UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
|||
(State or other jurisdiction of incorporation) |
|
(Commission File Number) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
|
Trading symbol(s) |
|
Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On February 23, 2022, Dril-Quip, Inc. (“Dril-Quip”) reported fourth quarter 2021 earnings. For additional information regarding Dril-Quip’s fourth quarter 2021 earnings, please refer to Dril-Quip’s press release attached to this report as Exhibit 99.1 (the “Press Release”), which Press Release is incorporated by reference herein.
Item 7.01 Regulation FD Disclosure.
On February 23, 2022, Dril-Quip posted the Fourth Quarter 2021 Supplemental Earnings Information presentation (the “Presentation”) to its website at www.dril-quip.com. The Presentation is attached hereto as Exhibit 99.2.
The information in the Press Release and the Presentation is being furnished, not filed, pursuant to Items 2.02 and 7.01. Accordingly, the information in the Press Release and the Presentation will not be incorporated by reference into any registration statement filed by Dril-Quip under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The exhibits listed below are being furnished pursuant to Items 2.02 and 7.01 of this Form 8-K:
Exhibit |
|
Description |
|
|
|
99.1 |
|
|
|
|
|
99.2 |
|
Fourth Quarter 2021 Supplemental Earnings Information Presentation. |
|
|
|
104 |
|
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
DRIL-QUIP, INC. |
||
|
|
|
By: |
|
/s/ Kyle F. McClure |
|
|
Kyle F. McClure |
|
|
Vice President and Chief Financial Officer |
Date: February 23, 2022
Exhibit 99.1
DRIL-QUIP, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 2021 RESULTS
HOUSTON, February 23, 2022 — Dril-Quip, Inc. (NYSE: DRQ), (the “Company” or “Dril-Quip”) today reported operational and financial results for the fourth quarter and full year 2021.
Key highlights include:
Jeff Bird, Dril-Quip’s President and Chief Executive Officer, commented, “As we begin 2022, we are cautiously optimistic we are seeing the first signs of a recovery. Orders finished the year strong above the top end or our Q4 guidance at almost $80 million. We continue to see that strong trend through the first two months of 2022. While there may still be ebbs and flows for product orders on a quarterly basis, we believe an upward trend will continue during 2022 and are
1
expecting a nearly 20% increase in orders compared to the full year of 2021. Further, we believe we have laid strong foundational elements that will serve to benefit us as the markets continue to rebound.”
“First, we continue to build out our peer-to-peer commercial strategy. These actions allow us to partner with market leading companies to jointly serve our customers. This enables us and our partners to take advantage of our respective strengths and be more competitive in our combined offerings. We are pleased with the two collaboration agreements we’ve signed over the last twelve months. We signed a collaboration agreement with OneSubsea in early 2021 to provide both wellheads and liner hangers for projects where we have a more fit-for-purpose offering. This collaboration agreement is giving us significantly more opportunities for our products with customers in underserved markets. While we are already seeing the benefits of this agreement in our downhole tool business, we expect the first subsea wellhead awards will be realized in the coming months.”
“Furthermore, we are pleased to announce our most recent collaboration agreement in the first quarter of 2022 with Aker Solutions. This agreement opens the door for us to participate in a best-in-class carbon capture, utilization and storage offering with our customized injection wellheads and subsea trees. Under this agreement, the parties have agreed to work together to target the Northern Endurance Partnership in the United Kingdom which will be a priority project to develop offshore carbon dioxide storage in the North Sea.”
“Second, we were successful in growing our downhole tools product line revenue more than 35% from 2020 levels by transforming our leadership, footprint and commercial strategy. We made strides in Latin America and Middle East geographies and installed our first XPak De in deepwater. We expect to see these trends continue in 2022 as we look to grow this product line to $100 million in revenue over the next couple of years.”
“Finally, we saw continued recognition, adoption and expansion of our ‘e-Series’ technology offering. Perhaps our biggest success for this suite of products was the Big Bore IIe wellhead. In addition to multiple installations and the adoption by several key customers as their new standard, we were awarded contracts in Brazil to provide up to 87 of these wellheads for the exploration and development stages of projects expect to be completed over the next several years. Additionally, we were again awarded a Spotlight on New Technology Award by the 2021 Offshore Technology Conference for our BADGeR specialty casing connector marking our fifth ‘e-Series’ product to win this award over the past five years.”
“I’m excited about the future of Dril-Quip as I enter the CEO role. We have three key focus areas in 2022. First, we will be streamlining our leadership, and subsequently our operations, around more focused and integrated business units: Subsea Products, Subsea Services and Downhole Tools. These businesses and product lines each have unique strategies, as well as operating models. This will move Dril-Quip from the functionally run organization we are today to an organization with no functional barriers. Eliminating these barriers will enhance our customer focus on delivering best-in-class products and services. It will also allow us to expand operating margins as we eliminate the waste that can often happen in functionally structured organizations. Further, it will provide the transparency within our businesses to allow us to make more
2
thoughtful investment decisions that offer the highest return on capital employed. We would expect our Energy Transition business to grow into a fourth business in the coming years.”
“Second, we simply find ourselves with more footprint than required even when we look out to a full market recovery. A good example of this is our 218-acre campus in Houston. We are in the early stages of an evaluation, but believe that once rationalized and leaned out around our new business model, we will be able to sell approximately 120 acres of that campus over the next few years. We would estimate the sale of the excess property to yield $40 million to $60 million. This will likely be somewhat offset by an investment in our manufacturing equipment over the next two years. Upon completion of this footprint optimization, we would expect annual savings to be $15 million to $20 million beginning in 2024.”
