VERNAL, Utah, Aug. 14, 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 second quarter ended June 30, 2015. Financial results include the May 29, 2014 acquisition of Hard Rock Solutions, LLC ("Hard Rock") which included the Drill N Ream™ and the January 9, 2015 acquisition of the OrBIT completion drill bit product line.
Second Quarter 2015 Summary
- As previously announced on July 23, 2015, second quarter 2015 revenue was $2.9 million.
- Drill N Ream, a patented bore hole conditioning tool, was used in 174 runs in the quarter, down slightly from 185 in the trailing first quarter despite the average rig count declining 35%.
- Market share increased with the addition of four new customers during the quarter. The Company now has 34 customers using the Drill N Ream and also entered a new basin in the quarter with a current customer.
- Selling, general and administrative, including research and engineering, (SG&A) expenses were reduced by $277 thousand, compared with trailing first quarter, reflecting the decline in R&D costs as the Company moved from tool prototype development to tool lab testing.
- Strider™, a proprietary drill string stimulation tool, demonstrated outstanding results in its first field test. OrBit's cutting structure is ready to be field tested.
Second Quarter 2015 Results
Revenue from the Company's traditional refurbishment and third party manufacturing business (contract services) was $1.1 million, down from $1.8 million in the trailing 2015 first quarter and $3.6 million in the prior-year period. Revenue from the rental and repair of the Drill N Ream (tool revenue) was $1.8 million compared with $2.2 million in the trailing first quarter. The prior year's second quarter included one month of the Hard Rock acquisition which contributed $0.7 million of rental revenue from the DNR, as well as $0.2 million of royalty revenue.
During the quarter, SDP averaged 16 customers per month running its well bore conditioning tool, compared with 14 in the trailing first quarter. The Company had a monthly average of 58 Drill N Ream runs in the second quarter compared with 62 monthly average runs in the trailing first quarter. Average revenue per run was $9.6 thousand, down from $11.1 thousand in the trailing quarter. The decline reflects pricing pressure resulting from the low oil price environment.
Troy Meier, Chairman and CEO of Superior Drilling Products, noted, "We believe that our traditional refurbishment business has settled at a rate somewhat better than the rig count decline. And, we are making solid headway with the success of the Drill N Ream, even against these market headwinds. While pricing pressure in the quarter was more pronounced than we had anticipated, pricing appears to have stabilized."
He continued, "We are intent upon strengthening our sales and marketing processes. We are upgrading our sales force and will be hiring in-region sales staff, as well. We are progressing in the development of our new customer relationship management system which we expect will drive greater discipline and follow-through, while also improving reporting. Of note, I am intensely focused on commercializing the Strider, a differentiated solution for putting more weight on bit, and the now more robust OrBit, which diversifies us into the completion market."
Cost of revenue was $1.6 million, up from $1.4 million in the second quarter of 2014, but down from $1.9 million in the trailing first quarter. As a percent of sales, cost of revenue was 55.0% in the 2015 second quarter compared with 30.6% in the prior-year period. Higher cost of revenue as a percent of sales reflects the investment in the rental tool field sales and distribution infrastructure and under absorption of manufacturing costs on lower volume.
Selling, general and administrative and research and engineering (SG&A) expenses were $1.8 million compared with $1.5 million in the prior-year period and $2.1 million in the trailing 2015 first quarter. The $0.3 million increase relative to the prior-year period was comprised of $0.1 million of higher research and development costs, while the costs associated with the full quarter of the Hard Rock acquisition and becoming a public company comprised the remaining increase. When compared with the trailing quarter, a reduction in R&D spending drove the $0.3 million reduction in SG&A.
Depreciation and amortization (D&A) was up $0.5 million over the prior-year period to $1.2 million, primarily as a result of the full quarter of the acquisition.
Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization was a loss of $0.4 million. 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, also a non-GAAP measure, was $1.6 million, or $(0.09) per diluted share, in the second quarter. Adjusted net loss excludes intangible asset amortization expense of $0.6 million after tax. GAAP net loss was $2.2 million, or $(0.13) per share. See attached tables for a reconciliation of GAAP net loss to adjusted net income.
First Half 2015 Review
Sales for the first half of 2015 were $7.0 million, down $1.2 million, or 15.2%, from the prior year's first half. A $2.9 million increase in revenue related to the Drill N Ream (tool revenue) to $4.0 million helped to offset the $4.1 million decline in the Company's traditional refurbishment and third party manufacturing business (contract services), which was $2.9 million in the 2015 first half.
Cost of revenue for the first half of 2015 was $3.5 million, up $0.9 million from the prior-year period. SG&A expense of $3.8 million was up from $2.6 million in the prior-year period, and D&A expense was $2.3 million compared with $1.0 million in the first six months of 2014. Increased 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.
