- Fourth quarter revenue grew to $3.7
million while full-year 2017 revenue more than doubled over
prior-year to $15.6 million
- Tool Revenue was largest growth
driver in the quarter and year, up 48% and 93%, respectively;
Contract Services revenue nearly doubled in the quarter and tripled
in the year
- Generated $2.4 million in cash from
2017 operations
Superior Drilling Products, Inc. (NYSE American:SDPI) (“SDP” or
the “Company”), a designer and manufacturer of drilling tool
technologies, today reported financial results for the fourth
quarter and full year ended December 31, 2017.
Troy Meier, Chairman and CEO of Superior Drilling Products,
noted, "We made excellent progress in 2017, growing significantly,
generating cash and demonstrating the strength of our business
model. We believe our flagship Drill-N-Ream® (DnR) wellbore
conditioning tool is proving out its value proposition that it
deserves to be on every well and we expect our StriderTM
oscillation system technology will be another leading technology
for the oil & gas drilling industry. We continue to focus on
the development of new technologies, making improvements in our
manufacturing processes and supply chain while building a strong,
reliable team that can execute our strategy for growth.”
Fourth Quarter 2017 Financial
Summary
($ in thousands,except per share amounts)
Q4 2017 Q4 2016
$Y/Y Change
% Y/Y Change
Q3 2017
$ Seq. Change
% Seq. Change
Tool sales/rental $ 1,434 $ 1,451 $ (17) (1.2)% $ 2,012 $ (578)
(28.7)% Other related tool revenue 1,224 342
882 257.9% 1,171 53 4.5% Tool Revenue 2,658 1,794 864
48.2% 3,183 (525) (16.5)% Contract Services 1,072
539 533 98.9%
1,264 (192) (15.2)%
Total Revenue
$ 3,730 $ 2,333
$ 1,397 59.9% $
4,447 $ (717) (16.1)%
Operating income (loss) (670) (2,213) 1,543 NM 720 (1,389) (193.1)%
As a % of sales NM NM
16.2%
Net income (loss) $ (786)
$ (2,614) 1,829 NM
$ 586 (1,372)
(234.0)% Diluted earnings (loss) per share $ (0.03) $ (0.11)
$ 0.08 NM $ 0.02 $ (0.05) (224.2)%
Revenue increased $1.4 million, or 60%, over the prior-year
period to $3.7 million from growth in both Tool Revenue and
Contract Services. Sequentially, revenue was down 16% which was
in-line with expectations as exhausted customer annual budgets
typically result in a slowing of activity into year-end.
Tool Revenue was $2.7 million in the quarter, an increase of
$0.9 million, or 48% over the prior-year period. The growth was
driven by a 258% increase to $1.2 million of Other related tool
revenue, which is comprised of royalty, maintenance, and repair
fees. The growth reflects the benefit of increased recurring
revenue associated with the growing rental fleet deployed in the
marketplace. Tool sales/rental were essentially unchanged in the
fourth quarter of 2017, which was mostly the result of the initial
rental fleet ramp-up process which was still underway by the
channel partner in the fourth quarter of 2016.
Contract Services revenue was $1.1 million, which essentially
doubled from the prior-year period and far outpaced the 57%
year-over-year increase in average U.S. rig count in the quarter as
the Company continues to support drill bit refurbishment beyond its
contracted area and provide other contract manufacturing
services.
Net loss was $786 thousand compared with net loss of $2.6
million in the fourth quarter of 2016. Included in net loss for the
fourth quarter of 2017 was a $.6 million bonus expense in lieu of
stock (see Operational Review). Included in the net loss for the
fourth quarter of 2016 were pre-tax asset impairment charges of
$1.1 million.
Adjusted EBITDA (see NOTE 1), or earnings before interest,
taxes, depreciation and amortization, non-cash stock compensation
expense and unusual items, grew to $791 thousand compared with
$49 thousand in the prior-year period from the strength in
revenue growth. Adjusted EBITDA declined from $1.8 million in the
trailing third quarter on lower sequential volume from seasonality
combined with year-end compensation items and spending associated
with the Middle East expansion and increased engineering costs
associated with the commercialization of Open Hole Strider.
