ROHSTOFF INTERNATIONAL

12:30 | 08.03.2018
Superior Drilling Products, Inc. Reports 60% Growth in Revenue for Fourth Quarter 2017

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)%

 

$

 

 

 
NMTotal 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, 2016Assets

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
2016Cash 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/


NEWSLETTER

Abonnieren Sie jetzt unseren
aktuellen Newsletter

WIRTSCHAFTSNACHRICHTEN

15:52 Uhr | 18.06.2018
Börse Frankfurt-News: ...


15:38 Uhr | 18.06.2018
Gesetzliche Krankenkassen weiter ...


15:34 Uhr | 18.06.2018
BMW investiert 42 Millionen Euro ...


15:33 Uhr | 18.06.2018
Seehofer: 'Grundlegender Dissens' ...


15:18 Uhr | 18.06.2018
Online-Spielsucht jetzt offiziell ...