“Third, we will be setting up a more disciplined and focused capital allocation strategy. This strategy will assist us in thoughtfully deploying excess cash we have on the balance sheet today towards internal projects, targeted acquisitions in both the energy and energy adjacent markets and continued opportunistic stock buybacks.”
“I believe we are well-positioned commercially in our core markets for the years ahead. Our revamped organization and streamlined footprint we are putting in place will serve to make us both operationally and financially stronger. We are uniquely positioned with a strong cash position that gives us flexibility to consider strategic alternatives many in our industry cannot. I look forward to further communicating our progress on our plans in the quarters ahead as we diligently execute our strategy to the benefit of our stakeholders.”
In conjunction with today’s release, the Company posted a new investor presentation entitled “Fourth Quarter and Full Year 2021 Supplemental Earnings Information” to its website, www.dril-quip.com, on the “Events & Presentations” page under the Investors tab. Investors should note that Dril-Quip announces material financial information in Securities and Exchange Commission (“SEC”) filings, press releases and public conference calls. Dril-Quip may use the Investors section of its website (www.dril-quip.com) to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Information on Dril-Quip’s website is not part of this release.
Operational and Financial Results
Revenue, Cost of Sales and Gross Operating Margin
Consolidated revenue for the fourth quarter of 2021 was $77.9 million, down $5.1 million from the third quarter of 2021. The sequential decrease in revenue was driven by lower subsea product volumes in the Western Hemisphere and downhole tool product revenues in the Middle East. For the full year 2021, revenue was $322.9, down $42.0 million from the full year of 2020. The decrease in revenue year-over-year was primarily due to lower product and service revenue driven by depressed orders in 2020 and 2021 and reduced investment on exploration wells driven primarily by uncertain commodity demand growth caused by COVID-19 variant surges. These declines were partially offset by increased leasing revenues in Asia Pacific and Western Hemisphere from higher customer rental tool utilization and higher downhole tools revenue.
3
Cost of sales for the fourth quarter of 2021 was $61.2 million, a decrease of $1.6 million sequentially from the third quarter of 2021. Gross operating margin for the fourth quarter of 2021 was 21.5%, down from 24.3% for the third quarter of 2021. Gross margins declined sequentially due to decreased contribution from higher margin downhole tools product revenues and increased materials costs.
Cost of sales for the full year of 2021 was $242.4 million, a decrease of $27.3 million from the full year 2020. Gross operating margin for the full year 2021 was 25.0% compared to a gross operating margin of 26.1% for the full year 2020. The decrease in gross operating margin year-over-year can be primarily attributed to the one-time expense related to the termination of our forge facility lease agreement with AFGlobal. Additional higher cost of sales from inflationary pressures on materials related to the downhole tools business and unfavorable revenue mix in the third quarter were offset by productivity improvement initiatives undertaken during the year.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the fourth quarter of 2021 were $30.6 million, an increase of $5.4 million compared to the third quarter of 2021. The sequential increase in SG&A was primarily due to expenses related to the executive separation agreement, true-up of incentive compensation expense and an increase in bad debt reserve. SG&A expenses for the full year 2021 were $115.0 million, an increase of $20.0 million compared to the full year 2020. The year-over-year increase was attributable to costs associated with the FMC lawsuit and reinstatement of short-term incentive compensation. Engineering and product development expenses for the fourth quarter of 2021 were up $0.3 million compared to the third quarter of 2021 driven by increased new product development spend. Engineering and product development expense for the full year 2021 decreased by $3.8 million, or 20.2%, compared to the full year 2020. The decrease year-over-year is attributed to lower spend on research and development projects from completion of the VXTe subsea tree technology.
Net Loss, Adjusted EBITDA and Free Cash Flow
For the fourth quarter of 2021, the Company reported a net loss of $63.4 million, or $1.81 per share, compared to a net loss of $11.1 million, or $0.31 per share, for the third quarter of 2021. The sequential increase in net loss can be attributed primarily to restructuring and other charges of $52.9 million related to inventory and long-lived asset write-downs from the discontinuation of certain product categories in addition to the aforementioned higher Cost of Sales and SG&A expense. For the full year of 2021, the Company reported a net loss of $128.0 million, or $3.62 per share, compared to a net loss of $30.8 million, or $0.87 per share, for the full year of 2020. The decrease in net income year-over-year can be attributed primarily to the increased restructuring and other charges taken during 2021, decreased product revenues and higher SG&A for the reasons previously outlined.
Adjusted EBITDA totaled $0.6 million for the fourth quarter of 2021 compared to $4.0 million for the third quarter of 2021. The sequential decrease in adjusted EBITDA was due to higher SG&A expense from accrual true-ups and unfavorable product mix from certain subsea projects and lower downhole tool revenue compared to the third quarter. Adjusted EBITDA for the full year of 2021 was $15.2 million compared to $31.7 million for the full year of 2020. The
4
year-over-year decrease in adjusted EBITDA was driven by decreased revenues from lower product revenues, short-term incentive compensation accrual, partially offset by productivity-driven cost reductions and lower research and development costs. Our execution of cost actions in both 2020 and in 2021 helped to mitigate the lower revenue impacts on Adjusted EBITDA leading to decremental margins of 39 percent.
Net cash provided by operating activities was $4.7 million and free cash flow was $2.6 million for the fourth quarter of 2021. The decrease in net cash provided by operations of $4.6 million compared to the third quarter of 2021 was primarily driven by past due customer payments delayed until the first quarter of 2022. Net cash provided by operating activities was $38.4 million, and free cash flow was $28.4 million for the full year of 2021. The increase in net cash provided by operations of $61.5 million compared to the full year of 2020 was primarily driven by improved conversion and collection of unbilled receivables, extension of vendor payment terms and suspension of short-term incentive compensation. Capital expenditures in the fourth quarter of 2021 were $2.1 million and $10.0 million for the full year of 2021, the majority of which was related to machinery and equipment spend on manufacturing operations in Houston and rental tools to support downhole tools and leasing revenue growth.
