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Superior Drilling Products, Inc. Revenue Increased 57% Sequentially to $2.4 million in First Quarter 2021

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  • First quarter revenue grew $0.9 million to $2.4 million over trailing fourth quarter as market steadily improves

  • U.S. market conditions strengthening and market share expanding driving revenue in North America up 74% over trailing quarter

  • Tool revenue grew 84% over the trailing quarter while Contract Services revenue was up 19%

  • Cost savings efforts and improved revenue resulted in positive cash generation from operations; ended quarter with $2.3 million of cash on hand

  • Restructured international team to build market opportunity while expanding relationships with major oil field service companies to deepen market reach

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 first quarter of 2021 ended March 31, 2021.

Troy Meier, Chairman and CEO, commented, "The pace of activity is encouraging as markets begin to recover. Demand for new Drill-N-Ream® well bore conditioning tools in North America continued through April as market conditions strengthen. We believe we are also continuing to gain market share in this depressed environment as more operators recognize both the production efficiencies gained and costs saved when using the DNR for their drilling operations. Drill bit refurbishment activity has increased as well during the quarter, with the growing number of drill rigs operating in the U.S."

He added, "We are bringing back fabricators, advancing new drill bit development and we are making progress on broader marketing and servicing agreements with much larger entities that have the breadth to extend and deepen our market reach. While we are not expecting the market in the U.S. to return to pre-COVID levels, we believe that there is still plenty of room for improvement and more market penetration potential for the DNR. We have also restructured our international development team to improve returns on our investments in those markets while also advancing the agreements needed to gain market share."

Mr. Meier concluded, "We are optimistic about the recovery supporting growth through 2021. More significantly, we are excited about the changes we are making in the organization and the relationships we are building that we expect to drive significant growth for the Company in the long-term."

First 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)

March 31,
2021

December 31,
2020

March 31,
2020

Change
Sequential

Change
Year/Year

North America

2,092

1,203

4,581

73.9

%

(54.3

)%

International

332

338

777

(1.7

)%

(57.2

)%

Total Revenue

$

2,425

$

1,541

$

5,358

57.3

%

(54.7

)%

Tool Sales/Rental

$

831

$

342

$

1,768

143.0

%

(53.0

)%

Other Related Tool Revenue

832

561

1,845

48.3

%

(54.9

)%

Tool Revenue

1,664

903

3,613

84.2

%

(54.0

)%

Contract Services

761

638

1,745

19.3

%

(56.4

)%

Total Revenue

$

2,425

$

1,541

$

5,358

57.3

%

(54.7

)%

Revenue increased sequentially $884 thousand, or 57%, over the trailing fourth quarter as market share and market conditions improved. The year-over-year comparison reflects the impact of the global pandemic on the oil & gas production industry. The market in North America is improving more rapidly than international markets. Revenue in North America increased 74% from increased tool sales, as well as higher royalty and repair fees. Contract Services revenue also improved sequentially reflecting increased drill bit refurbishment. International revenue was relatively unchanged from the trailing fourth quarter as the market recovery is lagging similar to the lag in decline this market had through 2020.

First Quarter 2021 Operating Costs

($ in thousands,except per share amounts)

March 31,
2021

December 31,
2020

March 31,
2020

Change
Sequential

Change
Year/Year

Cost of revenue

$

1,176

$

821

$

2,315

43.2

%

(49.2

)%

As a percent of sales

48.5

%

53.3

%

43.2

%

Selling, general & administrative

$

1,516

$

1,483

$

2,018

2.2

%

(24.9

)%

As a percent of sales

62.5

%

96.2

%

37.7

%

Depreciation & amortization

$

690

$

682

$

761

1.2

%

(9.3

)%

Total operating expenses

$

3,381

$

2,986

$

5,093

13.2

%

(33.6

)%

Operating Income (loss)

$

(957

)

$

(1,445

)

$

265

NM

NM

As a % of sales

(39.5

)%

(93.8

)%

4.9

%

Other (expense) income including
income tax (expense)

$

(145

)

$

790

$

(67

)

NM

NM

Net income (loss)

$

(1,102

)

$

(655

)

$

198

NM

NM

Diluted earnings (loss) per share

$

(0.04

)

$

(0.03

)

$

0.01

NM

NM

Adjusted EBITDA(1)

$

(11

)

$

(494

)

$

1,221

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.

