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Superior Drilling Products, Inc. Delivers Revenue Growth of 43% to $19.1 million with Expanded Margins and Earnings per Share of $0.04 in 2022

  • Strong demand for SDP’s flagship Drill-N-Ream® (DNR) wellbore conditioning tool and contract services for the manufacture and refurbishment of drill bits drove annual revenue growth of 43%, or $5.8 million, to $19.1 million
    • Annual tool revenue grew 34% and Contract Services revenue was up 65%
  • Fourth quarter revenue increased $1.3 million, or 33%, to $5.3 million over the prior-year period
  • Strong operating leverage resulted in measurably improved annual operating income of $1.9 million, or 10.1% of sales, compared with an operating loss in 2021; Fourth quarter operating income increased to $701 thousand or 13.3% of sales
  • Achieved net income of $1.1 million, or $0.04 per diluted share in 2022; Fourth quarter earnings were $333 thousand, or $0.01 per diluted share
  • Adjusted EBITDA* margin expanded 500 basis points to 24.7% for the full year and 480 basis points to 25.7% for the fourth quarter
  • Ended the year with $2.2 million in cash and total debt of $1.7 million
  • 2023 outlook includes forecasted revenue between $24 million to $27 million and Adjusted EBITDA* of $6.5 million to $7.5 million

*Adjusted EBITDA is a non-GAAP measure. See comments regarding the use of non-GAAP measures and the reconciliation of the fourth quarter 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 fourth quarter and full year ended December 31, 2022.

“2022 was a strong year for SDP as our team continued to execute well to meet increasing demand for our tools and services. We delivered revenue growth of 43%, expanded our margins, and measurably improved the bottom line with net income of nearly $1.1 million, our highest level since becoming a public company,” commented Troy Meier, Chairman and CEO. “We have been building out our team, both domestically and internationally, and have been making important infrastructure investments to not only capture current demand, but to set the stage for our next level of expected growth, particularly within the Middle East where we are building a favorable reputation. In further support of our international goals, we are on track to launch our new service and technology center in that region during the second quarter of 2023. We believe this will provide a number of sustainable benefits, including greater local awareness for talent, provide for rapid response to opportunities, and lower transportation costs given the localized inventory and refurbishment services.”

Mr. Meier added, “Equally important to our business and future is the expansion of our contract services, where we continue to successfully meet our long-time legacy customers’ growth in demand. With our domestic facility enhancements and expansion now complete, we are poised to capture new contract service opportunities.”

Fourth Quarter 2022 Review

($ in thousands, except per share amounts; See at “Definitions” the composition of product/service revenue categories.)

 
December 31,

2022
September 30,

2022
December 31,

2021
Change Change
Sequential Year/Year
North America

 

4,529

 

4,623

 

3,546

-2.0

%

27.7

%

International

 

726

 

550

 

405

31.9

%

79.2

%

Total Revenue

$

5,254

$

5,173

$

3,950

1.6

%

33.0

%

 
Tool (DNR) Revenue

 

3,348

 

3,343

 

2,967

0.1

%

12.8

%

Contract Services

 

1,906

 

1,829

 

984

4.2

%

93.8

%

Total Revenue

$

5,254

$

5,173

$

3,950

1.6

%

33.0

%

Revenue growth reflects the continued recovery in the North America oil & gas industry and improving market conditions in the Middle East. Strong demand for the manufacture and refurbishment of drill bits and other related tools for the Company’s long-time legacy customer also reflected improving North America end market conditions.

For the fourth quarter of 2022, North America revenue comprised approximately 86% of total revenue, with remaining revenue all within the Middle East. Revenue in North America grew 28% year-over-year from increased Tool Revenue and strong growth in Contract Services, while International revenue was up 79% on greater DNR penetration.