Aker Solutions Collaboration Agreement
On February 21, 2022, the Company announced an agreement with Aker Solutions, a global provider of integrated solutions, products and services to the energy industry, to supply subsea trees and wellheads for application in carbon capture, utilization and storage (“CCUS”) projects. Under the agreement, Dril-Quip will provide subsea trees and wellheads purposely designed for carbon dioxide injection that will be integrated into Aker’s CCUS subsea injection system, creating a best-in-class technology solution for customers. The companies will also jointly market this combined CCUS offering that leverages Aker’s position as an integrated supplier of CCUS systems, control systems and electrification components with Dril-Quip’s technology-leading subsea trees and wellheads.
Balance Sheet and Liquidity
Dril-Quip’s cash on hand as of December 31, 2021 was $355.5 million, which, together with amounts available under the asset-based lending (ABL) facility, resulted in $384.4 million of available liquidity.
The Company’s ABL credit facility dated February 22, 2018 and with a maturity date of February 23, 2023, was terminated effective February 22, 2022. The Company’s strong liquidity position, combined with a debt-free balance sheet, provides for significant financial and operational flexibility without that ABL credit facility.
Share Repurchases
For the three-month period ended December 31, 2021, the Company purchased 1,063,962 shares under its share repurchase plan authorized by the Board of Directors in February of 2019. For the full year ended December 31, 2021, the Company purchased 1,109,187 shares under the share repurchase plan at an average price of $21.79 per share totaling $24.2 million and retired such
5
shares. The Company subsequently purchased an additional 273,629 shares in January of 2022 at an average price of $21.20 per share totaling $5.8 million and retired such shares. The Company has purchased approximately $82 million of the $100 million authorized.
On February 22, 2022, the Board of Directors authorized an additional $100 million in share repurchases under its share repurchase plan. This results in a cumulative authorized amount of approximately $118 million currently available for share repurchases. The Company continues to evaluate the amount and timing of its share repurchases as part of the Company’s overall capital allocation strategy.
About Dril-Quip
Dril-Quip is a developer, manufacturer and provider of highly engineered equipment, service and innovative technologies for use in the energy industry.
Forward-Looking Statements
Statements contained herein relating to future operations and financial results that are forward-looking statements, including those related to market conditions, anticipated project bookings, expected timing of completing the strategic restructuring, anticipated timing of delivery of new orders, anticipated revenues, costs, cost synergies and savings, possible acquisitions, new product offerings and related revenues, share repurchases and expectations regarding operating results, are based upon certain assumptions and analyses made by the management of the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors. These statements are subject to risks beyond the Company’s control, including, but not limited to, the impact of the ongoing COVID-19 pandemic, the effects of actions taken by third parties, including, but not limited to, governmental authorities, customers, contractors and suppliers, in response to the COVID-19 pandemic, the impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust their production levels, the general volatility of oil and natural gas prices and cyclicality of the oil and gas industry, declines in investor and lender sentiment with respect to, and new capital investments in, the oil and gas industry, project terminations, suspensions or scope adjustments to contracts, uncertainties regarding the effects of new governmental regulations, the Company’s international operations, operating risks, the impact of our customers and the global energy sector shifting some of their asset allocation from fossil-fuel production to renewable energy resources, and other factors detailed in the Company’s public filings with the SEC. Investors are cautioned that any such statements are not guarantees of future performance and actual outcomes may vary materially from those indicated.
Non-GAAP Financial Information
Adjusted Net Income (Loss), Adjusted Diluted EPS, Free Cash Flow and Adjusted EBITDA are non-GAAP measures.
Adjusted Net Income (Loss) and Adjusted Diluted EPS are defined as net income (loss) and earnings per share, respectively, excluding the impact of foreign currency gains or losses as well as other significant non-cash items and certain charges and credits.
6
Free Cash Flow is defined as net cash provided by operating activities less net cash used in the purchase of property, plant and equipment.
Adjusted EBITDA is defined as net income excluding income taxes, interest income and expense, depreciation and amortization expense, non-cash gains or losses from foreign currency exchange rate changes as well as other significant non-cash items and other adjustments for certain charges and credits.
The Company believes that these non-GAAP measures enable it to evaluate and compare more effectively the results of our operations period over period and identify operating trends by removing the effect of its capital structure from its operating structure. In addition, the Company believes that these measures are supplemental measurement tools used by analysts and investors to help evaluate overall operating performance, ability to pursue and service possible debt opportunities and make future capital expenditures. Adjusted Net Income (Loss), Adjusted EBITDA and Free Cash Flow do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income or net cash provided by operating activities, as measured under U.S. generally accepted accounting principles (“GAAP”).
See “Unaudited Non-GAAP Financial Measures” below for additional information concerning non-GAAP financial information, including a reconciliation of the non-GAAP financial information presented in this press release to the most directly comparable financial information presented in accordance with GAAP. Non-GAAP financial information supplements and should be read together with, and is not an alternative or substitute for, the Company’s financial results reported in accordance with GAAP. Because non-GAAP financial information is not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures.
Investor Relations Contact
Blake Holcomb, Director of Investor Relations and Corporate Planning
(713) 939-7711
Blake_Holcomb@dril-quip.com
7
Dril-Quip, Inc.
