361 |
|
|||||
| Share-based compensation |
|
369,843 |
|
|
473,717 |
|
|||||
| Net non-cash compensation |
|
264,600 |
|
|
591,838 |
|
|||||
| Income tax expense |
|
106,414 |
|
|
- |
|
|||||
| Gain on disposition of assets |
|
(153,637 |
) |
|
(14,147 |
) |
|||||
| Non-GAAP adjusted EBITDA(1) | $ |
391,321 |
|
$ |
3,350,924 |
|
|||||
| GAAP Revenue | $ |
8,929,593 |
|
$ |
14,656,003 |
|
|||||
| Non-GAAP Adjusted EBITDA Margin |
|
4.4 |
% |
|
22.9 |
% |
|||||
(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/20201106005091/en/
