VERNAL, Utah, Nov. 13, 2015 (GLOBE NEWSWIRE) -- Superior Drilling Products, Inc. (NYSE MKT:SDPI) ("SDP" or the "Company"), a provider of drilling products for the oil, natural gas and mining services industries, today reported financial results for the third quarter ended September 30, 2015.
Third Quarter 2015 Summary
- Revenue increased 4.6%, or $0.1 million, over the trailing second quarter from the successful introduction of Strider, a proprietary drill string stimulation tool.
- Drill N Ream™, a patented bore hole conditioning tool, was used in 165 runs in the quarter, down about 5% from 174 in the trailing second quarter, similar to the quarterly average decline in drill rigs.
- SG&A was impacted by approximately $35,000 in severance costs and $200,000 in out-of-period noncash stock compensation expense. Implemented costs savings reduces the quarterly SG&A run rate to approximately $1.25 million to $1.35 million.
- Adjusted EBITDA 1 , a non-GAAP financial measure, improved to $62,000 from negative $400,000 in the trailing second quarter.
Third Quarter 2015 Sales Review
Troy Meier, Chairman and CEO of Superior Drilling Products, noted, "Operators are keenly focused on reducing their costs, and we have demonstrated that our unique drill string tools reduce days on well, optimize drilling time, reduce stress on the bottom hole assembly and enhance directional drilling efficiencies, such as improving weight transfer to bit. Importantly, customers and prospects are once again open to new ideas. We are actively introducing the potential of our tools to new prospects and are pursuing an encouraging pipeline of opportunities."
Revenue for the quarter was $3.0 million, down $2.7 million or 47.4% from the third quarter of 2014. The majority of the decline being $2.4 million in the Company's traditional bit refurbishment and third party manufacturing business (contract services). This revenue decline was directly related to the decline in drilling rigs in operation. Revenue from the rental and repair of the Company's drilling tools, including the Drill N Ream, the Strider and SDP's other tool offerings, (tool revenue) was down by $0.3 million to $1.8 million, as revenue from the successful introduction of the Strider partially offset the impact of pricing pressure and shorter laterals on Drill N Ream rental revenue when compared with the prior-year period. There was $0.2 million of other related revenue in the quarter.
When compared with the trailing second quarter, revenue increased $0.1 million. Contract services revenue was down $0.1 million to $1.0 million, with that reduction being more than offset by the $0.2 million improvement in tool revenue.
Superior Drilling averaged 13 customers per month running its well bore conditioning tool, down from 16 in the trailing second quarter and flat with the prior-year period. The Company had a monthly average of 55 Drill N Ream runs in the third quarter compared with 58 monthly average runs in the trailing second quarter and 35 monthly average runs in the third quarter of 2014. Average revenue per run was $10,100, which was up from $9,600 in the trailing quarter, but measurably down from $19,500 last year due to pricing pressure and introduction of the tool into new basins with shorter average laterals.
Third Quarter 2015 Operating Results
Cost of revenue was $1.5 million, down from $1.8 million in the prior-year period. As a percent of sales, cost of revenue was 50.4% compared with 31.4% in the prior-year period. Increased cost of revenue as a percent of sales from the prior-year period reflects lower absorption of fixed costs, pricing pressure, four points of lower margin associated with the OrBIT, higher cost structure for rental tool distribution and service operations and higher depreciation expense with a larger tool inventory. Compared with the trailing second quarter, cost of revenue was down by $0.1 million, representing a reduction of five percentage points as a percent of sales. The sequential reduction in cost of revenue demonstrates the impact of cost reductions in response to the continued downturn in oilfield activity.
Selling, general and administrative and research and engineering (SG&A) expenses were $1.9 million, down from $3.1 million in the prior-year period. Lower SG&A reflects the Company's cost cutting efforts in response to lower oilfield activity and demand for drilling tools. Included in SG&A was $200,000 of out-of-period noncash stock compensation expenses and $35,000 in severance costs. When compared with the trailing second quarter, the increase in SG&A of $0.1 million reflects the severance and out-of-period noncash stock compensation expenses noted above, offset by strong cost discipline and austerity measures.