First half 2015 EBITDA was a loss of $0.3 million, and reflects the downturn in drilling activity and the energy markets in general 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 $2.1 million in the first half of 2015 compared with adjusted net income of $1.5 million in the prior-year period. Adjusted net loss for the first half of 2015 excluded $1.2 million of intangible amortization. For the first half of 2014, adjusted net income excluded $0.2 million of intangible amortization and $1.1 million of deferred tax expense. GAAP net loss was $3.3 million in the first half of 2015 compared with $0.2 million of net income in the prior-year period.
Balance Sheet Update
Cash used in operations in the second quarter was $0.1 million. Cash on hand at June 30, 2015 was $2.5 million.
Total debt as of June 30, 2015 was $21.1 million. Debt, net of cash, was $18.6 million compared with $18.0 million at March 31, 2015. Remaining cash debt service for 2015 is approximately $1.0 million.
Chris Cashion, Chief Financial Officer of SDP, noted, "We believe that cash on hand and what we expect to generate from operations are sufficient to cover working capital requirements, capital expenditures and debt service for the remainder of 2015. We are negotiating another potential restructuring of the Hard Rock loan and are in process with the financing of our $1.5 million machine tool to provide for sufficient liquidity as we move into 2016."
Capital expenditures were $0.3 million and $0.6 million for the quarter and year-to-date periods, respectively. For 2015, capital expenditures are expected to be approximately $1.2 million to $1.4 million.
2015 Outlook
Mr. Meier concluded, "We are encouraged with the feedback we have received on the Strider in the Bakken. In fact, there have been more customer requests for Strider after hearing about the results."
SDP expects revenue in 2015 to be in the range of $14 million to $16 million, driven by continued success of the Drill N Ream and the commercialization of the Strider and OrBit. Sales will increase sequentially, with the fourth quarter being the strongest quarter. SG&A is expected to be between $1.6 million and $1.7 million per quarter. EBITDA is expected to be positive for the year.
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 provide a strategic update and outlook as well as review the operating results for its second 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 13614278. A telephonic replay will be available from approximately 1:00 pm MT (3:00 pm ET) on the day of the call through Friday, August 21, 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 Six Months | |||
| Ended June 30, | Ended June 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Revenue | $2,881,372 | $4,468,675 | $6,955,990 | $8,202,342 |
| Operating costs and expenses | ||||
| Cost of revenue | 1,585,018 | 1,368,243 | 3,504,050 | 2,601,615 |
| Selling, general & administrative | 1,780,649 | 1,524,762 | 3,840,423 | 2,580,028 |
| Depreciation & amortization | 1,170,204 | 723,049 | 2,318,701 | 1,043,616 |
| Total operating expenses | 4,535,871 | 3,616,054 | 9,663,174 | 6,225,259 |
| Operating (loss) income | (1,654,499) | 852,621 | (2,707,184) | 1,977,083 |
| Operating margin | -57.4% | 19.1% | -38.9% | 24.1% |
| Other income (expense) | ||||
| Interest income | 73,293 | 23,072 | 146,569 | 23,072 |
| Interest expense | (467,252) | (579,047) | (1,027,680) | (889,886) |
| Other income | 57,026 | 89,048 | 129,085 | 186,526 |
| (Loss) gain on disposition of assets | (27,666) | 13,292 | (82,886) | 13,292 |
| Change in guaranteed debt | -- | -- | -- | (45,834) |
| Total other expense | (364,599) | (453,635) | (834,912) | (712,830) |
| (Loss) income before income taxes | (2,019,098) | 398,986 | (3,542,096) | 1,264,253 |
| Income tax expense (benefit) | 216,599 | 1,078,045 | (263,313) | 1,078,045 |
| Net (loss) income | $ (2,235,697) | $ (679,059) | $ (3,278,783) | $ 186,208 |
| Basic (loss) earnings per common share | $ (0.13) | $ (0.06) | $ (0.19) | $ 0.02 |
| Basic weighted average common shares outstanding | 17,291,646 | 11,795,708 | 17,291,646 | 10,313,518 |
| Diluted (loss) earnings per common share | $ (0.13) | $ (0.06) | $ (0.19) | $ 0.02 |
| Diluted weighted average common shares outstanding | 17,291,646 | 11,795,708 | 17,291,646 | 10,439,801 |
| Superior Drilling Products, Inc. | ||
| Condensed Consolidated Balance Sheet | ||
|
June 30, 2015 |
December 31, 2014 |
|
| ASSETS | (unaudited) | |
| Current assets | ||
| Cash | $2,456,108 | $ 5,792,388 |
| Accounts receivable | 2,128,531 | 4,403,001 |
| Prepaid expenses | 211,612 | 163,934 |
| Inventory | 1,478,495 | 1,219,079 |
| Deferred tax asset | -- | 271,298 |
