Superior Drilling Products, Inc. Delivered 17% Revenue Growth and Generated $4.6 Million in Cash for 2018

  • Annual revenue of $18.2 million, up $2.7 million over prior year
  • Other Related Tool Revenue drove the growth as a result of a
    larger deployed tool fleet
  • Annual operating income improved to $300 thousand and net loss
    per diluted share was at break even
  • Cash generated from operations nearly doubled over 2017 to $4.6
    million
  • Expects 24% revenue growth in 2019 at mid-point of revenue
    guidance

VERNAL, Utah–(BUSINESS WIRE)–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, 2018.

Troy Meier, Chairman and CEO, noted, “2018 was a year of many successes
and significant progress for SDP. Of note, our Drill-N-Ream®
(“DNR”), a strongly patented and unique well bore conditioning tool,
continued to gain ground in both North America and the Middle East. We
believe that our accomplishments strengthen the foundation from which we
can drive further growth:

  • We expanded market channels in the Middle East by signing a market
    development agreement with Odfjell Drilling Ltd., which has begun to
    accelerate our market penetration in the region.
  • We established the capability to provide service and support within
    the Middle East through our services agreement with Smith
    International Gulf Services, LLC.
  • We increased the size of the tool fleet we have in the Middle East
    driven by expectations of strong demand.
  • We opened our new Abilene, Texas facility which improves the logistics
    for servicing the Permian and Eagle Ford basins, among others. It also
    provides the opportunity for enhancing our bit repair potential.
  • We made substantial progress in the development of our StriderTM
    technology, an extended reach tool. Upon commercialization of this
    tool, we will provide full service support from our Abilene, Texas
    facility.
  • And, since year end, we now have a stronger balance sheet with our
    debt restructured and greater financial flexibility with a revolving
    credit facility to support our growth working capital requirements.”

He added, “While the fourth quarter was soft, with respect to DNR tool
sales, 2019 has started out strong in both the Middle East and North
America. The DNR’s market acceptance in the Middle East is expanding
quickly and we believe we are positioned to address a rapid increase in
demand. We continue to engage in productive dialogue with our North
American DNR distributor to pursue options and opportunities to increase
domestic market penetration.”

Fourth Quarter 2018 Review ($ in thousands, except per share
amounts)

   

Q4
2018

 

Q4
2017

 

$Y/Y
Change

 

% Y/Y
Change

 

Q3
2018

 

$ Seq.
Change

 

% Seq.
Change

Tool sales/rental $ 426 $ 1,434 $ (1,007 )   (70.3)% $ 1,655 $ (1,229 ) (74.2) %

Other Related
Tool Revenue

  1,754     1,240     513     41.3%     1,706     47     2.7%
Tool Revenue 2,180 2,674 (495 ) (18.5)% 3,361 (1,182 ) (35.2) %
Contract Services       1,301     1,056     245     23.2%     1,404     (103 )   (7.3) %
Total Revenue     $ 3,481   $ 3,730   $ (249 )   (6.7)%   $ 4,765   $ (1,285 )   (27.0) %

When compared with the prior-year period, growth in Other Related Tool
Revenue, which is comprised of royalties and fleet maintenance fees, was
the result of a larger fleet of deployed DNR tools being actively used
in drilling operations. This increase, combined with higher contract
services revenue, mostly offset lower tool sales/rental revenue. While
tool rentals increased from activity in the Middle East, total tool
sales/rental revenue declined on lower DNR tool sales in the U.S.
Additionally, the DNR is demonstrating a longer than previously expected
tool life which has the effect of delaying new tool sales but adds
additional refurbishments per tool. The Company also believes that the
addition of the new service center in Texas created greater logistical
efficiency for its distributor, temporarily reducing the need to add
tools to the deployed fleet.

Fourth Quarter 2018 Operating Expenses

($ in thousands)

 

   

Q4
2018

 

Q4
2017

 

$ Y/Y
Change

 

% Y/Y
Change

 

Q3
2018

 

$ Seq.
Change

 

% Seq.
Change

Cost of revenue $ 1,670 $ 1,571 $ 99 6.3% $ 1,666 $ 4 0.3%
As a percent of sales 48.0 % 42.1 % 35.0 %

Selling, general &
administrative

$ 2,116 $ 1,897 $ 219 11.5% $ 1,867 $ 249 13.3%
As a percent of sales 60.8 % 50.9 % 39.2 %

Depreciation &
amortization

    $ 940     $ 931     $ 9     0.9%   $ 942       (2 )   (0.3) %

Total operating
expenses

    $ 4,726     $ 4,400     $ 326     7.4%   $ 4,475     $ 251     5.6%

Operating income
(loss)