Depreciation and amortization (D&A) was unchanged from the prior-year period and the trailing second quarter, at $1.2 million, reflecting the Company's focus on conservative rental tool fleet management in order to contain costs.
Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization and non-cash stock compensation expense, was slightly better than break even for the third quarter. 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. 1 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.
Adjusted net loss, also a non-GAAP measure, was $1.3 million, or $0.07 loss per diluted share, in the third quarter. Adjusted net loss was down from adjusted net income of $0.6 million or $0.04 per diluted share during the prior-year period. When compared with the adjusted net loss of $1.6 million in the trailing second quarter, adjusted net loss improved by $0.3 million, or $0.02 per share. Adjusted net loss for the third quarter of 2015 excludes intangible asset amortization expense of $0.6 million after-tax, $45,000 of employee severance and a $10,000 loss on the sale of assets. GAAP net loss was $1.9 million, or an $0.11 loss per diluted share. See attached tables for a reconciliation of GAAP net loss to adjusted net loss.
First Nine Months of 2015 Review
Sales for the first nine months of 2015 were $10.0 million, down $4.0 million, or 28.5%, from the prior-year's first nine months as a result of a $5.8 million decline in contract services to $4.0 million. Tool revenue (including royalty revenue in the prior-year period) increased by $1.9 million to $5.6 million.
Cost of revenue was $5.0 million, up $0.6 million from the prior-year period. SG&A expense of $5.7 million was flat with the prior-year period, and D&A expense of $3.5 million was up by $1.3 million from the prior-year's first nine months as the current year included the acquisition of Hard Rock and the associated rental tool inventory for the entire nine months. Higher operating expenses reflect the establishment of the Company's sales infrastructure to gain market share for its drill string tool offerings, increased manufacturing capacity and higher expenses associated with becoming a public company.
Adjusted EBITDA for the first nine months of 2015 was a loss of $0.1 million, and reflects the downturn in drilling activity due to changes in the market price of oil. 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.
Adjusted net loss was $3.2 million in the first nine months of 2015 compared with adjusted net income of $2.1 million in the prior-year period. Adjusted net loss for the 2015 period excludes $1.8 million of intangible asset amortization, a $0.1 million loss on the sale of assets and $55,000 of employee severance. For the first nine months of 2014, adjusted net income excluded $0.8 million of intangible amortization, $1.1 million of deferred tax expense, $0.4 million of non-recurring expenses and a $0.3 million loss on disposition of assets. GAAP net loss was $5.2 million in the first nine months of 2015 compared with a net loss of $0.5 million in the prior-year period.
Balance Sheet Update
Cash provided by operations in the third quarter was $0.2 million. Cash on hand at September 30, 2015 was $1.9 million.
Total debt as of September 30, 2015 was $20.8 million. Debt, net of cash, was $18.9 million compared with $18.6 million at June 30, 2015. Remaining cash debt service for 2015 is approximately $0.5 million.
As previously announced on September 30, 2015, the company executed an amendment agreement to its seller-carried promissory note for the acquisition of Hard Rock Solutions in 2014, effective September 28, 2015. The amendment increased the term of the agreement to four years, from two years previously, with an increased interest rate of 5.75%, from 5.25% previously.
Chris Cashion, Chief Financial Officer of SDP, noted, "This second restructuring agreement with the previous owners of Hard Rock Solutions was a necessary step to ensure the financial flexibility that we need in order to carry out our growth strategy during the currently challenging market environment. We effectively reduced our 2016 principal repayment obligations by $3 million, going from $5 million to $2 million. Nonetheless, we are continuing to pursue other strategies to ensure we have the capital needed to grow the business."
