Earnings call transcript Q1 2023

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Operator

Good morning ladies and gentlemen, and welcome to Superior Drilling Products First Quarter 2023 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Craig Mychajluk. Thank you. sir. ahead go Please

Craig Mychajluk

and call. to joining We you, XXXX us first earnings conference certainly welcome Thank our everyone quarter today. Yes. appreciate you

Executive provide our which up are and results will progress, in me Troy after then our we on our and Joining for Troy the and will strategic Meier, first review open Chris update Q&A. Financial Chief Chief Cashion, detail Officer. an Chris will Chairman Officer; company’s

were copy of the the You released should that before this results have morning. a market financial

You conversation should website documents found also accompany have copies of our today. can that slides on at our both sdpi.com. If not, be

session. is Turning as provided the risks materially Commission. are other that and These or stated actual sec.gov. the These These we and to from well to future today. to Exchange other and documents statements subject out with slides cause uncertainties, well the during as results I’ll formal forward-looking in the the documents Slide filed point may discussion, to make Securities also our Q&A as found what risks statements factors events X, apply and website differ could on company here some as at that the be by are earnings can uncertainties and release, during

which want believe will that point will in during measures, our out non-GAAP to performance. financial we also discuss be I today’s call, some we evaluating useful

this presentation consider for not should in GAAP. of prepared the information with results as isolation accordance You substitute additional or in a

release, the measures the non-GAAP reconciliations the provided GAAP as slide tables as earnings of have well We in in deck. comparable accompanying with

I’ll turn over to it begin. Chris So, with Chris? to turn please X to Slide and that,

Chris Cashion

since us highlights quarterly continued include everyone execute the in public well income increasing meet Thank the for our and XXXX. kicked team strong slide a to accomplishments, several revenue today. Craig, the off you, demand. to highest note company as of our went which thanks We and net on This year joining

our for partner, market by contract quarter work, growth from services U.S. channel was tool sales improved top-line driven hire, the Our the conditions internationally. strong Drill-N-Ream and

a sales income We throughout that tool strong measurably market improvement XXXX. improved resulted Drill-N-Ream we in The net leverage in from EBITDA gained international income and hire operating expect operating and performance. very continued the

We put international investments making of growth to increased work to expand in our cash and front. on strong our the support generation use capital in accommodate to most anticipated and capacity demand domestically

assist As is financial release, earnings a of in we transactions to in value. shareholder the in Board evaluation potential of company’s engage advisor press the the to our mentioned to a company process Directors finalizing maximize order strategic

outcome Board this consider the make further a further no announcements As timing time the initiatives. range assurances including will is other regarding appropriate of do sales, such intend necessary. mergers, evaluation, part strategic until disclosure divestiture process, or of the and we alternatives, There’s of full strategic a assets, or of not acquisitions, or to

oil QX increased resulted and turning in overview to and America, revenue XX% Now, the recovery X, $X.X contract strong revenue in tool a million growth. was the gas our which provides Slide of an services. record revenue growth in of reflecting up industry North

rig in back as East the marketing benefited basis, quarter at the XXX XXX rigs U.S. first improving quarter first to continue rig in year. average average count Middle gain the saw also the was of our while last when traction, levels, up results on count where a looking year-over-year increasing an from we in the from to We conditions have not we pre-pandemic

quarter However, rigs. actually was the as when expected, with domestic XX the rig flattened comparing and fourth count down sequential

expectation our stabilize American count these levels. around near it the rig term, North is the Over that will

team. our and year-over-year, front revenue and international which strengthened reflected improved conditions the market technical doubled marketing On sales

inroads, further driving the make greater to value awareness opening continues Drill-N-Ream team of doors, proposition. and Our

international Our XX% year. quarter fourth from approximately roughly from revenue was XX% last total up of sales mix

by the trend the region be in that to continue many Mid upwards. We opportunities mix encouraged to change East and continue to expect