Comparative Condensed Consolidated Income Statement
(Unaudited)
|
Three months ended |
|
|
|
Twelve months ended |
|
||||||||||
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||
|
(In thousands, except per share data) |
|
||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Products |
$ |
48,694 |
|
|
$ |
53,622 |
|
|
|
$ |
213,760 |
|
|
$ |
258,834 |
|
Services |
|
19,380 |
|
|
|
19,560 |
|
|
|
|
74,143 |
|
|
|
75,577 |
|
Leasing |
|
9,838 |
|
|
|
9,815 |
|
|
|
|
35,042 |
|
|
|
30,562 |
|
Total revenues |
|
77,912 |
|
|
|
82,997 |
|
|
|
|
322,945 |
|
|
|
364,973 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales |
|
61,197 |
|
|
|
62,834 |
|
|
|
|
242,356 |
|
|
|
269,698 |
|
Selling, general and administrative |
|
30,620 |
|
|
|
25,265 |
|
|
|
|
115,036 |
|
|
|
95,057 |
|
Engineering and product development |
|
3,834 |
|
|
|
3,510 |
|
|
|
|
15,104 |
|
|
|
18,920 |
|
Impairment |
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
7,719 |
|
Restructuring and other charges |
|
52,913 |
|
|
|
- |
|
|
|
|
78,933 |
|
|
|
35,380 |
|
(Gain) on sale of assets |
|
(596 |
) |
|
|
(13 |
) |
|
|
|
(4,482 |
) |
|
|
(587 |
) |
Foreign currency transaction (gains) and losses |
|
1,600 |
|
|
|
(1,663 |
) |
|
|
|
836 |
|
|
|
2,345 |
|
Total costs and expenses |
|
149,568 |
|
|
|
89,933 |
|
|
|
|
447,783 |
|
|
|
428,532 |
|
Operating loss |
|
(71,656 |
) |
|
|
(6,936 |
) |
|
|
|
(124,838 |
) |
|
|
(63,559 |
) |
Interest income |
|
274 |
|
|
|
188 |
|
|
|
|
575 |
|
|
|
2,131 |
|
Interest expense |
|
(195 |
) |
|
|
(94 |
) |
|
|
|
(787 |
) |
|
|
(621 |
) |
Income tax provision (benefit) |
|
(8,148 |
) |
|
|
4,301 |
|
|
|
|
2,946 |
|
|
|
(31,281 |
) |
Net loss |
$ |
(63,429 |
) |
|
$ |
(11,143 |
) |
|
|
$ |
(127,996 |
) |
|
$ |
(30,768 |
) |
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
(1.81 |
) |
|
$ |
(0.31 |
) |
|
|
$ |
(3.62 |
) |
|
$ |
(0.87 |
) |
Diluted |
$ |
(1.81 |
) |
|
$ |
(0.31 |
) |
|
|
$ |
(3.62 |
) |
|
$ |
(0.87 |
) |
Depreciation and amortization |
$ |
7,723 |
|
|
$ |
7,899 |
|
|
|
$ |
30,381 |
|
|
$ |
32,389 |
|
Capital expenditures |
$ |
2,062 |
|
|
$ |
2,303 |
|
|
|
$ |
9,990 |
|
|
$ |
11,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted Average Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
35,167 |
|
|
|
35,387 |
|
|
|
|
35,331 |
|
|
|
35,260 |
|
Diluted |
|
35,167 |
|
|
|
35,387 |
|
|
|
|
35,331 |
|
|
|
35,260 |
|
8
Adjusted Net Income (Loss) and EPS: |
Three months ended |
|
|||||||||||||||||||||
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||||||||||||||
|
Effect on |
|
|
Impact on |
|
|
Effect on |
|
|
Impact on |
|
|
Effect on |
|
|
Impact on |
|
||||||
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
Net loss |
$ |
(63,429 |
) |
|
$ |
(1.80 |
) |
|
$ |
(11,143 |
) |
|
$ |
(0.31 |
) |
|
$ |
(11,254 |
) |
|
$ |
(0.33 |
) |
Adjustments (after tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Reverse the effect of foreign currency |
|
1,264 |
|
|
|
0.04 |
|
|
|
(1,314 |
) |
|
|
(0.04 |
) |
|
|
3,179 |
|
|
|
0.09 |
|
Restructuring costs, including severance |
|
45,962 |
|
|
|
1.31 |
|
|
|
- |
|
|
|
- |
|
|
|
4,407 |
|
|
|
0.12 |
|
Gain on sale of assets |
|
(471 |
) |
|
|
(0.01 |
) |
|
|
(10 |
) |
|
|
- |
|
|
|
(39 |
) |
|
|
- |
|
Adjusted net loss |
$ |
(16,674 |
) |
|
$ |
(0.46 |
) |
|
$ |
(12,467 |
) |
|
$ |
(0.35 |
) |
|
$ |
(3,707 |
) |
|
$ |
(0.12 |
) |
Adjusted Net Income (loss) and EPS: |
Twelve months ended December 31, |
|
|||||||||||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||||||||||||||
|
Effect on |
|
|
Impact on |
|
|
Effect on |
|
|
Impact on |
|
|
Effect on |
|
|
Impact on |
|
||||||
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
Net income (loss) |
$ |
(127,996 |
) |
|
|
(3.62 |
) |
|
$ |
(30,768 |
) |
|
$ |
(0.87 |
) |
|
$ |
1,720 |
|
|
$ |
0.05 |
|
Adjustments (after tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Reverse the effect of foreign currency |
|
660 |
|
|
|
0.02 |
|
|
|
1,853 |
|
|
|
0.05 |
|
|
|
(1,287 |
) |
|
|
(0.04 |
) |
Add back impairment |
|
- |
|
|
|
- |
|
|
|
6,098 |
|
|
|
0.17 |
|
|
|
- |
|
|
|
- |
|
Restructuring costs, including severance |
|
76,354 |
|
|
|
2.16 |
|
|
|
31,979 |
|
|
|
0.91 |
|
|
|
3,473 |
|
|
|
0.10 |
|
Gain on sale of assets |
|
(3,541 |
) |
|
|
(0.10 |
) |
|
|
(464 |
) |
|
|
(0.01 |
) |
|
|
(1,194 |
) |
|
|
(0.03 |
) |
Adjusted net income (loss) |
$ |
(54,523 |
) |
|
$ |
(1.54 |
) |
|
$ |
8,698 |
|
|
$ |
0.25 |
|
|
$ |
2,712 |
|
|
$ |
0.08 |
|
9
Adjusted EBITDA: |
Three months ended |
|
|||||||||
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||
|
(In thousands) |
|
|||||||||
Net loss |
$ |
(63,428 |
) |
|
$ |
(11,143 |
) |
|
$ |
(11,254 |
) |
Add: |
|
|
|
|
|
|
|
|
|||
Interest (income) expense, net |
|
(80 |
) |
|
|
(94 |
) |
|
|
(1 |
) |
Income tax expense (benefit) |
|
(8,148 |
) |
|
|
4,301 |
|
|
|
(373 |
) |
Depreciation and amortization expense |
|
7,723 |
|
|
|
7,899 |
|
|
|
7,668 |
|
Restructuring costs, including severance |
|
58,180 |
|
|
|
1,400 |
|
|
|
5,578 |
|
(Gain) loss on sale of assets |
|
(596 |
) |
|
|
(13 |
) |
|
|
(49 |
) |
Foreign currency transaction (gains) losses |
|
1,600 |
|
|
|
(1,663 |
) |