NOTE 1: The Company believes that when used in
conjunction with measures prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”), adjusted EBITDA,
which is a non-GAAP measure, helps in the understanding of its
operating performance. See the attached tables for important
disclosures regarding SDP’s use of adjusted EBITDA, as well as a
reconciliation of net income to adjusted EBITDA.
Fourth Quarter 2017 Operational
Review
($ in thousands)
Q4 2017 Q4 2016
$ Y/Y Change
% Y/Y Change
Q3 2017
$ Seq. Change
% Seq. Change
Cost of revenue $ 1,571 $ 1,167 $ 405 34.7% $ 1,717 (145) (8.5)% As
a percent of sales 42.1% 50.0% 38.6% Selling, general &
administrative $ 1,897 $ 1,627 $ 270 16.6% $ 1,102 795 72.1% As a
percent of sales 50.9% 69.7% 24.8% Depreciation & amortization
$ 931 $ 912 $ 19 2.1% $ 908 24 2.6% Impairment of property, plant
and equipment - held for sale $ - $ 840 $
(840) (100.0)% $ - - NM
Total
operating expenses $ 4,400 $
4,546 $ (146) (3.2)%
$ 3,727 $ 673
18.1%
Cost of revenue as a percentage of sales decreased from 50.0% to
42.1%, primarily a result of higher volume, increased productivity,
and improved mix as it relates to royalties and maintenance.
Selling, general and administrative expense (SG&A), which
includes research and engineering, declined over the prior year
period, but increased sequentially due to increases in engineering
costs related to the StriderTM technology products, spending
related to the Company’s expansion into the Middle East, and a
$587,500 bonus expense in lieu of stock paid to the founders which
would have otherwise vested over 3 years. The founders used the
bonus to pay principle and interest on the Tronco note receivable
which was reduced to $7.4 million at the end of 2017. The note
receivable is currently over collateralized with 8,267,860 shares
and 530,725 restricted stock units.
Operating loss was $669,800. On an adjusted basis (non-GAAP),
the operating loss was $82,300 excluding consideration of the
founders’ bonus expense.
Full Year 2017 Review
($ in thousands,except per share
amounts)
2017 2016
$Change
% Change
Tool Revenue $ 10,597 $ 5,483 5,114 93.3% Contract Services
$ 4,998 $ 1,670 3,328 199.3% Total Revenue
$ 15,595 $ 7,153 8,442 118.0% Cost of
revenue 5,960 4,492 1,469 32.7% As a % of sales 38.2% 62.8%
Selling, general & administrative 5,734 5,776 (41) (0.7)% As a
% of sales 36.8% 80.7% Depreciation & amortization 3,677
4,291 (615) (14.3)% Operating expenses 15,371 14,559 812
5.6% Impairment of property/goodwill - 840 Total
operating expenses 15,371 15,399 Operating income (loss) 225
(8,246) 8,471 102.7% Net loss $ (279) (9,129) 8,850
96.9% Diluted loss per share $ (0.01) $ (0.48) 0.47 97.9%
Revenue for 2017 increased 118% over 2016 to $15.6 million,
driven by market share growth and stronger market conditions with a
72% increase in the U.S. rig count. Tool revenue of $10.6 million
increased 93%, or $5.1 million, from the prior-year period. Tool
revenue was comprised of $6.7 million in tool sales/rental and $3.9
million in other related revenue. Contract Services revenue almost
tripled to $5.0 million when compared with the prior-year
period.
During the year, the Company continued to gain market share with
its DnR tool, made significant strides in validating the
performance of our StriderTM technology products, continued to
strengthen relationships with important contract services
customers, and entered a Middle East market development agreement
with a well-established international partner.
Operating income for the year was $224,500. Excluding the
founders’ bonus expense, operating income was $812,000, or 5.2% of
sales. Net loss was $279,000, or $0.01 per diluted share in
2017.