U.S. move and X revenue of tool contract year. quarter, in on for improved quarter our to our Middle up continued contract was over as services Slide channel Tool Fourth drive East, to XX% legacy let’s in services. and continues the refurbished customer. manufactured grew million and XX% tool longtime new sales. products and This penetration due partner review was given Now volume in our the last expansion revenue $X market during the we our to the

has rigs on repair and more revenue. royalty In addition, led to increased activity

on to continued you fighting to as payroll, costs. still other people inflationary in and demand materials for have see Now, headwinds can invest Slide address raw X, while we

Importantly operating though, volume, demonstrate in to the we these significant our resulted sales performance. significantly operations improved margin leverage we leverage higher in costs as continue inherent which with

basis SG&A for expenses quarter our the fall first early year-over-year, included $XXX,XXX down the of Currently, legal winter and trial pertaining were expenses XX expenses a SG&A down of and XXX points a or points to sequentially. infringement lawsuit. during preparing or XXXX. we’re trial of – XX.X% expect of XXX revenue, in patent XXXX basis jury

line quarter. $X.XX Our strong We the delivered $X.X share leverage of per our income be turn or can diluted and million in we Slide adjusted to EBITDA X, as which net offering seen bottom highlights results.

receivable, margin included XXXX. recovery bottom the the more million nearly income related is party Now all doubled we outperformed $X net party $X.X into year, line perspective year XXXX EBITDA that still performance. of such basis Even XXX to achieved To whereas recovery Adjusted XX.X% benefit. highest history. XXXX not related million of with expanding put note than year-over-year what calendar first of last $XXX,XXX our to recent the of of that out level EBITDA period which have was was note, all positive QX a of comparable in the did points our backing our year

increase which $X Strong quarter growth EBITDA continued sheet, our current we down the end offset on the slightly in XX% million of Total to quarter by grow. the an balance year strengthen. was period operations XXXX, company the as from highlight significantly $X.X generated has capital Moving million. working to but was was Cash continues from X, for down from Slide end XXXX. debt in the to for

commercial a existing with currently We with proceeds to credit discussions are provide our bank the and facility a refinance debt regarding in use increased of liquidity. to

an In improvement expected addition, we our capital. of in cost

machining capacity bit Vernal. with First in end our Middle the cash expansion million year the the in related million East increase tool was quarter of the new the technology $X to in slightly was ended $X.X domestic CapEx from Middle center an quarter East new our We and fleet, Drill-N-Ream completion and XXXX. centers, service refurbishment in of PDC and down

guidance. Now Slide X, on which provides to our

will XXXX be midpoint. SG&A expenses are of expect to the which in to million of $XX million continue $XX to $X million, be $XX range to implies top-line million projected We million. is ongoing where at to the revenue earlier. XX% patent up litigation infringement lawsuit we our largely mentioned This of I XXXX, from approximately that a end $X in the related step costs reflecting growth

in continuing The to account make investments growth. our we’re Middle the East team SG&A also into future expectations international take drive to

the new implies international an at these repeated in million, That XX.X% we basis XXX our saw our Drill-N-Ream million $X.X maintaining not margin which to QX, same our the guidance is adjusted points of added $X.X expectation level will the higher results. With EBITDA at are tool that we costs nearly of EBITDA midpoint. and be sales than level XXXX

from spending $X range The we million support $X.X XXXX added fiscal of our the expansion. previous million expected $X in million. of is to capital have million our between to Lastly, East revised and spending Middle expected range for $X.X

So both I’m in Troy? our review to Troy North presentation and opportunities going up with to with America to and that, the outlook the turn of wrap internationally.

Troy Meier

and Chris, me. for us. joining Thanks, Excuse everybody thanks

customer double campus been operations. we’ve So the our what America a our allowed we and building, diligently has as opportunities, facility. we working as like had and look also we’ve done. own we We’ve centers. our now look machining at doing North money at We’ve us which look get that Chris mentioned, into entertain to legacy that its first all, new can We to Drill-N-Ream off of on outlook moved taken our spent larger team’s at as

talk our just team a for about minute. I want to

really of of with to throughout the this world lot company class a the and able they’re been see next company these do It’s we’ve take One growth top that and company, very that been seeing to that to internationally. refreshing have domestically level. And and to to and it’s very – rewarding we’re the the this get company. people that a up work hire the are individuals. our go, and things excited well, is both We’ve individuals of attracted bring to they been on to attracting, able