Fourth Quarter 2022 Operating Costs

($ in thousands, except per share amounts)

 

December 31,

2022

September 30,

2022

December 31,

2021

Change

Change

Sequential

Year/Year

Cost of revenue

$

2,163

 

$

2,231

 

$

1,777

 

-3.0

%

21.7

%

As a percent of sales

 

41.2

%

 

43.1

%

 

45.0

%

Selling, general, & administrative

$

2,062

 

$

1,723

 

$

1,660

 

19.7

%

24.2

%

As a percent of sales

 

39.2

%

 

33.3

%

 

42.0

%

Depreciation & amortization

$

328

 

$

363

 

$

423

 

-9.6

%

-22.5

%

Total operating expenses

$

4,553

 

$

4,316

 

$

3,860

 

5.5

%

18.0

%

Operating income

$

701

 

$

856

 

$

90

 

-18.1

%

675.9

%

As a percent of sales

 

13.3

%

 

16.6

%

 

2.3

%

Other (expense) income including
income tax expense

$

(368

)

$

(217

)

$

555

 

NM

 

NM

 

Net income

$

333

 

$

639

 

$

645

 

-47.9

%

-48.4

%

Diluted income per share

$

0.01

 

 

0.02

 

 

0.02

 

Adjusted EBITDA(1)

$

1,350

 

$

1,525

 

$

827

 

-11.5

%

63.2

%

As a percent of sales

 

25.7

%

 

29.5

%

 

20.9

%

(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.

On a year-over-year basis, the Company effectively leveraged its expenses with higher sales volume, despite global inflationary headwinds and an expansion of the Company’s workforce to accommodate for its current and expected demand. On a sequential basis, the increase in the selling, general and administrative expenses largely were due to additional litigation costs in support of the Company’s patent infringement lawsuit.

Depreciation and amortization expense decreased 22.5% year-over-year to $328 thousand due to fully amortizing a portion of intangible assets and fully depreciating manufacturing center equipment.

The 2021 fourth quarter included $707 thousand in other income related to the recovery of a related party note receivable, whereas 2022 did not have a similar benefit.

Full Year 2022 Review

($ in thousands, except per share amounts)

 

December 31,

2022

December 31,

2021

$ Change

% Change

Tool (DNR) Revenue

$

12,352

 

$

9,244

 

$

3,108

33.6

%

Contract Services

 

6,746

 

 

4,092

 

 

2,654

64.9

%

Total Revenue

$

19,098

 

$

13,336

 

$

5,762

43.2

%

Operating expenses

 

17,161

 

 

13,923

 

 

3,238

23.3

%

Operating income (loss)

$

1,936

 

$

(587

)

$

2,523

NM

 

As a percent of sales

 

10.1

%

 

-4.4

%

Net income (loss)

$

1,065

 

$

(530

)

$

1,595

NM

 

Diluted income (loss) per share

$

0.04

 

$

(0.02

)

$

0.06

NM

 

Adjusted EBITDA(1)

$

4,720

 

$

2,626

 

$

2,094

79.8

%

As a percent of sales

 

24.7

%

 

19.7

%

Revenue was $19.1 million and grew 43% over the prior year as a result of an improved market and increased demand for the DNR, combined with strong demand for the Company’s contract services. Revenue in North America was up 46%, while International growth was 27%.

Operating income measurably improved due to the leverage gained from higher sales volume combined with prudent expense management, while still investing in facilities and people to drive growth domestically and internationally.

Balance Sheet and Liquidity

Cash at year-end was $2.2 million. Net cash generated by operations for the year was $3.5 million compared with $0.5 million in the prior-year period, which reflected higher net income and improved working capital timing, partially offset by an increase in inventory to combat supply chain inefficiencies and in support of the Company’s growth.

Full year 2022 capital expenditures of $3.3 million were related to machining capacity expansion, higher maintenance activities, and an increase in the Company’s Middle East DNR rental tool fleet. The Company expects its capital spending for fiscal 2023 to range between $3.0 million to $3.5 million.

Total debt was down 33% to $1.7 million at December 31, 2022, which largely reflects the final $750 thousand principal payment made on the Hard Rock Note in October.

2023 Guidance

Revenue: $24.0 million to $27.0 million

SG&A: $9.0 million to $10.0 million

Adjusted EBITDA(1): $6.5 million to $7.5 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 a.m. MT (12:00 p.m. 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, March 17, 2023. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13735236 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 2023 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 Twelve Months

Ended December 31,

Ended December 31,

2022

2021

2022

2021

Revenue
North America

$

4,528,513

 

$

3,545,648

 

$

16,917,259

 

$

11,619,593

 

International

 

725,623

 

 

404,821

 

 

2,180,428

 

 

1,716,556

 

Total revenue

$

5,254,136

 

$

3,950,469

 

$

19,097,687

 

$

13,336,149

 

 
Operating cost and expenses
Cost of revenue

 