Adjusted EBITDA (see NOTE 1) was $5.0 million, compared with an
adjusted EBTIDA loss of $1.5 million in 2016, from higher revenue,
improved mix, operational and efficiency improvements, and cost
discipline. See the attached tables for important disclosures
regarding SDP’s use of adjusted EBITDA, as well as a reconciliation
of net income to adjusted EBITDA.
Balance Sheet and Liquidity
Cash generated by operations was $2.4 million in the year. At
December 31, 2017, cash and equivalents was $2.4 million.
Total debt at the end of the year was $12.8 million, down $3.9
million, or 23%, compared with $16.7 million at December 31,
2016.
During the fourth quarter, the Company had capital expenditures
of $90 thousand. For the year, capital expenditures were $936
thousand compared with $353 thousand in 2016.
Outlook and 2018 Guidance
Mr. Meier, added, “2018 is looking to be another exciting year
for SDP as we expect another year of strong growth. We are in the
process of evaluating the market share achievement of our DnR
channel partner for the end of 2017, and are in conversations about
our plans and expectations for 2018. We have a very strong partner
and expect that they can meet or exceed the 17.5% market share
requirement by the end of 2018. Although still in market
development evaluation stages, we are really encouraged with the
performance of the DnR in the Middle East and expect that to be
another growth area in the latter half of 2018 and beyond. In
addition, we have the StriderTM product line being requested and
see this tool as another large future opportunity for SDP. Not
losing sight of our legacy business, we are finalizing discussions
with our drill bit refurbishment customer and anticipate that in
the end we will be in a much better position while helping our
customer succeed.”
Financial estimates for 2018 are expected to fall in the
following ranges:
Revenue: $18 million to $22 million Operating margin:
5% to 10% Interest Expense: Approximately $750 thousand
Depreciation and Amortization: Slightly under $4.0 million Capital
Expenditures: Approximately $1 million
Webcast and Conference Call
The Company will host a conference call and live webcast today
at 9:00 am MT (11:00 am ET) to review the financial and operating
results for the quarter and discuss its corporate strategy and
outlook. The discussion will be accompanied by a slide presentation
that will be made available immediately 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 on Superior Drilling
Products’ website at www.sdpi.com/events.
A telephonic replay will be available from 12:00 p.m. MT (2:00
p.m. ET) the day of the teleconference until Thursday, March 15,
2018. To listen to the archived call, dial (412) 317-6671 and enter
conference ID number 13676788, or access the webcast replay via the
Company’s website 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
StriderTM 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, regarding our strategy, future operations, financial
position, estimated revenue and losses, projected costs, prospects,
plans and objectives of management, 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.
Certain statements in this release may constitute forward-looking
statements, including statements regarding the Company’s financial
position, market success with specialized tools, effectiveness of
its sales efforts, success at developing future tools, and the
Company’s effectiveness at executing its business strategy and
plans. 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, our business strategy and prospects
for growth; our cash flows and liquidity; our financial strategy,
budget, projections and 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.
Superior Drilling Products, Inc.
Consolidated Statements of
Operations
(unaudited)
For the Three Months
For the Year Ended December 31, Ended December
31, 2017 2016 2017 2016
Revenue $ 3,730,010 $ 2,332,658 $ 15,595,659 $
7,153,063
Operating cost and expenses Cost of
revenue 1,571,367 1,166,699 5,960,223 4,491,670 Selling, general,
and administrative expenses 1,897,092 1,626,628 5,734,315 5,775,760
Depreciation and amortization expense 931,368 912,035 3,676,598
4,291,249 Impairment of property, plant and equipment - held for
sale - 840,380 - 840,380
Total operating costs and expenses 4,399,827
4,545,742 15,371,136 15,399,059
Operating
income (loss) (669,817) (2,213,084)
224,523 (8,245,996)
Other income (expense)
Interest income 91,601 78,579 346,926 313,547 Interest expense
(207,351) (511,804) (905,990) (1,613,214) Other income - 49,976
43,669 237,203 Gain on sale of assets - (17,841)
12,167 177,611 Total other expense (115,750)
(401,090) (503,228) (884,853)
Income
(loss) before income taxes $ (785,567) $ (2,614,174) $
(278,705) $ (9,130,849) Income tax benefit - - - (2,000)
Net
income (loss) $ (785,567) $ (2,614,174) $ (278,705) $
(9,128,849)
Basic income (loss) earnings per common
share $ (0.03) $ (0.11) $ (0.01) $ (0.48)
Basic
weighted average common shares outstanding 24,416,577
23,771,265 24,268,409 19,155,981
Diluted income (loss) per common Share $ (0.03) $ (0.11) $
(0.01) $ (0.48)
Diluted weighted average common shares
outstanding 24,416,577 23,771,265
24,268,409 19,155,981
Superior
Drilling Products, Inc.
