Superior Drilling Products, Inc. Revenue Increased 40% Sequentially to $3.4 million in Second Quarter 2021

Rhea-AI Summary

Superior Drilling Products, Inc. (NYSE American: SDPI) reported a strong second quarter for 2021, with total revenues reaching $3.4 million, a 40.2% increase from the previous quarter. North American revenue surged 74% year-over-year due to increased tool sales and restoration of market conditions. Operating costs decreased, contributing to an operating income of $116,000. While net loss was reduced to $67,000, the company showed a considerable improvement in Adjusted EBITDA to $957,000, evidencing operational leverage. Cash position strengthened to $2.7 million, enhancing liquidity.

Positive

• Total revenue grew by 40.2% quarter-over-quarter, reaching $3.4 million.
• North American revenue increased by 74% year-over-year.
• Operating income of $116,000 compared to a loss in the previous quarter.
• Adjusted EBITDA improved to $957,000 from a loss in the prior period.
• Cash at end of quarter rose to $2.7 million from $2.0 million at the end of 2020.

Negative

• Net loss of $67,000, although improved from previous quarters.
• Operating expenses increased slightly despite lower overall costs.

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 second quarter of 2021 ended June 30, 2021.

Troy Meier, Chairman and CEO, commented, “We believe our strong growth this quarter clearly demonstrated the value of our Drill-N-Ream^® (“DNR”) well bore conditioning tool as well as the growing demand for our manufacturing capabilities. The DNR is enabling drilling innovation. We believe that by including our tool in their drill string, producers are able to drill more complex well profiles and increase the total flow area of their wells while covering greater footage in shorter amounts of time. Additionally, we are expanding the volume and products we manufacture for our long-time legacy customer to support their efforts to provide quality products while advancing their technologies.”

He continued, “While we are not yet back to pre-pandemic levels, we continue to gain market share as markets recover. We expect that we will continue to grow through 2021 and be back on track in 2022 to resume the growth plans we had expected at the end of 2019.”

Second 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)	June 30, 2021				March 31, 2021		June 30, 2020				Change Sequential				Change Year/Year
North America		2,941				2,092		1,689			40.6	%			74.1	%
International		458				332		335			37.8	%			36.5	%
Total Revenue	$	3,399			$	2,425	$	2,024			40.2	%			67.9	%
Tool Sales/Rental	$	1,120			$	831		371			34.7	%			202.1	%
Other Related Tool Revenue		1,153				832		973			38.5	%			18.5	%
Tool Revenue		2,273				1,664		1,343			36.6	%			69.2	%
Contract Services		1,126				761		681			48.0	%			65.4	%
Total Revenue	$	3,399			$	2,425	$	2,024			40.2	%			67.9	%

Revenue increased sequentially $974 thousand, or 40%, over the trailing first quarter as market share and market conditions improved. Improvements, year-over-year and sequentially, represent improved demand as oil and gas production markets improve and as the Company gains greater market presence. Revenue in North America increased 74%, year-over-year, from increased tool sales, as well as higher royalty and repair fees. International revenue grew 37% over the prior-year period as recognition of the DNR’s value by oil field service companies is growing and the Company also gained a new International customer. Contract Services revenue also improved 65%, reflecting increased drill bit refurbishment. Sequentially, North America and International revenue increased on greater market penetration and improving market conditions.

Second Quarter 2021 Operating Costs

($ in thousands, except per share amounts)	June 30, 2021					March 31, 2021			June 30, 2020					Change Sequential				Change Year/Year
Cost of revenue	$	1,224				$	1,176		$	1,100				4.1	%			11.3	%
As a percent of sales		36.0	%				48.5	%		54.3	%
Selling, general & administrative	$	1,473				$	1,516		$	1,340				(2.8	)%			9.9	%
As a percent of sales		43.3	%				62.5	%		66.2	%
Depreciation & amortization	$	586				$	690		$	680				(15.2	)%			(13.9	)%
Total operating expenses	$	3,283				$	3,381		$	3,120				(2.9	)%			5.2	%
Operating Income (loss)	$	116				$	(957	)	$	(1,096	)			NM				NM
As a % of sales		3.4	%				(39.5	)%		(54.1	)%
Other (expense) income including income tax (expense)	$	(183	)			$	(145	)	$	(146	)			NM				NM
Net income (loss)	$	(67	)			$	(1,102	)	$	(1,242	)			NM				NM
Diluted earnings (loss) per share	$	(0.00	)			$	(0.04	)	$	(0.05	)			NM				NM
Adjusted EBITDA(1)	$	957				$	(11	)	$	(222	)			NM				NM

⁽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 revenue and lower operating expenses resulted in operating income of $116 thousand. Total operating expenses decreased 3% over the trailing first quarter, as a result of timing of expenses related to year end close and the reduction in amortization expense.