Total operating expenses increased 13% over the trailing fourth quarter, while revenue increased 57% demonstrating the effect of cost reduction efforts and the operating leverage gained from higher volume.

Net loss for the quarter was $1.1 million compared with $0.7 million in the trailing fourth quarter which included a $0.9 million benefit from the government forgiveness of SBA debt. Compared with the trailing fourth quarter, Adjusted EBITDA(1) improved sequentially as a result of increased sales and operating leverage gained from higher volume.

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 $2.3 million, up from $2.0 million at the end of 2020. Cash provided by operations in the first quarter of 2021 was $139 thousand. Long-term debt, including the current portion at March 31, 2021, was $3.0 million. The $4.2 million long-term financial obligation is related to the future minimum lease payments under the 15-year lease of the Company’s Vernal, Utah property.

Definitions and Composition of Product/Service Revenue:

Contract Services Revenue is comprised of drill bit and other repair and manufacturing services.

Other Related Tool Revenue is comprised of royalties and fleet maintenance fees.

Tool Sales/Rental revenue is comprised of revenue from either the sale of tools or tools rented 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 Wednesday, May 19, 2021. To listen to the archived call, please call (412) 317-6671 and enter conference ID number 13718357, 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

Ended March 31,

2021

2020

Revenue

North America

$

2,092,200

$

4,580,510

International

332,453

777,253

Total revenue

$

2,424,653

$

5,357,763

Operating cost and expenses

Cost of revenue

1,175,593

2,314,508

Selling, general, and administrative expenses

1,515,590

2,017,899

Depreciation and amortization expense

690,074

760,764

Total operating costs and expenses

3,381,257

5,093,171

Operating Income (loss)

(956,604

)

264,592

Other income (expense)

Interest income

48

4,688

Interest expense

(138,057

)

(177,258

)

Loss on Fixed Asset Impairment

-

(30,000

)

Gain (loss) on sale or disposition of assets

10,000

142,234

Total other expense

(128,009

)

(60,336

)

Income (loss) Before Income Taxes

$

(1,084,613

)

$

204,256

Income tax expense

(800

)

(6,210

)

Foreign Tax

(16,380

)

-

Net Income (loss)

$

(1,101,793

)

$

198,046

Basic income (loss) earnings per common share

$

(0.04

)

$

0.01

Basic weighted average common shares outstanding

25,762,342

25,418,126

Diluted income (loss) per common Share

$

(0.04

)

$

0.01

Diluted weighted average common shares outstanding

25,762,342

25,418,126

Superior Drilling Products, Inc.

Consolidated Condensed Balance Sheets

March 31, 2021

December 31, 2020

(unaudited)

Assets

Current assets:

Cash

$

2,262,251

$

1,961,441

Accounts receivable, net

1,601,837

1,345,622

Prepaid expenses

109,354

90,269

Inventories

996,083

1,020,008

Asset held for sale

-

40,000

Other current assets

42,751

40,620

Total current assets

5,012,276

4,497,960

Property, plant and equipment, net

7,211,648

7,535,098

Intangible assets, net

527,778

819,444

Right of use Asset (net of amortizaton)

$

65,624

$

99,831

Other noncurrent assets

84,115

87,490

Total assets

$

12,901,441

$

13,039,823

Liabilities and Owners' Equity

Current liabilities:

Accounts payable

$

741,727

$

430,015

Accrued expenses

1,468,257

1,091,518

Accrued Income tax

122,826

106,446

Current portion of Operating Lease Liability

54,063

79,313

Current portion of Long-term Financial Obligation

59,420

61,691

Current portion of long-term debt, net of discounts

1,651,283

1,397,337

Total current liabilities

$

4,097,576

$

3,166,320

Operating long term liability

11,561

20,518

Long-term Financial Obligation

4,161,463

4,178,261

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

1,341,487

1,451,049

Total liabilities

$

9,612,087

$

8,816,148

Stockholders' equity

Common stock (25,418,126 and 25,418,126)

25,762

25,762

Additional paid-in-capital

40,787,092

40,619,620

Accumulated deficit

(37,523,500

)

(36,421,707

)

Total stockholders' equity

$

3,289,354

$

4,223,675

Total liabilities and shareholders' equity

$

12,901,441

$

13,039,823

Superior Drilling Products, Inc.