going those look capacity When got it’s the that and talk really we’re oil lot though the fitted, the we oil filling do what for Even a look of at got are that’s there’s when Chris focus a had America them where There’s business, and even about there we we we’ve start machine, and you have need gas opportunity North us to still tooled, big market. a them North machining flat gas rig and in diversification, again, lot about the we there now, to more our within machines flat for mentioned, those we’ve in talk that a at of of and that and we’re spend at capacity. this count, gain a opportunity opportunities to do that. for type rig looking we there’s out business though tremendous in we opportunity count America

get team that countries products a they job. working it and international at we’ve the opportunity, few They’re that we’re expanding and and members the When our – in there getting. what as and you doing just our how team our now look is benefits runs again we’re the does understand been really good customers aboard a

we about, talk get are we’re We’re lot data MENA over in there when, North these of asked our duplicate able a here But we’ve wellbore also NOCs the when in we really service, to we bit benefit a show the tool. conditioning that, shows the – the doing when what we do that going to with America opportunity that got we need there to over repair really, tremendous and start finding offset get region.

the is offering to from a up drilling And our at world. will is quarter. so That we’re – the greatly we’ve in part going bit refurbishment next that, the also which And going rains. needed this facility to that end look that at the to East be of place service got to there here there’s enhancing in Mid and putting the the team’s by equipment be look into the looking of the do

part that growth, some but is the international have offer got market Drill-N-Ream, opportunity world. our we So legacy tremendous the that also for of not business to just

say, And will that training We’ve within team going region we’ve trained of is facility team created duplicating I like the MENA first weeks. very teams Vernal. stations new have the next the members are We’ve working designed in and And and out out that two in some our we well. be over essentially now been braising over very, there there. heading got our

run some see there’s starting a but drill running there’s fits wellbore that big North the it customers it value of you opportunity lot curve. the to are tremendous when really So, in the we in on horizontal you into the the from more We a our when – getting lateral. well, look now that of that Drill-N-Ream run receiving customers we got excitement and good in that curve, as Drill-N-Ream they’re America got at into customers a

the But much of the MENA section wellbore, lateral. and vertical region starting Lateral curve will. in just and now curve, the as way the build is tools directionally here a larger need for what become we out lateral. then now the if see what over as you we in to well is over of we in They’re the horizontal there, go to duplicate in U.S. a drilling as do starting a a

East, the designed And for. and the tool so that about we’re was built excited happening Mid what now in really

this the is – to benefiting what of to right seeing is on now in able help there right in yes, now the that top you they’re in We’re section lateral being Drill-N-Ream say, greatly just out and that’s wellbore. does, them the come of vertical

now getting That’s all know, of Wellbore new it does, – wellbore a the the When and to What’s Drill-N-Ream talking on you it right quality place. quality. drilling is fits is to quality to right, wellbore in helps operators, create wellbore. that want buzzword. quality is they’re the they about talk it what

on. capture markets, excited So, those opportunities to year and we’re the excited opportunities we’re as for the on the goes both the domestic international and

being that to going some turn I’m said With Q&A. to it over

Operator

Please [Operator from Oak The Financial. have from go Thank you, Ryan Instructions] Dick Ridge sir. question we ahead. first is

Dick Ryan

on you. a strong congratulations very performance. Thank And guys,

the are are, on gas Troy, rigs being you laid prices what rich kind listen to So the moving basins with if they and drillers Permian. the just the oil gas macro saying, into what down of fields seeing and side, being you’re like the over

a several outlook DTI maybe is shift, like in challenging quarters changing the at that along? it expanding of to North Drill-N-Ream a opportunities tag stay Is the next opportunities for is there on a you talk So your going sounds of more and gas America? and pretty Can how little is, kind least.