Net loss for the quarter was practically breakeven at $67 thousand compared with net loss of $1.1 million in the trailing first quarter. Measurably improved operating income more than offset other expenses which included a $11 thousand loss on the disposal of assets. Compared with the trailing first quarter, Adjusted EBITDA⁽¹⁾ improved measurably to $1.0 million as a result of increased sales and operating leverage gained from higher volume, while Adjusted EBITDA margin expanded to 28.2%.

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 $2.7 million, up from $2.0 million at the end of 2020. Cash provided by operations in the six months ended June 30, 2021 was $400 thousand. Long-term debt, including the current portion at June 30, 2021, was $3.2 million. Subsequent to the end of the quarter, the Company paid the next $750 thousand principal payment due on the Hard Rock note. The remaining $750 thousand of principal due on the note is payable on October 5, 2022.

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 full year 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, August 20, 2021. To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13721241, 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.

FINANCIAL TABLES FOLLOW.

Superior Drilling Products, Inc.
Consolidated Condensed Statements Of Operations
(unaudited)
		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
			2021				2020				2021				2020
Revenue
North America		$	2,941,056			$	1,688,933			$	5,033,255			$	6,269,443
International			458,053				335,455				790,506				1,112,708
Total revenue		$	3,399,109			$	2,024,388			$	5,823,761			$	7,382,151
Operating cost and expenses
Cost of revenue			1,224,179				1,099,553				2,399,772				3,414,061
Selling, general, and administrative expenses			1,473,081				1,340,213				2,988,670				3,358,112
Depreciation and amortization expense			585,504				680,375				1,275,577				1,441,139
Total operating costs and expenses			3,282,764				3,120,141				6,664,019				8,213,312
Operating Income (loss)			116,345				(1,095,753	)			(840,258	)			(831,161	)
Other income (expense)
Interest income			50				942				98				5,630
Interest expense			(145,521	)			(146,470	)			(283,577	)			(323,728	)
Loss on Fixed Asset Impairment			-				-				-				(30,000	)
Net gain/(loss) on sale or disposition of assets			(11,187	)			-				(1,187	)			142,234
Total other expense			(156,658	)			(145,528	)			(284,666	)			(205,864	)
Loss before income taxes		$	(40,313	)		$	(1,241,281	)		$	(1,124,924	)		$	(1,037,025	)
Income tax expense			(26,468	)			(225	)			(43,649	)			(6,435	)
Net loss		$	(66,781	)		$	(1,241,506	)		$	(1,168,573	)		$	(1,043,460	)
Basic loss per common share		$	(0.00	)		$	(0.05	)		$	(0.05	)		$	(0.04	)
Basic weighted average common shares outstanding			25,762,342				25,434,593				25,762,342				25,462,360
Diluted loss per common Share		$	(0.00	)		$	(0.05	)		$	(0.05	)		$	(0.04	)
Diluted weighted average common shares outstanding			25,762,342				25,434,593				25,762,342				25,426,360

Superior Drilling Products, Inc.
Consolidated Condensed Balance Sheets
			June 30, 2021			December 31, 2020
			(unaudited)
Assets
Current assets:
	Cash		$	2,689,113		$	1,961,441
	Accounts receivable, net			1,930,402			1,345,622
	Prepaid expenses			392,138			90,269
	Inventories			1,060,233			1,020,008
	Asset held for sale			-			40,000
	Other current assets			42,751			40,620
		Total current assets		6,114,637			4,497,960
Property, plant and equipment, net				6,814,895			7,535,098
Intangible assets, net				319,444			819,444
Right of use Asset (net of amortizaton)				$             47,747			$                  99,831
Other noncurrent assets				64,304			87,490
		Total assets	$	13,361,027		$	13,039,823
Liabilities and Owners' Equity
Current liabilities:
	Accounts payable		$	597,643		$	430,014
	Accrued expenses			1,801,476			1,091,519
	Accrued Income tax			138,595			106,446
	Current portion of Operating Lease Liability			29,803			79,313
	Current portion of Long-term Financial Obligation			61,504			61,691
	Current portion of long-term debt, net of discounts			1,948,191			1,397,337
		Total current liabilities	$	4,577,212		$	3,166,320
Operating long term liability				17,944			20,518
Long-term Financial Obligation				4,145,726			4,178,261
Long-term debt, less current portion, net of discounts				1,230,539			1,451,049
		Total liabilities	$	9,971,421		$	8,816,148
Stockholders' equity
	Common stock (25,762,342 and 25,762,342)			25,762			25,762
	Additional paid-in-capital			40,954,125			40,619,620
	Accumulated deficit			(37,590,281)			(36,421,707)
Total stockholders' equity			$	3,389,606		$	4,223,675
		Total liabilities and shareholders' equity	$	13,361,027		$	13,039,823