Consolidated Condensed Statement of Cash Flows

(Unaudited)

March 31,
2021

March 31, 2020

Cash Flows From Operating Activities

Net Income (Loss)

$

(1,101,793

)

$

198,046

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense

690,074

760,764

Share-based compensation expense

167,473

106,996

Loss (Gain) on sale or disposition of assets

(10,000

)

(142,234

)

Impairment on asset held for sale

-

30,000

Amortization of deferred loan cost

4,631

4,631

Changes in operating assets and liabilities:

Accounts receivable

(256,215

)

625,419

Inventories

(41,795

)

(303,122

)

Prepaid expenses and other noncurrent assets

(17,841

)

296,392

Accounts payable and accrued expenses

688,451

660,731

Income Tax expense

16,380

6,210

Other long-term liabilities

-

(61,421

)

Net Cash Provided By Operating Activities

139,364

2,182,412

Cash Flows From Investing Activities

Purchases of property, plant and equipment

(9,237

)

(37,850

)

Proceeds from sale of fixed assets

50,000

117,833

Net Cash Provided By Investing Activities

40,763

79,983

Cash Flows From Financing Activities

Principal payments on debt

(135,403

)

(975,440

)

Proceeds received from debt borrowings

-

72,520

Payments on Revolving Loan

(280,245

)

(39,461

)

Proceeds received from Revolving Loan

536,331

812,224

Debt issuance Costs

-

-

Net Cash Provided By (Used In) Financing Activities

120,683

(130,157

)

Net change in Cash

300,810

2,132,238

Cash at Beginning of Period

1,961,441

1,217,014

Cash at End of Period

$

2,262,251

$

3,349,252

Supplemental information:

Cash paid for interest

$

130,363

$

182,369

Non-cash payment of other liabilities by offsetting recovery of related-party note receivable

$

-

$

-

Inventory converted to property, plant and equipment

$

65,720

$

47,907

Long term debt paid with Sale of Plane

$

-

$

211,667

Superior Drilling Products, Inc.

Adjusted EBITDA(1) Reconciliation

(unaudited)

($, in thousands)

Three Months Ended

March 31, 2021

March 31, 2020

December 31, 2020

GAAP net income

$

(1,101,793

)

$

198,046

$

(655,142

)

Add back:

Depreciation and amortization

690,074

760,764

681,998

Interest expense, net

138,009

172,570

125,068

Share-based compensation

167,473

106,996

180,730

Net non-cash compensation

88,200

88,200

88,200

Income tax expense

17,180

6,210

8,582

(Gain) Loss on disposition of assets

(10,000

)

(112,234

)

(891,600

)

Recovery of Related Party Note Receivable

-

-

-

Non-GAAP adjusted EBITDA(1)

$

(10,858

)

$

1,220,552

$

(494,164

)

GAAP Revenue

$

2,424,653

$

5,357,763

$

1,541,205

Non-GAAP Adjusted EBITDA Margin

(0.4

)%

22.8

%

(32.1

)%

(1) Adjusted EBITDA represents net income adjusted for income taxes, interest, depreciation and amortization and other items as noted in the reconciliation table. The Company believes Adjusted EBITDA is an important supplemental measure of operating performance and uses it to assess performance and inform operating decisions. However, Adjusted EBITDA is not a GAAP financial measure. The Company’s calculation of Adjusted EBITDA should not be used as a substitute for GAAP measures of performance, including net cash provided by operations, operating income and net income. The Company’s method of calculating Adjusted EBITDA may vary substantially from the methods used by other companies and investors are cautioned not to rely unduly on it.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210512005323/en/

Contacts

For more information, contact investor relations:
Deborah K. Pawlowski, Kei Advisors LLC
(716) 843-3908, dpawlowski@keiadvisors.com