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)
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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:
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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 May 8, 2023, Dril-Quip, Inc. (“Dril-Quip”) reported first quarter 2023 earnings. For additional information regarding Dril-Quip’s first quarter 2023 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 May 8, 2023, Dril-Quip posted the First Quarter 2023 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 |
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Description |
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99.1 |
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99.2 |
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First Quarter 2023 Supplemental Earnings Information Presentation. |
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104 |
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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.
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DRIL-QUIP, INC. |
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By: |
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/s/ Kyle F. McClure |
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Kyle F. McClure |
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Vice President and Chief Financial Officer |
Date: May 8, 2023
Exhibit 99.1
DRIL-QUIP, INC. ANNOUNCES FIRST QUARTER 2023 RESULTS
First quarter revenue increases 9% over prior year
Company announces segment reporting changes
Additional progress made along footprint optimization initiatives
HOUSTON, May 8, 2023 — Dril-Quip, Inc. (NYSE: DRQ), (the “Company” or “Dril-Quip”), a developer, manufacturer and provider of highly engineered equipment, service, and innovative technologies for use in the energy industry, today reported operational and financial results for the first quarter of 2023.
First Quarter Highlights
“Our first quarter performance delivered strong revenue results that were driven by the ongoing upcycle in key offshore markets such as Brazil, the Middle East, Latin America, and some reemerging markets, for example, West Africa,” said Jeff Bird, Dril-Quip’s President and Chief Executive Officer. “Bookings came in well within the range we provided during the previous quarter and seasonally lower in the range as expected. We remain in a strong position due to accelerating master service agreement activity that we believe will help drive bookings growth throughout the remainder of the year.”
“Our new organization is already showing signs of driving increased accountability and visibility and will ultimately lead to improved profitability as we focus investments and productivity on those product lines that deserve it most. We continue to advance our business realignment efforts and as a result, we have made the decision to change our reporting segments. We also believe this will allow our investors to better appreciate the relative impacts of our long-cycle, backlog-driven businesses like Subsea Products & Services and our short-cycle, book-and-bill businesses like Well Construction. As we look forward, we are confident in our ability to continue to make
1
progress along our long-term financial, operational, and strategic objectives. Our focus remains on capital allocation as we support our organic and inorganic growth opportunities by taking a disciplined approach with a keen focus on driving attractive long-term returns on capital deployment. With our clean balance sheet and financial flexibility, we are in a strong position to drive long-term success, advance market share and overall profitability.”
2023 Financial Outlook
In conjunction with today’s release, the Company posted a new investor presentation entitled “Q1 2023 Investor Presentation” 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 first quarter of 2023 was $90.9 million, down $5.9 million from the fourth quarter of 2022 and up $7.7 million compared to the first quarter of 2022. The decrease in revenue sequentially was primarily driven by lower Subsea Product revenues in Europe and Asia Pacific reflecting the expected seasonality. Subsea Services and Well Construction revenues also declined slightly sequentially. The increase in revenue year-over-year can be attributed to increases across all product and service lines. Well Construction segment revenue increased 38% year-over-year to $20.8 million, Subsea Services segment revenue increased 10% year-over-year to $23.9 million and Subsea Products segment revenue was materially the same as prior year at $46.1 million.
Cost of sales for the first quarter of 2023 was $65.5 million, a decrease of $1.1 million sequentially from the fourth quarter of 2022. Gross operating margin for the first quarter of 2023 was 27.9%, down from 31.2% for the fourth quarter of 2022. Gross margins decreased sequentially driven by unfavorable product line mix in Well Construction and lost leverage on lower revenue.
2
Selling, General, Administrative, and Engineering Expenses
Selling, general and administrative (“SG&A”) expenses for the first quarter of 2023 were $22.6 million, a decrease of $4.3 million compared to the fourth quarter of 2022. SG&A decreased sequentially primarily due to the prior quarter’s bad debt expense as well as some non-recurring taxes and bank fees. Engineering and product development expenses were $3.4 million for the first quarter of 2023, an increase of $0.7 million from the fourth quarter of 2022. The sequential increase is attributed to increased testing and qualification activities related to specific international customer requirements.
Net Income, Adjusted EBITDA and Free Cash Flow
For the first quarter of 2023, the Company reported net income of $2.3 million, or $0.07 per share, compared to a net loss of $0.3 million or $0.01 per share for the fourth quarter of 2022.
Adjusted EBITDA totaled $8.8 million for the first quarter of 2023 compared to $10.4 million for the fourth quarter 2022. The decrease in adjusted EBITDA sequentially can be attributed to lower revenues and increased engineering activities related to specific international customer requirements.