|
|
4,024 |
|
Stock compensation expense |
|
5,354 |
|
|
|
3,276 |
|
|
|
3,453 |
|
Adjusted EBITDA |
$ |
605 |
|
|
$ |
3,963 |
|
|
$ |
9,046 |
|
|
|
|
|
|
|
|
|
|
|||
Adjusted EBITDA: |
Year ended |
|
|||||||||
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
December 31, 2019 |
|
|||
|
(In thousands) |
|
|||||||||
Net income (loss) |
$ |
(127,996 |
) |
|
$ |
(30,768 |
) |
|
$ |
1,720 |
|
Add: |
|
|
|
|
|
|
|
|
|||
Interest (income) expense, net |
|
212 |
|
|
|
(1,510 |
) |
|
|
(7,626 |
) |
Income tax expense (benefit) |
|
2,946 |
|
|
|
(31,281 |
) |
|
|
8,709 |
|
Depreciation and amortization expense |
|
30,381 |
|
|
|
32,389 |
|
|
|
34,020 |
|
Impairment |
|
- |
|
|
|
7,719 |
|
|
|
4,396 |
|
Restructuring costs, including severance |
|
96,650 |
|
|
|
40,480 |
|
|
|
- |
|
(Gain) loss on sale of assets |
|
(4,482 |
) |
|
|
(587 |
) |
|
|
(1,511 |
) |
Foreign currency transaction (gains) losses |
|
836 |
|
|
|
2,345 |
|
|
|
(1,630 |
) |
Stock compensation expense |
|
14,895 |
|
|
|
12,914 |
|
|
|
15,721 |
|
Brazilian amnesty settlement |
|
1,787 |
|
|
|
- |
|
|
|
- |
|
Adjusted EBITDA |
$ |
15,229 |
|
|
$ |
31,701 |
|
|
$ |
53,799 |
|
10
Free Cash Flow: |
Three months ended |
|
|||||||||
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|||
|
(In thousands) |
|
|||||||||
Net cash provided (used) by operating activities |
$ |
4,689 |
|
|
$ |
9,323 |
|
|
$ |
(16,786 |
) |
Less: |
|
|
|
|
|
|
|
|
|||
Purchase of property, plant and equipment |
|
(2,062 |
) |
|
|
(2,303 |
) |
|
|
(1,700 |
) |
Free cash flow |
$ |
2,627 |
|
|
$ |
7,020 |
|
|
$ |
(18,486 |
) |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Free Cash Flow: |
Year ended December 31, |
|
|||||||||
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
(In thousands) |
|
|||||||||
Net cash provided (used) by operating activities |
$ |
38,428 |
|
|
$ |
(21,088 |
) |
|
$ |
14,678 |
|
Less: |
|
|
|
|
|
|
|
|
|||
Purchase of property, plant and equipment |
|
(9,990 |
) |
|
|
(11,943 |
) |
|
|
(11,501 |
) |
Free cash flow |
$ |
28,438 |
|
|
$ |
(33,031 |
) |
|
$ |
3,177 |
|
11
Fourth Quarter and Full Year 2021 Earnings Call Presentation Exhibit 99.2
Forward-Looking Statements The information furnished in this presentation contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include, but are not limited to, the effects of the COVID-19 pandemic, and the effects of actions taken by third parties including, but not limited to, governmental authorities, customers, contractors and suppliers, in response to the ongoing COVID-19 pandemic, the impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust their production levels, the general volatility of oil and natural gas prices and cyclicality of the oil and gas industry, declines in investor and lender sentiment with respect to, and new capital investments in, the oil and gas industry, project terminations, suspensions or scope adjustments to contracts, uncertainties regarding the effects of new governmental regulations, the Company’s international operations, operating risks, the impact of our customers and the global energy sector shifting some of their asset allocation from fossil-fuel production to renewable energy resources, goals, projections, estimates, expectations, market outlook, forecasts, plans and objectives, including revenue and new product revenue, capital expenditures and other projections, project bookings, bidding and service activity, acquisition opportunities, forecasted supply and demand, forecasted drilling activity and subsea investment, liquidity, cost savings, and share repurchases and are based on assumptions, estimates and risk analysis made by management of Dril-Quip, Inc. (“Dril-Quip”) in light of its experience and perception of historical trends, current conditions, expected future developments and other factors. No assurance can be given that actual future results will not differ materially from those contained in the forward-looking statements in this presentation. Although Dril-Quip believes that all such statements contained in this presentation are based on reasonable assumptions, there are numerous variables of an unpredictable nature or outside of Dril-Quip’s control that could affect Dril-Quip’s future results and the value of its shares. Each investor must assess and bear the risk of uncertainty inherent in the forward-looking statements contained in this presentation. Please refer to Dril-Quip’s filings with the Securities and Exchange Commission (“SEC”) for additional discussion of risks and uncertainties that may affect Dril-Quip’s actual future results. Dril-Quip undertakes no obligation to update the forward-looking statements contained herein. Use of Non-GAAP Financial Measures Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Free Cash Flow are non-GAAP measures. Adjusted Net Income and Adjusted Diluted EPS are defined as net income (loss) and earnings per share, respectively, excluding the impact of foreign currency gains or losses as well as other significant non-cash items and certain charges and credits. Adjusted EBITDA is defined as net income excluding income taxes, interest income and expense, depreciation