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

Rhea-AI Summary

Superior Drilling Products reported a 45% increase in third quarter revenue, totaling $5.2 million, driven by a 51% growth in Contract Services and 43% in Tool revenue. The company achieved a net income of $639,000, or $0.02 per diluted share, alongside an Adjusted EBITDA of $1.5 million with a margin of 29.5%. With $2.0 million in cash and $7.5 million in shareholders’ equity, guidance for 2022 revenue is expected between $22 million to $24 million, bolstered by a significant fleet sale in the Middle East.

Positive

• Third quarter revenue increased by $1.6 million, or 45%, to $5.2 million year-over-year.
• Strong operating leverage resulted in net income of $639,000, compared to a loss in the prior-year period.
• Adjusted EBITDA reached $1.5 million with a margin of 29.5%, the highest level in over four years.
• Company ended the quarter with $2.0 million in cash and $7.5 million in shareholders’ equity.
• Expected 2022 revenue between $22 million to $24 million, supported by a significant fleet sale.

Negative

• Cost of revenue increased by 54.7% year-over-year due to inflationary pressures.
• Increased inventory levels impacted cash generated by operations, which decreased to $1.3 million year-to-date.

• 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.

VERNAL, Utah--(BUSINESS WIRE)-- 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221111005151/en/

For more information, contact investor relations:

Deborah K. Pawlowski

Kei Advisors LLC

(716) 843-3908

dpawlowski@keiadvisors.com

Source: Superior Drilling Products, Inc.

FAQ

What were the financial results for SDPI in Q3 2022?

SDPI reported a revenue increase of 45% to $5.2 million, net income of $639,000, and Adjusted EBITDA of $1.5 million.

How did SDPI's operating income change in Q3 2022?

Operating income rose significantly by 568.8% to $856,000 compared to the previous year.

What is the revenue guidance for SDPI for 2022?

SDPI expects 2022 revenue between $22 million to $24 million, with a potential dip to $18 million to $20 million without a significant fleet sale.

What impact did inflation have on SDPI's finances?

Inflation contributed to a 54.7% increase in the cost of revenue year-over-year.

What are the cash and equity positions of SDPI as of Q3 2022?

SDPI ended the quarter with $2.0 million in cash and $7.5 million in shareholders' equity.