Net cash used in operations was $52.9 million and free cash flow was a negative $58.3 million for the first quarter of 2023. The increase in net cash used by operations of $35.3 million compared to the fourth quarter of 2022 was primarily driven by working capital timing relating to certain receivables, inventories and some restructuring related costs. The company expects working capital to normalize over the next two quarters and expects working capital to be neutral to positive during this period. Days Sales Outstanding (“DSO”) is expected to return to levels closer to Q4 2022 by Q3 2023 which the Company believes will generate approximately $40M of cash flow from operations relating to accounts receivables reduction. Capital expenditures in the first quarter of 2023 were $5.4 million, the majority of which was related to investments in manufacturing equipment and rental tools bound for work already secured.
Gain on sale of property, plant and equipment was approximately $6.6 million in the first quarter, primarily related to the sale of our Houston aftermarket building and obsolete machinery and equipment.
Share Repurchases
During the first quarter of 2023, the Company did not make any share repurchases. The Company has approximately $103 million remaining of the current authorization by the Board of Directors. The Company continues to evaluate the amount and timing of its share repurchases as part of its overall capital allocation strategy.
Conference Call and Webcast
Management will host a fireside chat call and a webcast to discuss the financial results on May 9, 2023, at 11:30 a.m. Eastern Standard Time / 10:30 a.m. Central Standard Time. The presentation is open to all interested parties and may include forward-looking information.
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Conference Call and Webcast Details
Date / Time: |
Tuesday, May 9, 2023, at 11:30 a.m. EST / 10:30 a.m. CST |
Participant Dial-In: |
Toll Free: 888-506-0062 Access Code: 179309 |
Webcast: |
https://www.webcaster4.com/Webcast/Page/2968/48187 |
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 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 actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust their production levels, the impact of the COVID-19 pandemic and the effects thereof, the impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust their production levels, the impact of general economic conditions, including inflation, on economic activity and on our operations, 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.
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Free Cash Flow is defined as net cash provided by operating activities less 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, stock-based compensation, 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
Erin Fazio, Director of Corporate Finance
Erin_Fazio@dril-quip.com
5
Dril-Quip, Inc.
Comparative Condensed Consolidated Income Statement
(Unaudited)
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Three months ended |
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March 31, 2023 |
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December 31, 2022 |
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March 31, 2022 |
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(In thousands, except per share data) |
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Revenues: |
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Products |
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$ |
59,246 |
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$ |
64,713 |
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$ |
55,642 |
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Services |
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21,281 |
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21,657 |
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17,499 |
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Leasing |
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10,338 |
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10,444 |
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9,996 |
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Total revenues |
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90,865 |
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96,814 |
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83,137 |
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Costs and expenses: |
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Cost of sales |
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65,502 |
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66,567 |
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63,995 |
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Selling, general and administrative |
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22,585 |
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26,877 |
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22,393 |
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Engineering and product development |
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3,399 |
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2,699 |
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3,676 |
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Restructuring and other charges |
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1,718 |
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3,466 |
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32 |
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Gain on sale of property, plant and equipment |
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(6,647 |
) |
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(2,249 |
) |
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(114 |
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Foreign currency transaction (gain) loss |
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1,120 |
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1,818 |
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(1,254 |
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Total costs and expenses |
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87,677 |
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99,178 |
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88,728 |
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Operating income (loss) |
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3,188 |
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(2,364 |
) |
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(5,591 |
) |
Interest income |
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2,827 |
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3,310 |
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203 |
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Interest expense |
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(80 |
) |
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68 |
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(54 |
) |
Income tax provision |
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3,624 |
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1,266 |
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3,496 |
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Net income (loss) |
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$ |
2,311 |
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$ |
(252 |
) |
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$ |
(8,938 |
) |
Income (Loss) per share |
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Basic |
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$ |
0.07 |
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$ |
(0.01 |
) |
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$ |
(0.26 |
) |
Diluted |
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$ |
0.07 |
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$ |
(0.01 |
) |
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$ |
(0.26 |
) |
Depreciation and amortization |
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$ |
6,889 |
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$ |
7,079 |
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$ |
7,559 |
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Capital expenditures |
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$ |
5,424 |
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$ |
5,154 |
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$ |
2,066 |
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Weighted Average Shares Outstanding |
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Basic |
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34,128 |
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34,038 |
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34,494 |
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Diluted |
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34,489 |
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34,038 |
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34,494 |
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6
Dril-Quip, Inc.