and amortization expense, non-cash gains or losses from foreign currency exchange rate changes as well as other significant non-cash items and items that can be considered non-recurring. Free Cash Flow is defined as net cash provided by operating activities less net cash used in the purchase of property, plant and equipment. We believe that these non-GAAP measures enable us to evaluate and compare more effectively the results of our operations period over period and identify operating trends by removing the effect of our capital structure from our operating structure and certain other items including those that affect the comparability of operating results. In addition, we believe that these measures are supplemental measurement tools used by analysts and investors to help evaluate overall operating performance, ability to pursue and service possible debt opportunities and make future capital expenditures. These measures do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income or net cash provided by operating activities, as measured under U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial information supplements should be read together with, and is not an alternative or substitute for, our financial results reported in accordance with GAAP. Because non-GAAP financial information is not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the appendix. Use of Website Investors should note that Dril-Quip announces material financial information in SEC filings, press releases and public conference calls. Dril-Quip may use the Investors section of its website (www.dril-quip.com) to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Information on Dril-Quip’s website is not part of this presentation. Disclaimer| Cautionary Statement
2021 Strategy| Highlights Peer-to-Peer Collaboration Agreement to supply subsea wellheads, tubular goods and liner hangers to OneSubsea Collaboration with Aker Solution to supply subsea wellheads and trees for carbon capture, utilization and storage (CCUS) projects Downhole Tools Market Growth Recorded highest revenue year since acquisition in 2016, up over 35% year-over-year First installation of XPak De in 2021 and awarded contract to deliver XPak De liner hangers for projects in Brazil through 2024 “e-Series” Technology Expansion Awarded up to 87 Big Bore IIe wellhead systems for the exploration and development phases of deepwater wells in Brazil through 2025 Successful first runs of “e-Series” technologies including DXe wellhead connector, BADGeR casing connector and BBIIe wellhead
Focus Areas 2021 initiatives Environmental Lower Consumption and Emissions Develop Next-gen technological innovation Established reduction goals and targets Green By Design™ technology to limit environmental / operational risk Social Workplace health and safety Diversity and inclusion Community engagement Sponsorship to support STEM education Women’s “Lunch ‘N Learn” series to support career development Governance Risk Management Sustainability Oversight UN Global Compact signatory Global supply chain policy / vendor code of conduct ESG Update| 2021 Progress 4
Completed Scope 1, 2 and 3 Emissions Assessment in Early Q4 2021 Established Decarbonization Strategy in Q4 2021 Targeting to Issue Report Assessment and Targets in Late Q1 2022 Continuing to Make Progress in Our ESG Journey ESG Update| Dril-Quip Greenhouse Gas Emissions Progress
2019 2020 $3 2021 $54 $32 $18 -$16 -$22 2019 2020 2021 $323 $415 $365 -12% -12% Cost Savings and Productivity Gains Helping to Mitigate Revenue Declines Yearly (USD$ millions) Note: Sum of components may not foot due to rounding. Adjusted EBITDA is a non-GAAP measure. See appendix for reconciliation to GAAP measure. (USD$ millions) Q3 ’21 Q2 ’21 Q1 ’21 Revenue Q4 ’21 -1% +3% -6% Quarterly A. EBITDA $1 Q1 ’21 Q3 ’21 $3 Q4 ’21 Q2 ’21 $6 +$1 -$5 -$3 2021 Decremental Margin: 39% Impact of AFGlobal cancellation Financial Results| Q4 and Full Year 2021
Q4 2021 bookings of ~$80 million; above expectations of top end of $40-$60 million range Backlog increased 7% year-over-year after recording $228 million of product bookings in 2021 Bookings expected to grow approximately 20% in 2022 from 2021 orders Subsea production system orders expected to more than double to 17 trees in 2022 YE 2021 YE 2020 YE 2018 YE 2019 +7% Historical Backlog Trends ($M) Product Backlog 2019 2022E 2020 2021 +20% Historical Booking Trends ($M) Product Bookings Bookings| 2021 Results and 2022 Outlook
Inventory Reduction Plan Order substitution program drove approximately $5 million decrease in inventory from 2020 levels Order-to-Cash Improvement Trade accounts receivable down over $50M in 2021 from improved collections and unbilled conversion Drive Productivity Initiatives through LEAN Achieved $10M annualized target ahead of schedule and monitoring cost base against current market environment Free Cash Flow of ~$28 million, or ~9% margin, in 2021 Q4 and Full Year 2021| Free Cash Flow Improvement