2,163,091

 

 

1,777,130

 

 

8,330,877

 

 

5,618,844

 

Selling, general, and administrative expenses

 

2,062,120

 

 

1,660,386

 

 

7,326,384

 

 

6,200,522

 

Depreciation and amortization expense

 

327,825

 

 

422,733

 

 

1,503,976

 

 

2,103,534

 

 
Total operating costs and expenses

 

4,553,036

 

 

3,860,249

 

 

17,161,237

 

 

13,922,900

 

 
Operating income (loss)

 

701,100

 

 

90,220

 

 

1,936,450

 

 

(586,751

)

 
Other (expense) income
Interest income

 

12,955

 

 

81

 

 

26,675

 

 

228

 

Interest expense

 

(161,917

)

 

(125,593

)

 

(572,624

)

 

(539,390

)

Recovery of related party note

 

-

 

 

707,112

 

 

-

 

 

707,112

 

Gain / (Loss) on sale or disposition of assets

 

(1,550

)

 

939

 

 

-

 

 

(249

)

Impairment of Asset

 

(130,375

)

 

-

 

 

(130,375

)

 

-

 

Total other expense

 

(280,887

)

 

582,539

 

 

(676,324

)

 

167,701

 

 
Income (loss) before income taxes

 

420,213

 

 

672,759

 

 

1,260,126

 

 

(419,050

)

Income tax expense

 

(87,117

)

 

(27,875

)

 

(194,969

)

 

(110,751

)

Net income (loss)

$

333,096

 

$

644,884

 

$

1,065,157

 

$

(529,801

)

 
Basic income earnings per common share

$

0.01

 

$

0.02

 

$

0.04

 

$

(0.02

)

 
Basic weighted average common shares outstanding

 

29,245,080

 

 

27,833,559

 

 

28,643,464

 

 

26,391,538

 

.
Diluted income per common Share

$

0.01

 

$

0.02

 

$

0.04

 

$

(0.02

)

 
Diluted weighted average common shares outstanding

 

29,276,716

 

 

27,833,559

 

 

28,675,100

 

 

26,391,538

 

Superior Drilling Products, Inc.

Consolidated Condensed Balance Sheets

(unaudited)

 
December 31, 2022 December 31, 2021
Assets
Current assets:
Cash $

2,158,025

 

$

2,822,100

 

Accounts receivable, net

3,241,221

 

2,871,932

 

Prepaid expenses

367,823

 

435,595

 

Inventories

2,081,260

 

1,174,635

 

Other current assets

140,238

 

55,159

 

Total current assets

7,988,567

 

7,359,421

 

Property, plant and equipment, net

8,576,851

 

6,930,329

 

Intangible assets, net

69,444

 

236,111

 

Right of use Asset (net of amortizaton)

638,102

 

20,518

 

Other noncurrent assets

111,519

 

65,880

 

Assets held for sale

216,000

 

-

 

 
Total assets $

17,600,483

 

$

14,612,259

 

 
Liabilities and Owners' Equity
Current liabilities:
Accounts payable $

1,043,581

 

$

1,139,091

 

Accrued expenses

891,793

 

467,462

 

Accrued Income tax

351,618

 

206,490

 

Current portion of operating lease liability

44,273

 

13,716

 

Current portion of long-term financial obligation

74,636

 

65,678

 

Current portion of long-term debt, net of discounts

1,125,864

 

2,195,759

 

Other current liabilities

216,000

 

-

 

 
Total current liabilities

3,747,765

 

4,088,196

 

Operating lease liability

523,375

 

6,802

 

Long-term financial obligation, less current portion

4,038,022

 

4,112,658

 

Long-term debt, less current portion, net of discounts

529,499

 

256,675

 

Deferred Income

675,000

 

-

 

 
Total liabilities

9,513,661

 

8,464,331

 

Shareholders' equity
Common stock - 29,245,080 and 28,235,001 shares

issued and outstanding, respectively

29,245

 

28,235

 

Additional paid-in-capital

43,943,928

 

43,071,201

 

Accumulated deficit

(35,886,351

)

(36,951,508

)

Total shareholders' equity

8,086,822

 

6,147,928

 

 
Total liabilities and shareholders' equity $

17,600,483

 

$

14,612,259

 