Capital expenditures were $0.3 million and $0.9 million for the quarter and year-to-date periods, respectively. For 2015, capital expenditures are expected to be approximately $1.4 million.
2015 Outlook
Mr. Meier concluded, "While these remain trying times for our industry and financial resources are challenging, we believe we have the right tools to address the issues E&P companies and service providers are facing as they balance the need to increase production at the lowest lifting costs possible and with the least amount of investment required."
SDP expects fourth quarter 2015 revenue to be similar to the third quarter. SG&A expenses are expected to be approximately $1.25 million to $1.35 million, and depreciation and amortization expense is expected to also be similar to the third quarter level. Adjusted EBITDA for 2015 is expected to be approximately $250,000 to $300,000 which results in forecasted fourth quarter adjusted EBITDA of between $350,000 and $400,000.
Webcast and Conference Call
The Company will host a conference call and live webcast today at 11:00 am CT (12:00 pm ET) to provide a strategic update and outlook as well as review the operating results for its third quarter 2015. 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_presentations.html . 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_presentations.html .
To listen to the archived call, dial (858) 384-5517 and enter replay number 13621148. A telephonic replay will be available from approximately 2:00 pm CT (3:00 pm ET) on the day of the call through Friday, November 20, 2015. A transcript of the call will be available for download from the SDP website once available.
About Superior Drilling Products, Inc.
Superior Drilling Products, Inc. is an innovative, cutting-edge drilling tool technology company. The Company manufactures, repairs, sells and rents drilling tools. SDP manufactures and markets drill string tools, including the patented Drill-N-Ream™ well bore conditioning tool, for the oil, natural gas and mining services industries. In addition, SDP is a manufacturer and refurbisher of PDC (polycrystalline diamond compact) drill bits for a leading oil field services company. SDP operates a state-of-the-art drill tool machining facility manufacturing for its customer's custom products and solutions for the drilling industry. The Company's strategy is to leverage its technological expertise in drill tool technology and innovative, precision machining to broaden its drill tool technology offerings for rent or sale, while establishing an effective sales and logistics infrastructure through which it can provide proprietary tools to exploration and production companies and drill rig operators.
Additional information about the Company can be found at its website: www.sdpi.com .
Safe Harbor Regarding Forward Looking Statements
This news release contains "forward-looking statements" within the meaning of the safe harbor provisions, 15 U.S.C. § 78u-5, of the Private Securities Litigation Reform Act of 1995. 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 current 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. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by the Company in this news release is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
| Superior Drilling Products, Inc. | ||||
| Consolidated Statements of Operations | ||||
| (unaudited) | ||||
| For the Three Months | For the Nine Months | |||
| Ended September 30, | Ended September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Revenue | $3,017,720 | $5,750,739 | $9,973,709 | $13,949,883 |
| Operating costs and expenses | ||||
| Cost of revenue | 1,521,972 | 1,804,872 | 5,026,021 | 4,401,417 |