2021 Restructuring Charges Represent Initial Actions in Next Stage Business Transformation Planning Strategy| Restructuring Charges First Half 2021 Actions to Finalize Transformation 1.0 Exit from underperforming markets Outsourcing of certain downhole tool manufacturing functions to outside vendor ~$26 million in Restructuring Charges Q4 2021 Actions to Launch Transformation 2.0 Discontinuation of certain product categories as part of product and service line organizational realignment ~$53 million in Restructuring Charges
2022E 2021 Cost of Sales R&D SG&A Driving ~$15 million of savings in productivity in 2022 Operational Excellence| Productivity Improvements Executed and Expected Cumulative Annualized Cost Savings ($M) Cost Savings to Offset Expected Impacts of Inflationary Pressures 2022 Breakdown of Productivity Savings Executed Targeted
2022 Estimated Product Bookings Up ~20% from 2021 2022 Estimated Revenue: Up ~10% from 2021 levels 2022 Estimated Adj. EBITDA: 40% to 50% Incremental margins 2022 Estimated Capex of $15M to $17M Targeting 2022 Free Cash Flow Margin of ~3 to 5% 2022 Outlook| Financial Outlook
Sources: Rystad Energy & DRQ Internal Estimates Collaborations & technology adoption provide tailwinds in improving overall market beginning in 2022 Offshore deepwater wells drilled forecasted compound annual growth rate (CAGR) of 5% through 2026 Subsea Tree awards expected to experience significant growth in 2022 and moderate thereafter South America and Middle East leading overall offshore well count growth; shallow and deepwater Europe and South America expected to lead growth in tree awards Estimated Offshore Deepwater Wells and Tree Awards 0 500 100 200 300 600 400 2024E 2021E 2022E 2026E 2023E 2025E +5% +8% Subsea Tree Awards Offshore Deepwater Wells Market Environment| Offshore Well and Tree Awards Outlook
Strategic Growth Pillars Continue to execute on collaboration agreements, downhole tools growth and e-Series technology expansion Organizational Alignment Streamlined operations and leadership around more focused and integrated product and service lines Optimized Footprint Further transformation of our operational footprint improve efficiency and reduce excess capacity Capital Allocation Disciplined deployment of capital to generate attractive returns of capital employed Strategy| 2022 Focus Areas
Organizational Alignment| Updating Our Operating Structure Subsea Products Wellheads, Connectors & SPS Remain Tier 1 wellhead provider Execute collaboration & license agreements Increase shallow water tree share Grow deepwater presence through VXTe monetization Downhole Tools Liner Hangers and Services Continue share gains in key markets Convert from conventional to expandable liner hangers Expand through current and future collaborations Increase test & assembly in local markets Subsea Services Technical Service, Rentals and Rework Highly reactive support for equipment installation Global network of trained technicians and specialized tooling Dedicated facilities for refurbishment and rework Energy Transition Expansion into Decarbonization Opportunities Wellhead and tree injection offering for CCUS Collaborations with integrated providers (i.e. Aker Solutions) New technology introduction SBTe XT BBIIe Wellhead XPak De
Optimized Footprint| Operational Excellence Expected to Yield $15 to $20 million in Annual Savings by 2024 Next stage in creating a more fit-for-purpose footprint Multi-phased approach to invest in manufacturing, test & assembly Monetize excess property for estimated proceeds of $40 million to $60 million
Priority to organic growth, then attractive acquisitions that drive size and scale Capex / Internal Share Repurchase Acquisition Growth Returning excess cash to shareholders Fund high return internal investments Targeted investments for franchise products Manufacturing, IT Systems, etc. Selective opportunities (energy and energy adjacent) Capital Allocation| Framework
Summary| Key Takeaways Market conditions are improving and activity is expected to increase Successfully executing on our commercial strategy Structurally changing our business Multi-year roadmap to improved profitability Strong balance sheet allows for inorganic activity
Appendix dril-quip.com | NYSE: DRQ
Financial Statements| Income Statement Revenues: Products Services Leasing Total revenues Costs and expenses: Cost of sales Selling, general and administrative Engineering and product development Impairment Restructuring and other charges (Gain) on sale of assets Foreign currency transaction (gains) and losses Total costs and expenses Operating loss Interest income Interest expense Income tax provision (benefit) Net loss Loss per share: Basic Diluted Depreciation and amortization Capital expenditures Weighted Average Shares Outstanding: Basic Diluted Dril-Quip, Inc. Comparative Condensed Consolidated Income Statement (Unaudited) Three months ended Twelve months ended December 31, 2021 September 30, 2021 December 31, 2021 December 31, 2020 (In thousands, except per share data) $48,694 $53,622 $213,760 $258,834 19,380 19,560 74,143 75,577 9,838 9,815 35,042 30,562 77,912 82,997 322,945 364,973 61,197 62,834 242,356 269,698 30,620 25,265 115,036 95,057 3,834 3,510 15,104 18,920 - - - 7,719 52,913 - 78,933 35,380 (596) (13) (4,482) (587) 1,600 (1,663) 836 2,345 149,568 89,933 447,783 428,532 (71,656) (6,936) (124,838) (63,559) 274 188 575 2,131 (195) (94) (787) (621) (8,148) 4,301 2,946 (31,281) $(63,429) $(11,143) $(127,996) $(30,768) $(1.81) $(0.31) $(3.62) $(0.87) $(1.81) $(0.31) $(3.62) $(0.87) $7,723 $7,899 $30,381 $32,389 $2,062 $2,303 $9,990 $11,943 35,167 35,387 35,331 35,260 35,167 35,387 35,331 35,260