$ (1,245 ) $ (670 ) $ (575 )

NM

$ 290 $ (1,535 ) NM
As a % of sales       (35.8 )%     (18.0 )%             6.1 %        
Net income (loss) $ (1,357 ) $ (786 ) $ (571 ) NM $ 225 $ (1,582 ) NM

Diluted earnings
(loss) per share

$ (0.05 ) $ (0.03 ) $ (0.02 ) NM $ 0.01 $ (0.06 ) NM
Adjusted EBITDA(1)     $ 219     $ 791     $ (572 )   (72.3)%   $ 1,365     $ (1,146 )   (83.9)%

The cost of revenue increase represents the impact of lower volume and a
larger cost base from the investment in the new Abilene, Texas service
center. Cost of revenue included a $116 thousand impairment charge
related to slow moving raw material inventory.

The $200 thousand increase in selling, general and administrative
expense (SG&A) over the prior-year period reflects higher investments in
research and development, international market expansion and higher
payroll costs, mostly as a result of the reinstatement of executive
salaries and director fees following the reduction that was instituted
in October 2016.

Net loss increased as a result of both lower revenue and the increase in
costs related to investments in growth. Adjusted EBITDA(1), a
non-GAAP measure defined as earnings before interest, taxes,
depreciation and amortization, non-cash stock compensation expense and
unusual items, declined for similar reasons.

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 loss to Adjusted
EBITDA.

Full Year 2018 Review

($ in thousands, except per share amounts)

 

2018

   

2017

   

$
Change

 

%
Change

Tool sales/rental $ 6,580 $ 6,691 $ (111 ) (1.7) %

Other Related Tool
Revenue

    6,562       3,906       2,656     68.0%
Tool Revenue 13,142 10,597 2,545 24.0%
Contract Services     5,104       4,999       105     2.1%
Total Revenue   $ 18,245     $ 15,596     $ 2,650     17.0%
Operating expenses   17,945     15,371     2,574   16.7%
Operating income   300     225     76   33.7%
Net loss $ (58 ) $ (279 ) $ 220   NM
Diluted loss per share $ (0.00 ) $ (0.01 ) $ 0.01   NM
Adjusted EBITDA(1) $ 4,957 $ 4,972 $ (15 ) 0%

Revenue for the full year 2018 increased 17%, or $2.7 million, over
2017, driven by strong growth in tool revenue as a result of increased
market share, including initial entry into the Middle East market,
combined with increases in royalty and repair revenue resulting from a
significantly larger fleet of DNRs in operation in 2018, compared with
2017. Operating income improved to $300 thousand while operating margin
improved 20 basis points despite a $2.6 million increase in operating
expenses supporting the Middle East expansion, addition of the Texas
service center and the development of the Strideroscillation
system technology.

Net loss for the full year 2018 improved by $221 thousand to near
breakeven with a loss of $58 thousand. Contributing to the improvement
to the bottom line was an $86 thousand increase in interest income and a
$132 thousand decline in interest expense on lower debt balances. On a
per diluted share basis, net income was breakeven. Adjusted EBITDA(1)
for 2018 was relatively unchanged at $5.0 million. Adjusted EBITDA
margin was 27% in 2018, compared with 32% in 2017.

Balance Sheet and Liquidity

Cash and cash equivalents was $4.3 million at December 31, 2018, up from
$2.4 million at the end of 2017. Cash generated from operations was $4.6
million, compared with $2.4 million in 2017.

Capital expenditures were $562 thousand in the fourth quarter as the
Company grew its own fleet of tools for the Middle East market. For the
full year, capital expenditures were $745 thousand.

Total debt at the end of the year was $10.9 million, down $1.9 million,
or 15.1%, compared with $12.8 million at December 31, 2017.

At December 31, 2018, SDP had working capital of approximately $1.7
million as a result of refinancing its $4.2 million real estate loan on
its Vernal, Utah corporate headquarters and manufacturing campus and
extending its maturity to February 15, 2021 at a rate of 7.25%.

On February 15, 2019, the Company secured a new $4.3 million credit
facility which included a $0.8 million term loan and a $3.5 million
revolver. The $0.8 million term loan is to support the expansion of the
Middle East DNR rental tool fleet.

2019 Outlook and Guidance estimates:

Mr. Meier concluded, “We expect 2019 to be another year of robust
growth. We expect further global market share gains with our unique well
bore conditioning tool will drive that expansion. In fact, we anticipate
revenue will be up almost 24% at the mid-point of our expected revenue
range for the year. We are making sure we can serve the strong demand
for our tool and that we are structured to provide the necessary service
support to ensure its quality in the field. Our team is energized to
excel in the oil & gas industry with this tool and our Strider
Technology oscillation system.”

