• Second quarter revenue increased $1.1 million, or 34%, to $4.5 million over the prior-year period
• Tool revenue grew 27% over the prior-year period and Contract Services revenue was up 47%
• Strengthening balance sheet with $2.8 million in cash and $6.7 million in shareholders’ equity at quarter-end
• Secured strategic International channel partner in the Middle East and North Africa
• The Company expects 2022 revenue of between $22 million to $25 million and Adjusted EBITDA* of $6 million to $8 million, which includes the impact of the sale of the initial phase of the existing DNR tool fleet to support Middle East demand.
Superior Drilling Products, Inc., a designer and manufacturer of drilling tool technologies, today reported financial results for the second quarter ended June 30, 2022.
“Our second quarter revenue growth reflected the continued improvement in the oil & gas industry, our success with obtaining additional business with existing customers, and the increasing market for our flagship tool, the Drill-N-Ream® (“DNR”),” commented Troy Meier, Chairman and CEO. “We have continued to see favorable demand in our North America market, and we are encouraged with the improving market conditions in the Middle East. We believe there is significant demand for the DNR internationally. Our recent announcement that Bin Zayed Petroleum for Investment Ltd, one of the foremost global companies with broad petroleum experience, will market and distribute our DNR to key end markets in the Middle East and North Africa is a game-changing event for us. We expect customers to adopt the technology quickly given our new channel partner’s scale, customer reach and market access.”
Mr. Meier added, “Our contract services business has been very strong as we continue to expand the volume and products we manufacture and refurbish for our long-time legacy customer. Equally exciting, is the number of inquiries and discussions we are having with other major industry players to leverage our state-of-the-art drilling tool fabrication facility and expertise to support their growth initiatives and strategies. Our efforts going forward are focused on talent acquisition and retention, and ensuring we have the necessary manufacturing capacity to capture the incredible demand for our products and manufacturing services.”
Revenue growth reflects the continued recovery in the North America oil & gas industry and continued strong demand for the manufacture and refurbishment of drill bits and other related tools.
For the second quarter of 2022, North America revenue comprised approximately 89% of total revenue, with remaining sales all within the Middle East. Revenue in North America grew year-over-year from increased Tool Revenue and strong growth in Contract Services. Over the last year, International market growth has been at a slower rate compared with the Company’s domestic market due to ongoing pandemic-related restrictions, which have impacted travel, labor recruitment and oil and gas industry investment.
Second Quarter 2022 Operating Costs
The increase in the cost of revenue as a percent of revenue was the result of global inflationary headwinds that affected payroll expenses, raw material cost, supplies, and repair and maintenance costs. In addition, the Company has expanded its workforce to accommodate for its current and expected growth, with talent being added in operations, quality, safety and general production support areas.
Selling, general & administrative expenses were 41.7% of revenue, an improvement of 160 basis points from the prior-year period due to the leverage on higher sales volume. On a sequential basis, the change in SG&A as a percent of revenue was unfavorable due to inflation and higher stock-based compensation expense as well an increase in professional fees.
Depreciation and amortization expense decreased approximately 31% year-over-year to $403 thousand as a result of fully amortizing a portion of intangible assets and fully depreciating manufacturing center equipment.
Balance Sheet and Liquidity
Cash at the end of the quarter was $2.8 million, comparable with year-end 2021. Cash generated by operations for the year-to-date period was $1.4 million compared with $335 thousand in the prior-year period, largely reflecting the improvement in net income. Capital expenditures were $1.2 million for the first six months of 2022, which reflected machining capacity expansion, an increase in maintenance, and an increase in the Company’s Middle East DNR rental tool fleet. The comparable period in 2021 had $55 thousand of capital spending. The Company expects capital spending for fiscal 2022 to range between $3 million to $4 million.
Total debt at quarter-end was $2.4 million, down 2% from December 31, 2021. The Company has sufficient cash to pay off, and expects to retire, the Hard Rock Note with its final $750 thousand payment in October 2022.
2022 Outlook and Guidance
The Company’s expectations for 2022 are as follows:
Revenue: $22 million to $25 million
SG&A: $7.0 million to $7.3 million
Adjusted EBITDA: $6 million to $8 million
The full year 2022 expectations reflects the impact from the sale of the $3.8 million stage one MENA DNR fleet to Bin Zayed Petroleum in the third quarter of 2022. The Company expects third quarter 2022 revenue will be $8 million to $9 million and Adjusted EBITDA to range between $3.5 million to $4.0 million.
Mr. Meier concluded, “We are extremely encouraged with the execution of our channel partner agreement with Bin Zayed for the Middle East and North African markets. We believe this progress, combined with our expanded relationship with our long-term legacy customer, will position us well in the global oil & gas industry as we prepare to move into 2023.”