Financial Statements| Balance Sheet Dril-Quip, Inc. Comparative Condensed Consolidated Balance Sheets (Unaudited) December 31, 2021 September 30, 2021 December 31, 2020 (In thousands) Assets: Cash and cash equivalents $355,451 $375,172 $345,955 Other current assets 390,098 452,099 517,238 PP&E, net 216,200 224,676 234,823 Other assets 48,677 41,790 53,156 Total assets $1,010,426 $1,093,737 $1,151,172 Liabilities and Equity: Current liabilities $93,663 $91,826 $85,512 Deferred Income taxes 3,925 6,194 6,779 Other long-term liabilities 15,730 15,940 17,353 Total liabilities 113,318 113,960 109,644 Total stockholders equity 897,108 979,777 1,041,528 Total liabilities and equity $1,010,426 $1,093,737 $1,151,172
Financial Statements| Non-GAAP Financial Measures Adjusted Net Income (Loss) and EPS: Three months ended December 31, 2021 September 30, 2021 December 31, 2020 Impact on Impact on Impact on Effect on diluted Effect on diluted Effect on diluted net income (loss) earnings (loss) net income (loss) earnings (loss) net income (loss) earnings (loss) (after-tax) per share (after-tax) per share (after-tax) per share (In thousands, except per share amounts) Net loss $(63,429) $(1.80) $(11,143) $(0.31) $(11,254) $(0.33) Adjustments (after tax): Reverse the effect of foreign currency 1,264 0.04 (1,314) (0.04) 3,179 0.09 Restructuring costs, including severance 45,962 1.31 - - 4,407 0.12 Gain on sale of assets (471) (0.01) (10) - (39) - Adjusted net loss $(16,674) $(0.46) $(12,467) $(0.35) $(3,707) $(0.12) Adjusted Net Income (loss) and EPS: Twelve months ended December 31, 2021 2020 2019 Impact on Impact on Impact on Effect on diluted Effect on diluted Effect on diluted net income (loss) earnings (loss) net income (loss) earnings (loss) net income (loss) earnings (loss) (after-tax) per share (after-tax) per share (after-tax) per share (In thousands, except per share amounts) Net income (loss) $(127,996) (3.62) $(30,768) $(0.87) $1,720 $0.05 Adjustments (after tax): Reverse the effect of foreign currency 660 0.02 1,853 0.05 (1,287) (0.04) Add back impairment - - 6,098 0.17 - - Restructuring costs, including severance 76,354 2.16 31,979 0.91 3,473 0.10 Gain on sale of assets (3,541) (0.10) (464) (0.01) (1,194) (0.03) Adjusted net income (loss) $(54,523) $(1.54) $8,698 $0.25 $2,712 $0.08
Financial Statements| Non-GAAP Financial Measures Adjusted EBITDA: Three months ended December 31, 2021 September 30, 2021 December 31, 2020 (In thousands) Net loss $(63,428) $(11,143) $(11,254) Add: Interest (income) expense, net (80) (94) (1) Income tax expense (benefit) (8,148) 4,301 (373) Depreciation and amortization expense 7,723 7,899 7,668 Restructuring costs, including severance 58,180 1,400 5,578 (Gain) loss on sale of assets (596) (13) (49) Foreign currency transaction (gains) losses 1,600 (1,663) 4,024 Stock compensation expense 5,354 3,276 3,453 Adjusted EBITDA $605 $3,963 $9,046 Adjusted EBITDA: Year ended December 31, 2021 December 31, 2020 December 31, 2019 (In thousands) Net income (loss) $(127,996) $(30,768) $1,720 Add: Interest (income) expense, net 212 (1,510) (7,626) Income tax expense (benefit) 2,946 (31,281) 8,709 Depreciation and amortization expense 30,381 32,389 34,020 Impairment - 7,719 4,396 Restructuring costs, including severance 96,650 40,480 - (Gain) loss on sale of assets (4,482) (587) (1,511) Foreign currency transaction (gains) losses 836 2,345 (1,630) Stock compensation expense 14,895 12,914 15,721 Brazilian amnesty settlement 1,787 - - Adjusted EBITDA $15,229 $31,701 $53,799
Financial Statements| Non-GAAP Financial Measures Free Cash Flow: Net cash provided (used) by operating activities Less: Purchase of property, plant and equipment Free cash flow Free Cash Flow: Net cash provided (used) by operating activities Less: Purchase of property, plant and equipment Free cash flow Three months ended December 31, 2021 September 30, 2021 December 31, 2020 (In thousands) $4,689 $9,323 $(16,786) (2,062) (2,303) (1,700) $2,627 $7,020 $(18,486) Year ended December 31, 2021 2020 2019 (In thousands) $38,428 $(21,088) $14,678 (9,990) (11,943) (11,501) $28,438 $(33,031) $3,177
Market Capitalization = Share Price x Total Shares Outstanding Enterprise Value = Market Capitalization + Debt – Cash and Cash Equivalents Non-cash Working Capital = (Current Assets – Cash) – Current Liabilities Book Value / Share = Total Shareholders’ Equity / Total Shares Outstanding Cash / Share = Cash & Cash Equivalents / Total Shares Outstanding Non-cash Working Capital (WC) / Share = Noncash Working Capital / Total Shares Outstanding Total Debt / Capitalization = Total Debt (Short-term + Long-term) / (Total Debt + Total Shareholders’ Equity) Financial Metrics| Definitions
© 2022 Dril-Quip®, Inc. All Rights Reserved.