| Selling, general & administrative | 1,866,791 | 3,145,149 | 5,706,431 | 5,725,178 |
| Depreciation & amortization | 1,220,548 | 1,166,682 | 3,526,028 | 2,133,405 |
| Total operating expenses | 4,609,311 | 6,116,703 | 14,258,480 | 12,260,000 |
| Operating (loss) income | (1,591,591) | (365,964) | (4,284,771) | 1,689,883 |
| Operating margin | -52.7% | -6.4% | -43.0% | 12.1% |
| Other income (expense) | ||||
| Interest income | 73,318 | 75,242 | 219,886 | 98,314 |
| Interest expense | (421,341) | (696,686) | (1,463,024) | (1,663,464) |
| Other income | 56,726 | 101,348 | 185,811 | 286,001 |
| Loss on sale of assets | (10,202) | (297,470) | (93,088) | (284,176) |
| Change in guaranteed debt | -- | -- | -- | (45,834) |
| Total other expense | (301,499) | (817,566) | (1,150,415) | (1,609,159) |
| (Loss) income before income taxes | (1,893,090) | (1,183,530) | (5,435,186) | 80,724 |
| Income tax expense (benefit) | 47,223 | (525,822) | (216,090) | 552,223 |
| Net loss | $ (1,940,313) | $ (657,708) | $ (5,219,096) | $ (471,499) |
| Basic loss per common share | $ (0.11) | $ (0.04) | $ (0.30) | $ (0.04) |
| Basic weighted average common shares outstanding | 17,432,274 | 17,291,646 | 17,317,780 | 12,665,122 |
| Diluted loss per common share | $ (0.11) | $ (0.04) | $ (0.30) | $ (0.04) |
| Diluted weighted average common shares outstanding | 17,432,274 | 17,291,646 | 17,317,780 | 12,665,122 |
| Superior Drilling Products, Inc. | ||
| Condensed Consolidated Balance Sheet | ||
| September 30, 2015 | December 31, 2014 | |
| ASSETS | (unaudited) | |
| Current assets | ||
| Cash | $ 1,928,207 | $ 5,792,388 |
| Accounts receivable | 1,935,827 | 4,403,001 |
| Prepaid expenses | 190,175 | 163,934 |
| Inventory | 1,457,940 | 1,219,079 |
| Current deferred tax asset | -- | 271,298 |
| Other current assets | 217,192 | 45,000 |
| Total current assets | 5,729,341 | 11,894,700 |
| Property, plant and equipment, net | 15,081,140 | 15,963,629 |
| Intangible assets, net | 11,637,778 | 13,472,778 |
| Goodwill | 7,802,903 | 7,802,903 |
| Note receivable | 8,296,717 | 8,296,717 |
| Other assets | 29,969 | 112,606 |
| Total assets | 48,577,848 | 57,543,333 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | 522,768 | 893,376 |
| Accrued expenses | 1,664,986 | 1,967,091 |
| Income tax payable | 1,000 | 1,000 |
| Current portion of capital lease obligation | 321,783 | 292,979 |
| Current portion of related party debt obligation | 521,827 | 492,452 |
| Current portion of long-term debt | 2,599,303 | 10,720,243 |
| Total current liabilities | 5,631,667 | 14,367,141 |
| Deferred tax liability | 257,189 | 744,577 |
| Capital lease obligation, less current portion | 333,051 | 578,273 |
| Related party debt, less current portion | 722,696 | 1,117,820 |
| Long-term debt, less current portion | 16,349,478 | 10,669,311 |
| Total liabilities | 23,294,081 | 27,477,122 |
| Commitments and contingencies | ||
| Stockholders' equity | ||
| Common stock - $0.001 par value; 100,000,000 shares authorized; 17,432,274 and 17,291,646 shares issued and outstanding | 17,432 | 17,292 |
| Additional paid-in-capital | 31,252,121 | 30,815,609 |
| Retained deficit | (5,985,786) | (766,690) |
| Total stockholders' equity | 25,283,767 | 30,066,211 |
| Total liabilities and stockholders' equity | $ 48,577,848 | $ 57,543,333 |
| Superior Drilling Products, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (unaudited) | ||
| For the Nine Months Ended | ||
| September 30, | ||
| 2015 | 2014 | |
| Cash Flows From Operating Activities | ||
| Net loss | $ (5,219,096) | $ (471,499) |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||
