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

  • Second quarter revenue grew to $3.4 million, up $1.0 million over the trailing first quarter and up $1.4 million over prior-year period
  • Rig efficiencies drive higher levels of drilling activity with more wells and greater footage even as rig count stabilizes
  • Gaining global market share with presence on more rigs; North America revenue was up 74% and International revenue increased 37% over prior-year period
  • Cost savings efforts and higher volume drove positive cash generation from operations; ended quarter with $2.7 million of cash on hand
  • Achieved break-even earnings per diluted share with net loss of $67 thousand; Adjusted EBITDA* was $1.0 million, or 28.2% as a percent of revenue 

*Adjusted EBITDA is a non-GAAP measure. See comments regarding the use of non-GAAP measures and the reconciliation of 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 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.

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