Consolidated Balance Sheet
(unaudited)
December 31, 2017
December 31, 2016
Assets Current assets: Cash $ 2,375,179 $ 2,241,902 Accounts
receivable, net 2,667,042 1,038,664 Prepaid expenses 111,530 76,175
Inventories 1,196,813 1,167,692 Asset held for sale - 2,490,000
Other current assets - 13,598 Total current assets
6,350,564 7,028,031 Property, plant and equipment, net
8,809,348 9,068,359 Intangible assets, net 6,132,778 8,579,444
Related party note receivable 7,367,212 8,296,717 Other noncurrent
assets 15,954 15,954
Total assets $
28,675,856 $ 32,988,505 Liabilities
and Shareholders' Equity Current liabilities: Accounts payable
$ 1,021,469 $ 1,066,514 Accrued expenses 543,758 449,004 Capital
lease obligation - 217,302 Related party debt obligation - 272,215
Current portion of long-term debt, net of discounts 6,101,678
2,905,682 Total current liabilities $ 7,666,905 $ 4,910,717
Other long term liability - 820,657 Long-term debt, less
current portion, net of discounts 6,706,375 13,288,701
Total liabilities $ 14,373,280 $
19,020,075 Stockholders' equity Common stock
(24,535,334 and 24,120,695) 24,535 24,120 Additional
paid-in-capital 38,907,864 38,295,428 Accumulated deficit
(24,629,823) (24,351,118) Total stockholders' equity $
14,302,576 $ 13,968,430
Total liabilities and shareholders'
equity $ 28,675,856 $ 32,988,505
Superior Drilling Products, Inc.
Consolidated Statements of Cash
Flows
(unaudited)
2017 2016 Cash Flows From Operating
Activities Net loss $ (278,705) $ (9,128,849) Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense 3,676,598 4,291,249
Amortization of debt discount 79,424 107,975 Deferred tax benefit -
(2,000) Share - based compensation expense 612,851 783,462
Unrealized loss on warrant derivative - 112,024 Impairment of
property, plant and equipment - 1,054,482 Impairment of inventories
- 569,602 Gain on sale of assets (12,167) (177,611) Changes in
operating assets and liabilities: Accounts receivable (1,628,378)
822,338 Inventories (29,121) (115,444) Prepaid expenses and other
noncurrent assets (21,757) 89,677 Other noncurrent assets -
(60,866) Accounts payable and accrued expenses 13,990 (218,375)
Other long-term liabilities (53,355) (59,375)
Net
Cash Provided By (Used In) Operating Activities $
2,359,380 $
(1,931,711) Cash Flows From
Investing Activities Purchases of property, plant and equipment
(936,118) (352,751) Proceeds from sale of fixed assets
2,483,921 517,385
Net Cash Provided By Investing
Activities 1,547,803 164,634
Cash Flows
From Financing Activities Principal payments on debt
(3,482,311) (3,254,971) Principal payments on capital lease
obligations (74,293) (360,971) Principal payments on related party
debt (217,302) (268,835) Proceeds received from borrowings on debt
- 1,500,000 Proceeds from line of credit - 226,885 Proceeds from
sale of subsidiary - 50,700 Proceeds from payment on note
receivable - 22,533 Proceeds received from issuance of common
stock, net - 5,027,082 Debt issuance costs -
(230,446)
Net Cash Provided By (Used In) Financing
Activities
(3,773,906) 2,711,977
Net Increase (Decrease) in
Cash 133,277 944,900 Cash at Beginning of Period
2,241,902 1,297,002
Cash at End of Period $ 2,375,179
$ 2,241,902 Supplemental information: Cash paid for interest
$ 851,671 $ 1,563,280 Non-cash payment of other long-term liability
by offsetting related party note receivable $ 1,267,711 $ 311,979
Acquisition of equipment by issuance of note payable $ 16,557 $ -
Warrants issued for bridge financing debt $ - $ 112,024 Long-term
debt paid with stock $ - $ 1,000,000
Superior
Drilling Products, Inc.