Consolidated Condensed Statement of Cash Flows
(Unaudited)
				June 30,  2021		June 30,  2020
Cash Flows From Operating Activities
	Net loss		$	(1,168,573)	$	(1,043,460)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization expense			1,275,575		1,441,139
	Share-based compensation expense			334,505		212,001
	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			9,262		9,263
Changes in operating assets and liabilities:
	Accounts receivable			(584,780)		2,435,735
	Inventories			(95,846)		(860,431)
	Prepaid expenses and other noncurrent assets			(280,814)		314,868
	Accounts payable and accrued expenses			877,585		(230,959)
	Income Tax expense			32,149		6,335
	Other long-term liabilities			-		(61,421)
Net Cash Provided By Operating Activities				400,250		2,110,836
Cash Flows From Investing Activities
	Purchases of property, plant and equipment			(10,940)		(90,132)
	Proceeds from sale of fixed assets			50,000		117,833
Net Cash Provided By Investing Activities				39,060		27,701
Cash Flows From Financing Activities
	Principal payments on debt			(266,719)		(1,953,673)
	Proceeds received from debt borrowings			-		964,120
	Payments on Revolving Loan			(513,897)		(842,880)
	Proceeds received from Revolving Loan			1,068,978		1,009,822
Net Cash Provided By (Used In) Financing Activities				288,362		(822,611)
Net change in Cash				727,672		1,315,926
Cash at Beginning of Period				1,961,441		1,217,014
Cash at End of Period			$	2,689,113	$	2,532,940
Supplemental information:
	Cash paid for interest		$	270,492	$	340,027
	Inventory converted to property, plant and equipment		$	65,720	$	482,282
	Long term debt paid with Sale of Plane		$	-	$	211,667

($, in thousands)	Three Months Ended
	June 30, 2021				June 30, 2020				March 31, 2021
GAAP net loss	$	(66,781	)		$	(1,241,506	)		$	(1,101,793	)
Add back:
Depreciation and amortization		585,504				680,375				690,074
Interest expense, net		145,471				145,528				138,009
Share-based compensation		167,033				105,005				167,472
Net non-cash compensation		88,200				88,200				88,200
Income tax expense		26,468				225				17,180
(Gain) Loss on disposition of assets		11,187				-				(10,000	)
Non-GAAP adjusted EBITDA(1)	$	957,082			$	(222,173	)		$	(10,858	)
GAAP Revenue	$	3,399,109			$	2,024,388			$	2,424,653
Non-GAAP Adjusted EBITDA Margin		28.2	%			-11.0	%			(0.4	)%

⁽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/20210813005007/en/

FAQ

What were Superior Drilling Products' Q2 2021 financial results?

In Q2 2021, SDPI reported total revenues of $3.4 million, a 40.2% increase from Q1 2021.

How did SDPI's revenue perform year-over-year in Q2 2021?

SDPI's revenue increased 67.9% year-over-year in Q2 2021.

What is the significance of the Drill-N-Ream tool for SDPI?

The Drill-N-Ream tool enables drilling innovation, allowing producers to enhance well efficiency, contributing to increased sales.

How did SDPI's cash position change by the end of Q2 2021?

Cash at the end of Q2 2021 stood at $2.7 million, up from $2.0 million at the end of 2020.

What does the Adjusted EBITDA indicate for SDPI's Q2 2021?

Adjusted EBITDA for Q2 2021 was $957,000, indicating improved operational performance.