Revenue:

  $21 million to $24 million

Gross margin:

  58% to 61%

SG&A expenses:

  $8.0 million to $9.0 million

D&A:

  $4.0 million to $4.3 million

Interest Expense:

  Approximately $780 thousand

Capital Expenditures:

  Approximately $2.8 million
 

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 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 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 Thursday, March 14, 2019. To listen
to the archived call, dial (412) 317-6671 and enter conference ID number
13686204, 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, 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, success at expansion in the Middle East, options available for
market channels in North America, commercialization of the Strider
technology, the success of the Company’s business strategy and prospects
for growth; 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.

FINANCIAL TABLES FOLLOW.

         

Superior Drilling Products, Inc.
Consolidated
Condensed Statements Of Operations

for the Year Ended
December 31, 2018 and 2017

(unaudited)

 

 

For the Three Months

Ended December 31,

For the Year Ended

Ended December 31,

 
  2018     2017     2018     2017  
 
Revenue $ 3,480,635   $ 3,730,010   $ 18,245,212   $ 15,595,659  
 
Operating cost and expenses
 
Cost of revenue 1,669,955 1,571,367 7,077,344 5,960,223
Selling, general, and administrative expenses 2,115,951 1,897,092 7,107,432 5,734,315
Depreciation and amortization expense   940,048     931,368     3,760,231     3,676,598  
 
Total operating costs and expenses   4,725,954     4,399,827     17,945,007     15,371,136  
 
Operating income (loss)   (1,245,319 )   (669,817 )   300,205     224,523  
 
Other income (expense)
Interest income 127,059 91,601 432,753 346,926
Interest expense (220,988 ) (207,351 ) (773,680 ) (905,990 )
Other income 43,669
Gain (loss) on sale or disposition of assets   (14,013 )       (14,013 )   12,167  
Total other expense   (107,942 )   (115,750 )   (354,940 )   (503,228 )
 
Income before income taxes $ (1,353,261 ) $ (785,567 ) $ (54,735 ) $ (278,705 )
Income tax expense (3,640 ) (3,640 )
Net loss $ (1,356,901 ) $ (785,567 ) $ (58,375 ) $ (278,705 )
 

Basic income (loss) earnings per common share

$ (0.05 ) $ (0.03 ) $ (0.00 ) $ (0.01 )
 
Basic weighted average common shares outstanding   24,820,600     24,416,577     24,608,967     24,268,409  
 

Diluted income (loss) per common share

$ (0.05 ) $ (0.03 ) $ (0.00 ) $ (0.01 )
 
Diluted weighted average common shares outstanding   24,820,600     24,416,577     24,608,967     24,268,409  
 
       

Superior Drilling Products, Inc.
Consolidated
Condensed Balance Sheets

(Unaudited)

 
 

 

December 31,
2018

 

December 31,
2017

 
Assets
Current assets:
Cash $ 4,264,767 $ 2,375,179
Accounts receivable, net 2,273,189 2,667,042
Prepaid expenses 133,607 111,530
Inventories 1,003,623   1,196,813  
Total current assets 7,675,186 6,350,564
 
Property, plant and equipment, net 8,226,009 8,809,348
Intangible assets, net 3,686,111 6,132,778
Related party note receivable 7,367,212 7,367,212
Other noncurrent assets   51,887     15,954  
Total assets $ 27,006,405   $ 28,675,856  
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 717,721 $ 1,021,469
Accrued expenses 631,860 543,758
Income tax payable 3,640
Current portion of long-term debt, net of discounts 4,578,759   6,101,678  
Total current liabilities $ 5,931,980 $ 7,666,905
 
Long-term debt, less current portion, net of discounts 6,296,994   6,706,375  
Total liabilities $ 12,228,974 $ 14,373,280
 
Stockholders’ equity
Common stock (25,018,098 and 24,535,334) 25,018 24,535
Additional paid-in-capital 39,440,611 38,907,864
Accumulated deficit   (24,688,198 )   (24,629,823 )
Total stockholders’ equity $ 14,777,431   $ 14,302,576  
Total liabilities and shareholders’ equity $ 27,006,405   $ 28,675,856  
 
 

Superior Drilling Products, Inc.
Consolidated
Condensed Statement of Cash Flows

For The Years Ended
December 31, 2018 and 2017

(Unaudited)