| Depreciation and amortization expense | 3,526,028 | 2,133,405 |
| Amortization of debt discount | 516,646 | 322,723 |
| Deferred tax (benefit) expense | (216,090) | 550,616 |
| Share-based compensation expense | 436,652 | -- |
| Change in guaranteed debt | -- | 45,837 |
| Loss on disposition of assets | 93,088 | 284,176 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 2,467,174 | (1,281,111) |
| Inventory | (238,861) | (532,842) |
| Prepaid expenses and other current assets | (198,433) | (104,854) |
| Other assets | 82,638 | (262,515) |
| Accounts payable and accrued expenses | (672,713) | 2,014,039 |
| Other liabilities | -- | 7,500 |
| Net Cash Provided by Operating Activities | 577,033 | 2,705,475 |
| Cash Flows From Investing Activities | ||
| Purchases of property, plant and equipment | (901,627) | (851,122) |
| Note receivable to Tronco | -- | (8,296,717) |
| Purchase of Hard Rock assets | -- | (12,500,000) |
| Net Cash Used in Investing Activities | (901,627) | (21,647,839) |
| Cash Flows From Financing Activities | ||
| Principal payments on debt | (3,004,718) | (2,333,613) |
| Principal payments on related party debt | (365,749) | -- |
| Principal payments on capital lease obligations | (216,418) | (190,848) |
| Proceeds received from borrowings on debt | 47,298 | 2,000,000 |
| Proceeds received from issuance of common stock | -- | 31,050,000 |
| Initial Public Offering costs | -- | (3,578,865) |
| Capital distributions | -- | (2,053,861) |
| Net cash (used in) provided by financing activities | (3,539,587) | 24,892,813 |
| Net (decrease) increase in cash | (3,864,181) | 5,950,449 |
| Cash at Beginning of Period | 5,792,388 | 11,256 |
| Cash at End of Period | $ 1,928,207 | $ 5,961,705 |
| Superior Drilling Products, Inc. | ||||
| Adjusted EBITDA (1) Reconciliation | ||||
| (unaudited) | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| GAAP net (loss) income | $ (1,940,313) | $ (657,708) | $ (5,219,096) | $ (471,499) |
| Add back: | ||||
| Income tax expense (benefit) | 47,223 | (525,822) | (216,090) | 552,223 |
| Interest expense, net | 348,023 | 621,444 | 1,243,138 | 1,565,150 |
| Depreciation and amortization | 1,220,548 | 1,166,682 | 3,526,028 | 2,133,405 |
| Non-recurring expenses | -- | 383,664 | -- | 383,664 |
| Loss on sale of assets | 10,202 | 297,470 | 93,088 | 284,176 |
| Employee severance | 45,000 | -- | 55,000 | -- |
| Stock based compensation | 331,496 | -- | 436,652 | -- |
| Non-GAAP Adjusted EBITDA(1) | $ 62,179 | $ 1,285,730 | $ (81,280) | $ 4,447,119 |
| (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. | ||||||||
| GAAP Net (Loss) Income to Non-GAAP Adjusted Net Income Reconciliation | ||||||||
| (unaudited) | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2015 | 2014 | 2015 | 2014 | |||||
| $ | per diluted share | $ | per diluted share | $ | per diluted share | $ | per diluted share | |
| GAAP net income | $ (1,940,313) | $ (0.11) | $ (657,708) | $ (0.04) | $ (5,219,096) | $ (0.30) | $ (471,499) | $ (0.04) |
| Add back: | ||||||||
| Deferred tax expense | -- | -- | -- | -- | -- | -- | 1,078,045 | 0.09 |
| Intangible amortization | 611,667 | 0.04 | 611,667 | 0.04 | 1,835,000 | 0.11 | 815,556 | 0.06 |
| Non-recurring expenses | -- | -- | 383,664 | 0.02 | -- | -- | 383,664 | 0.03 |
| Loss on sale of assets | 10,202 | -- | 297,470 | 0.02 | 93,088 | -- | 284,176 | 0.03 |
| Employee severance | 45,000 | -- | -- | -- | 55,000 | -- | -- | -- |
| Non-GAAP adjusted net income | $ (1,273,444) | $ (0.07) | $ 635,093 | $ 0.04 | $ (3,236,008) | $ (0.19) | $ 2,089,942 | $ 0.17 |
For more information, contact investor relations: Deborah K. Pawlowski / Garett K. Gough Kei Advisors LLC (716) 843-3908 / (716) 846-1352 /