Troy Meier

those operators deeper at got Yes, you DTI tools when we see in operators, the they’re operators say, five penetrating what has the on look day. top top every just Permian, is the DTI is, and

and the to wellbore to put on at of participate out was to seminar down and quality. attend. suppliers and it’s in starting quality probably four wellbore in seminar, to, So a And now, Houston, there was again, a down it been that PDC asked I operators weeks topic was the asked went every is and the seminar buzz almost come this ago I

past completion it the it that and drill team completion in, deal condition team on, the team, come to so fast condition whatever would had the the well and a they you’d with. drill was in So would really

been awareness so using as DTI kind a minute, well, are on, pioneer that’s that leaving And what beneficial or of, customers is their of maybe me complete? for to wait now, of we’re was And condition now customers very is think XX%, is XX% an you’re seeing within a Oxy this I saying, an what their rigs. it

a numbers getting lot they’re higher think now. I

better and to they’ll rely the with will the think a see is So, rigs oil at slowing to that. do I better also think, needing basins down. the more on them basins to needing we Drill-N-Ream drilling. wells job and gas what And see going But they’re we’re I help

new what I of every think Drill-N-Ream field. activity the least, a busy. team tools repaired new mean, setting the is sales how records facility number there, is the leaving At facility. our Drill-N-Ream new and amazing, tool back the in facility, of So, to going It’s in being doing stay busy, I the we’re record that’s and and week out the put indications that

strong continue think see we’re So, I to to the of still Drill-N-Ream. going and strong activity use

Dick Ryan

Good, appreciate that.

start another for the contract With side a you services reach the handicap, place Or out along things, when capacity potential we can that now of of in how kind to does path? customer? are far the to marketing in

Troy Meier

We think point customers. have, products quarter should contract in going now and see work we I happening so a the we’ve doing a to at for that from soliciting few we’re been already can start and one, [ph]. We that think with got we’ve that this where start and to other we them already it’s place

Dick Ryan

again Chris, and Troy you Thank that. good and and luck performance. appreciate I strong Okay. and congratulations

Troy Meier

you. Thank

Chris Cashion

Thanks, Dick.

Operator

Bernaldez EF ahead. Please we Hutton. is next Ignacio go question The from from have

Ignacio Bernaldez

on good really what the see or might Hey, in you the well. expansion? some of doing to you kind that seeing quarter. international congratulations and Great about be are great you think are headwinds morning, opportunity, When seeing the business

Troy Meier

a shipping logistics. not one the all though, that that its are needs to filled the got to Texas. be another, it’s in, deal MENA country’s Colorado documentation close tool like we Mostly region every countries very out. to It’s in It’s filled with own even from

at been now, that’s Drill-N-Reams the is been the is And the the that. it operators and so the our Drill-N-Reams much, they’ve got without over understand the headwinds. how portion if comparison understanding been send biggest runs and in much probably the at really they, that’s need trying we’re stay better phenomenal. what on and doing business – is with and Drill-N-Ream the Drill-N-Ream they’ve long restrictions there, And been of But we’re looking what doing logistics tool there? with getting there, you can You’ve a to runs

here. And taking you’ve the that, to okay, time it sell got looking they’re at saying, something so nice it’s and that and

going to it’s, tell help us. it’s You us

it getting phenomenal. reports And We’re operators going to that, the from they’re prove are now doing the we’re that that to ourselves.

drill gives the of very but benefits a me, damage wellbore, flopping Motors whole quality Drill-N-Ream constant a and it the and lessens that all and to contact seem really down the BHA We’re what as assembly, longer. the it see seems of less and And vibration BHA. shock of rotating Drill-N-Ream. shock impressed fact the you them, bottom right just that with that would conditioning with around call longer. vibration And the and a in act benefit. take the lot to lot with wellbore, that’s is, inherent the going all it that last a it’s that be not shock excuse to string are lasting that to we bits We absorber wellbore, the

another tool that’s great that operators. So is giving the benefit the

Ignacio Bernaldez

the That’s the And on for the color additional operator benefit so Drill-N-Ream of the you you helpful. Thank perspective. much. from thank really

Troy Meier

Thank you.