| Other current assets | 143,999 | 45,000 |
| Total current assets | 6,418,745 | 11,894,700 |
| Property, plant and equipment, net | 15,356,949 | 15,963,629 |
| Intangible assets, net | 12,249,445 | 13,472,778 |
| Goodwill | 7,802,903 | 7,802,903 |
| Note receivable | 8,296,717 | 8,296,717 |
| Other assets | 31,318 | 112,606 |
| Total assets | 50,156,077 | 57,543,333 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | $515,220 | 893,376 |
| Accrued expenses | 1,454,467 | 1,967,091 |
| Income tax payable | 2,000 | 1,000 |
| Current portion of capital lease obligation | 311,706 | 292,979 |
| Current portion of related party debt obligation | 511,846 | 492,452 |
| Current portion of long-term debt | 3,012,286 | 10,720,243 |
| Total current liabilities | 5,807,525 | 14,367,141 |
| Deferred tax liability | 208,966 | 744,577 |
| Capital lease obligation, less current portion | 417,280 | 578,273 |
| Related party debt, less current portion | 856,955 | 1,117,820 |
| Long-term debt, less current portion | 15,972,768 | 10,669,311 |
| Total liabilities | 23,263,494 | 27,477,122 |
| Commitments and contingencies | ||
| Stockholders' equity | ||
| Common stock - $0.001 par value; 100,000,000 shares authorized; 17,291,646 shares issued and outstanding | 17,292 | 17,292 |
| Additional paid-in-capital | 30,920,764 | 30,815,609 |
| Retained deficit | (4,045,473) | (766,690) |
| Total stockholders' equity | 26,892,583 | 30,066,211 |
| Total liabilities and stockholders' equity | $ 50,156,077 | $ 57,543,333 |
| Superior Drilling Products, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (unaudited) | ||
| For the Six Months Ended | ||
| June 30, | ||
| 2015 | 2014 | |
| Cash Flows From Operating Activities | ||
| Net (loss) income | $ (3,278,783) | $ 186,208 |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||
| Depreciation and amortization expense | 2,318,701 | 1,043,616 |
| Amortization of debt discount | 411,969 | 324,974 |
| Deferred tax (benefit) expense | (264,313) | 977,326 |
| Share - based compensation expense | 105,155 | -- |
| Change in guaranteed debt | -- | 45,837 |
| Loss on disposition of assets | 82,886 | -- |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 2,274,470 | (606,596) |
| Inventory | (259,416) | (311,463) |
| Prepaid expenses and other current assets | (146,677) | (85,578) |
| Other assets | 68,069 | (106,829) |
| Accounts payable and accrued expenses | (889,780) | 1,268,522 |
| Net Cash Provided by Operating Activities | 422,281 | 2,736,017 |
| Cash Flows From Investing Activities | ||
| Purchases of property, plant and equipment | (558,355) | (429,677) |
| Note receivable to Tronco | -- | (8,296,717) |
| Purchase of Hard Rock assets | -- | (12,500,000) |
| Net Cash Used in Investing Activities | (558,355) | (21,226,394) |
| Cash Flows From Financing Activities | ||
| Principal payments on debt | (2,816,469) | (1,085,219) |
| Principal payments on related party debt | (241,471) | -- |
| Principal payments on capital lease obligations | (142,266) | (125,584) |
| Proceeds received from borrowings on debt | -- | 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 | (3,200,206) | 26,206,471 |
| Net (decrease) increase in cash | (3,336,280) | 7,716,094 |
| Cash at Beginning of Period | 5,792,388 | 11,256 |
| Cash at End of Period | 2,456,108 | 7,727,350 |
| Superior Drilling Products, Inc. | ||||
| Adjusted EBITDA(1) Reconciliation | ||||
| (unaudited) | ||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||
| 2015 | 2014 | 2015 | 2014 | |
| GAAP net (loss) income | $ (2,235,697) | $ (679,059) | $ (3,278,783) | $ 186,208 |
| Add back: | ||||
| Income tax expense (benefit) | 216,599 | 1,078,045 | (263,313) | 1,078,045 |
| Interest expense, net | 393,959 | 555,975 | 881,111 | 866,814 |
| Depreciation and amortization | 1,170,204 | 723,049 | 2,318,701 | 1,043,616 |
| Loss (gain) on sale of assets | 27,666 | (13,292) | 82,886 | (13,292) |
| Non-GAAP Adjusted EBITDA(1) | $ (427,269) | $ 1,664,718 | $ (259,398) | $ 3,161,391 |
| (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 June 30, |
Six Months Ended June 30, |
|||||||
| 2015 | 2014 | 2015 | 2014 | |||||
| $ |
per diluted share |
$ |
per diluted share |
$ |
per diluted share |
$ |
per diluted share |
|
| GAAP net income | $ (2,235,697) | $ (0.13) | $ (679,059) | $ (0.06) | $ (3,278,783) | $ (0.19) | $ 186,208 | $ 0.02 |
| Add back: | ||||||||
| Deferred tax expense | -- | -- | 1,078,045 | 0.09 | -- | -- | 1,078,045 | 0.10 |
| Intangible amortization | 617,536 | 0.04 | 203,889 | 0.02 | 1,223,333 | 0.07 | 203,889 | 0.02 |
| Non-GAAP adjusted net income | $ (1,618,161) | $ (0.09) | $ 602,875 | $ 0.05 | $ (2,055,450) | $ (0.12) | $ 1,468,142 | $ 0.14 |