   
December 31, 2018   December 31, 2017
Cash Flows From Operating Activities

Net Loss

$ (58,375 ) $ (278,705 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization expense 3,760,231 3,676,598
Amortization of debt discount 77,641 79,424
Share based compensation expense 518,956 612,851
Income tax expense 3,640
Impairment of inventories 116,396
Loss (gain) on sale of assets 14,013 (12,167 )
Changes in operating assets and liabilities:
Accounts receivable 393,853 (1,628,378 )
Inventories 77,760 (29,121 )
Prepaid expenses and other current assets (58,010 ) (21,757 )
Accounts payable and accrued expenses (215,646 ) 13,990
Other long-term liabilities       (53,355 )
Net Cash Provided By Operating Activities $ 4,630,459   $ 2,359,380  
 
Cash Flows From Investing Activities
Purchases of property, plant and equipment (745,204 ) (936,118 )
Proceeds from sale of fixed assets       2,483,921  
Net Cash Provided By (Used In) Investing Activities   (745,204 )   1,547,803  
 
Cash Flows From Financing Activities
Principal payments on debt (2,009,941 ) (3,482,311 )
Principal payments on capital lease obligations (217,302 )
Principal payments on related party debt (74,293 )
Proceeds from exercised stock options   14,274      
Net Cash Used In Financing Activities

 

(1,995,667 )   (3,773,906 )
 
Net Increase in Cash 1,889,588 133,277
Cash at Beginning of Period   2,375,179     2,241,902  
Cash at End of Period $ 4,264,767   $ 2,375,179  
 
Supplemental information:
Cash paid for interest $ 577,814 $ 851,671

Non-cash payment of other long-term liability and interest by
offsetting related party note receivable

$ 377,746 $ 1,267,711
Acquisition of equipment by issuance of note payable $ $ 16,557
 
           

Superior Drilling Products, Inc.
Adjusted EBITDA(1)
Reconciliation

(unaudited)

 

Three Months Ended

December 31, 2018     December 31, 2017     September 30, 2018
 
GAAP net income $ (1,356,901) $ (785,567)

 

$ 225,194
Add back:
Depreciation and amortization 940,048 931,368

 

942,473
Interest expense, net 93,929 115,750

 

65,087
Share-based compensation 146,745 114,467

 

131,867
Net non-Cash compensation 377,746 414,497

 

Loss on disposition of assets 14,013

 

Income tax expense (benefit)   3,640    

 

 
Non-GAAP adjusted EBITDA(1) $ 219,220 $ 790,515

 

$ 1,364,621
 
GAAP Revenue $ 3,480,635 $ 3,730,010

 

$ 4,765,361
Non-GAAP Adjusted EBITDA Margin 6.3% 21.2% 28.6%
 
 
Year Ended
December 31, 2018 December 31, 2017
 
GAAP net income $ (58,375) $ (278,705)
Add back:
Depreciation and amortization 3,760,231 3,676,598
Share-based compensation 518,956 612,851
Net non-cash compensation 377,746 414,497
Interest expense, net 340,927 559,064
Provision for income tax expense 3,640
(Gain) loss on disposition of assets   14,013   (12,167)
Non-GAAP Adjusted EBITDA(1) $ 4,957,138 $ 4,972,138
 
GAAP Revenue $ 18,245,212 $ 15,595,659
Non-GAAP Adjusted EBITDA Margin 27.2% 31.9%
 

(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, 2018     September 30, 2018     December 31, 2017
 
Income (loss) from operations $ (1,245,319) $ 290,281

 

$ (669,817)
Add back:
Atypical bonus expense 716,786

 

587,500
Inventory impairment   116,396      
Non-GAAP adjusted income from operations $ (412,137) $ 290,281

 

$ (82,317)
 
GAAP Revenue $ 3,480,635 $ 4,765,361

 

$ 3,730,010
Adjusted Operating Margin -11.8% 6.1% -2.2%
 
 
Year Ended
31-Dec-18 31-Dec-17
 
Income (loss) from operations $ 300,205 $ 224,523
Add back:
Atypical bonus expense 716,786 587,500
Inventory impairment   116,396  
Non-GAAP adjusted income from operations $ 1,133,387 $ 812,023
 
GAAP Revenue $ 18,245,212 $ 15,595,659
Adjusted Operating Margin 6.2% 5.2%
 

(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.

Contacts

Deborah K. Pawlowski
Kei Advisors LLC
(716) 843-3908
dpawlowski@keiadvisors.com

Leave a Reply

Laurel McBride real estate agent with Century 21 N and N Realtors with homes for sale in Logan Utah