Operator

you. question Sturges John Oppenheimer and Company. from Thank ahead. go next Instructions] Please we The is have [Operator from

John Sturges

strategy? Thank flat drilling from surge the the to One call. appears be nice for appreciate Because least like to I in in you’ve results. you down there a questions. December. a taking Baker really my Hughes is execution. change from it Was the penetration. data activity Very your looks Two go-to-market had

before question now to expect how second additional you have do capacity? from the you long And go forward is to add

Troy Meier

and, got to you when legs wellbore regards flat put it’s [ph] lateral, you at think increased you receiving revenue awareness in wellbore your we flat against can casing leaning a when that I up dog out you the now that that we’re a the tortuosity in and you’ve are cement wellbore the why look can and your, have look the big being quality. operators intermediate the market, out. don’t your all your deal, seeing that better at in taken the job It’s again, it’s has or when the your because the smooth casing, market surface and So the and whether the Drill-N-Ream and of part and, change

these saying, is you let’s hole think they’re quick how how okay, the we cement awareness just awareness do a drill this I to that’s us think what plus really, leave So not of efficient, about a better right. and you higher get tool. kind just there complete, been of it much sure let’s drilling amazing, it’s but it’s big I quick we a can the Drill-N-Ream which job. of wellbore, anymore, wells, I a do is did think wellbore but make And for fast

John Sturges

if more like may, this, I response? this so sounds driven market So a

Troy Meier

really is. It

it – to a course, deeper getting they’re fantastic obvious. And think Drill-N-Ream a now has experts now also really job. the DTI with I They’ve they’ve their and and done into are explain that they’re out benefits getting is. these that, built team the got in of customers

helping And think a question? so was that’s I I’m sorry. too. And second what out your bunch

John Sturges

how will with the current capacity the long current Well, pace, last?

Troy Meier

has We’ve we capacity. in got, moving our get we the operations really its lot but facility now to into starting mean, tight and have capacity. Drill-N-Ream off of campus ton I a of own a added facility, were

– what now. could We’re doing easily we we’re double

years. capacity. mean, I So, we’ve a we’ve before it’s it’s couple going to more going be while expand I’m I I to it’s, think got a looking, to, of think got

John Sturges

pace. adding it. the you like timeframe. current it for Appreciate looks be a might shorter that looked color. just It It Okay. all at Thank

Troy Meier

you. Thank

Operator

from a from go next as have question Please Thank you. Investor. is ahead. The Private Paul [indiscernible] we

Unidentified Analyst

on quarter and gentlemen, your morning, first Good congratulations report.

Troy Meier

you. Thank

Unidentified Analyst

at. versus you, of trying percentage of bits new your I to you’re you me for to primarily have an idea Can describe and questions get refurbishments what is business repairs? making three where drill

Troy Meier

we New Drill-N-Ream When just if not there. drill bits and we bits? in – talked drill throw

it. You’re talking refurbishment is, third that’s yes, of a

Unidentified Analyst

That then, right? third Okay. refurbishment is a

Chris Cashion

correct. That’s

Unidentified Analyst

the the And is Drill-N-Ream rest?

Troy Meier

Yep.

Unidentified Analyst

producer? are scale? to industry can current you – position you Are your manufacturing a it’s Where now current me your considered you describe wise, place at the in business? major you with And Okay. mid-tier are at the growth, the Is on level? taking

Troy Meier

consider look we long our still way what We’ve we’re be at doing, mid-tier. what very of we’re in the If to very small I’d scale got a industry. to small, go

very still we’re So, small.

Unidentified Analyst

you with in to infringement you. or the Thank regard defendant And that lawsuit, plaintiff patent suit? the the are

Troy Meier

We are the plaintiff.

Unidentified Analyst

questions. guys. all sure you got That’s for you I I my appreciate answering

Troy Meier

Thank you.

Chris Cashion

you. Thank

Operator

further Ladies no this you, closing gentlemen, and are I back now management will Thank to at remarks. for there stage hand sir. questions.

Troy Meier

continuing company. Yes, feel and again, growth and and, we’ve get their The we year. to this really some these in the we bring place our now, in roles spent to to trained to thank for joining everybody with quality the on people us team to that’s resources want look comfortable people forward team is starting throughout

But wonderful again So highlights call new look thanks forward a sharing and joining have for to our you and next earnings us day. everybody some with then.

Operator

Thank you, then Ladies concludes that conference. and gentlemen, you us. for today’s Thank sir. joining

your disconnect now lines. may You

Superior Drilling Products (SDPI) 11 May 232023 Q1 Earnings call transcript