Adjusted EBITDA(1)
Reconciliation
(unaudited)
Three Months Ended December 31, 2017
September 30, 2017 December 31, 2016
GAAP net income (loss) $
(785,567) $ 586,039
$ (2,614,174) Add back: Depreciation and amortization
931,368 907,837
912,035 Impairment of assets - - 1,050,855 Interest expense, net
115,750 133,551
433,225 Share-based compensation 114,467 147,643
249,411 Non-Cash compensation 414,497 -
- (Gain) loss on sale of assets - -
17,841 Income tax expense (benefit) - -
-
Non-GAAP adjusted EBITDA(1) $
790,515 $ 1,775,070
$ 49,193 GAAP Revenue $ 3,730,010 $ 4,446,540
$ 2,332,658 Non-GAAP EBITDA Margin 21.2% 39.9% 2.1%
Year Ended 31-Dec-17 31-Dec-16 GAAP
net income (loss) $ (278,705) $
(9,128,849) Add back: Depreciation and amortization
3,676,598 4,291,249 Share-based compensation 612,851 783,462
Non-cash compensation 414,497 - Interest expense, net 559,064
1,299,667 Impairment of assets - 1,413,028 (Gain) loss on sale of
assets (12,167) (177,611) Unrealized gain on warrant derivative -
(28,301) Income tax expense (benefit) - (2,000)
Non-GAAP Adjusted EBITDA(1) $ 4,972,138
$ (1,549,355) GAAP Revenue $ 15,595,659 $
7,153,063 Non-GAAP EBITDA Margin 31.9% NM (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.
Superior Drilling Products,
Inc.
Adjusted Income from
Operations(1) Reconciliation
(unaudited)
Three Months Ended December 31,
2017 September 30, 2017 December 31,
2016
Income (loss) from operations
$
(669,817)
$
719,590
$ (2,213,084) Add back:
Atypical bonus expense
587,500
-
-
Impairment property, plant and equipment - held for sale -
- 840,380
Non-GAAP adjusted income from
operations $ (82,317) $
719,590
$ (1,372,704) GAAP Revenue $ 3,730,010 $
4,446,540
$ 2,332,658 Adjusted Operating Margin -2.2% 16.2% -58.8%
Year Ended 31-Dec-17 31-Dec-16
Income (loss) from operations $ 224,523
$ (8,245,996) Add back: Atypical bonus expense
587,500 - Impairment property, plant and equipment - held for sale
- 840,380
Non-GAAP adjusted income from
operations $ 812,023 $ (7,405,616)
GAAP Revenue $ 15,595,659 $ 7,153,063 Adjusted Operating
Margin 5.2% -103.5% (1) Adjusted income from operations is
defined as income from operations as reported, adjusted for certain
items and to apply a normalized tax rate. Adjusted income from
operations is not a measure determined in accordance with generally
accepted accounting principles in the United States, commonly known
as GAAP and may not be comparable to the measures as used by other
companies. Nevertheless, the Company believes that providing
non-GAAP information, such as adjusted income from operations, is
important for investors and other readers of the Company’s
financial statements and assists in understanding the comparison of
the current quarter’s and current year's income from operations to
the historical periods' income from operations, as well as
facilitates a more meaningful comparison of the Company’s net
income and diluted EPS to that of other companies.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180308005359/en/
Investor relations:Kei Advisors LLCDeborah K. Pawlowski /
Jeanne Ernst716-843-3908 / 716-242-8635dpawlowski@keiadvisors.com /
jernst@keiadvisors.com
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