Superior Drilling Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

For the Twelve Months

Ended December 31,

2022

2021

Cash Flows From Operating Activities
Net Income (Loss) $

1,065,157

 

$

(529,801

)

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization expense

1,503,976

 

2,103,534

 

Amortization of right-of-use assets

131,093

 

-

 

Share-based compensation expense

873,737

 

756,743

 

Loss on disposition of assets

-

 

249

 

Impairment on asset held for sale

130,375

 

-

 

Amortization of deferred loan cost

18,524

 

18,522

 

Changes in operating assets and liabilities:
Accounts receivable

(369,289

)

(1,526,310

)

Inventories

(906,625

)

(143,590

)

Prepaid expenses and other noncurrent assets

(62,946

)

(338,255

)

Accounts payable and accrued expenses

127,274

 

85,020

 

Income Tax expense

145,128

 

100,044

 

Other current liabilities

216,000

 

-

 

Deferred Income

675,000

 

-

 

Net Cash Provided By Operating Activities $

3,547,404

 

$

526,156

 

 
Cash Flows From Investing Activities
Purchases of propety, plant and equipment

(3,330,206

)

(936,718

)

Proceeds from sale of fixed assets

-

 

50,000

 

Net Cash Provided By (Used In) Investing Activities $

(3,330,206

)

$

(886,718

)

 
Cash Flows From Financing Activities
Principal payments on debt

(1,694,730

)

(1,277,730

)

Proceeds received from debt borrowings

997,134

 

-

 

Payments on revolving loan

(817,113

)

(895,787

)

Proceeds received from revolving loan

633,436

 

1,697,427

 

Proceeds from issuance of common stock

-

 

1,697,311

 

Net Cash Used In Financing Activities $

(881,273

)

$

1,221,221

 

 
Net change in Cash

(664,075

)

860,659

 

Cash at Beginning of Period

2,822,100

 

1,961,441

 

Cash at End of Period $

2,158,025

 

$

2,822,100

 

Superior Drilling Products, Inc.

Adjusted EBITDA(1) Reconciliation

(unaudited)

 

Three Months Ended

December 31, 2022

 

December 31, 2021

 

September 30, 2022

GAAP net income

$

333,096

 

 

$

644,884

 

 

$

638,731

 

Add back    
Depreciation and amortization

 

327,825

 

 

 

422,733

 

 

 

362,773

 

Interest expense, net

 

148,962

 

 

 

125,512

 

 

 

143,564

 

Share-based compensation

 

232,921

 

 

 

226,148

 

 

 

218,217

 

Net non-cash compensation

 

88,200

 

 

 

88,200

 

 

 

88,200

 

Income tax expense

 

87,117

 

 

 

27,875

 

 

 

44,169

 

Recovery of related party note receivable

 

-

 

 

 

(707,112

)

 

 

-

 

Impairment of asset

 

130,375

 

 

 

-

 

 

 

-

 

Loss on disposition of assets

 

1,550

 

 

 

(939

)

 

 

29,381

 

Non-GAAP adjusted EBITDA(1)

$

1,350,046

 

 

$

827,301

 

 

$

1,525,035

 

     
GAAP Revenue

$

5,254,136

 

 

$

3,950,469

 

 

$

5,172,545

 

Non-GAAP Adjusted EBITDA Margin

 

25.7

%

 

 

20.9

%

 

 

29.5

%

Year Ended

December 31, 2022

 

December 31, 2021

GAAP net gain (loss)

$

1,065,157

 

 

$

(529,801

)

Add back:  
Depreciation and amortization

 

1,503,976

 

 

 

2,103,534

 

Interest expense, net

 

545,949

 

 

 

539,162

 

Share-based compensation

 

873,737

 

 

 

756,743

 

Net non-cash compensation

 

352,800

 

 

 

352,800

 

Income tax expense

 

194,969

 

 

 

110,751

 

Gain on disposition of assets

 

-

 

 

 

(249

)

Impairment of asset

 

183,452

 

 

 

-

 

Recovery of related party note receivable

 

-

 

 

 

(707,112

)

Non-GAAP adjusted EBITDA(1)

$

4,720,040

 

 

$

2,625,828

 

   
GAAP Revenue

$

19,097,687

 

 

$

13,336,149

 

Non-GAAP Adjusted EBITDA Margin

 

24.7

%

 

 

19.7

%

(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.

Contacts

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