Comparative Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, 2023 |
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December 31, 2022 |
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(In thousands) |
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Assets: |
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Cash and cash equivalents |
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$ |
235,343 |
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$ |
264,804 |
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Short-term investments |
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18,921 |
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32,232 |
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Other current assets |
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497,847 |
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455,552 |
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PP&E, net |
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183,285 |
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181,270 |
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Other assets |
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40,000 |
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38,657 |
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Total assets |
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$ |
975,396 |
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$ |
972,515 |
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Liabilities and Equity: |
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Current liabilities |
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$ |
83,360 |
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$ |
87,555 |
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Deferred Income taxes |
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4,025 |
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3,756 |
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Other long-term liabilities |
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7,633 |
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6,288 |
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Total liabilities |
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95,018 |
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97,599 |
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Total stockholders equity |
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880,378 |
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874,916 |
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Total liabilities and equity |
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$ |
975,396 |
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$ |
972,515 |
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7
Dril-Quip, Inc.
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share and Adjusted Diluted Earnings (Loss) per Share
Adjusted Net Income (Loss) and EPS: |
Three months ended |
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March 31, 2023 |
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December 31, 2022 |
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March 31, 2022 |
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Effect on |
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Impact on |
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Effect on |
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Impact on |
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Effect on |
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Impact on |
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(In thousands, except per share amounts) |
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Net income (loss) |
$ |
2,311 |
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$ |
0.07 |
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$ |
(252 |
) |
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$ |
(0.01 |
) |
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$ |
(8,938 |
) |
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$ |
(0.26 |
) |
Adjustments (after tax): |
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Reverse the effect of foreign currency transaction (gain) loss |
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885 |
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0.03 |
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1,436 |
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0.04 |
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(991 |
) |
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(0.03 |
) |
Restructuring and other costs, including severance |
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1,357 |
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0.04 |
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2,738 |
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|
0.08 |
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25 |
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— |
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Gain on sale of property, plant and equipment |
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(5,251 |
) |
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(0.15 |
) |
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(1,777 |
) |
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(0.05 |
) |
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(90 |
) |
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— |
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Adjusted net income (loss) |
$ |
(698 |
) |
|
$ |
(0.01 |
) |
|
$ |
2,145 |
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|
$ |
0.06 |
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$ |
(9,994 |
) |
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$ |
(0.29 |
) |
Dril-Quip, Inc.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Adjusted EBITDA: |
Three months ended |
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March 31, 2023 |
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December 31, 2022 |
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March 31, 2022 |
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(In thousands) |
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Net income (loss) |
$ |
2,311 |
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|
$ |
(252 |
) |
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$ |
(8,938 |
) |
Add: |
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Interest (income) expense, net |
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(2,747 |
) |
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(3,378 |
) |
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(149 |
) |
Income tax provision (benefit) |
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3,624 |
|
|
|
1,266 |
|
|
|
3,496 |
|
Depreciation and amortization expense |
|
6,889 |
|
|
|
7,069 |
|
|
|
7,559 |
|
Restructuring and other costs, including severance |
|
1,718 |
|
|
|
3,466 |
|
|
|
32 |
|
Gain on sale of property, plant and equipment |
|
(6,647 |
) |
|
|
(2,249 |
) |
|
|
(114 |
) |
Foreign currency transaction (gain) loss |
|
1,120 |
|
|
|
1,818 |
|
|
|
(1,254 |
) |
Stock compensation expense |
|
2,577 |
|
|
|
2,694 |
|
|
|
2,527 |
|
Adjusted EBITDA |
$ |
8,845 |
|
|
$ |
10,434 |
|
|
$ |
3,159 |
|
8
Dril-Quip, Inc.
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Free Cash Flow: |
Three months ended |
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|||||||||
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March 31, 2023 |
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December 31, 2022 |
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March 31, 2022 |
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(In thousands) |
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Net cash used in operating activities |
$ |
(52,920 |
) |
|
$ |
(17,604 |
) |
|
$ |
(10,928 |
) |
Less: |
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|
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Purchase of property, plant and equipment |
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(5,424 |
) |
|
|
(5,154 |
) |
|
|
(2,066 |
) |
Free cash flow |
$ |
(58,344 |
) |
|
$ |
(22,758 |
) |
|
$ |
(12,994 |
) |
9
Investor Presentation First Quarter 2023 Exhibit 99.2 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Disclaimer | Cautionary Statement 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 impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC nations to adjust their production levels, the impact of the COVID-19 pandemic and the effects thereof, 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, stock-based compensation, 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 cash provided by operating activities less 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 (wwwˌdril-quipˌcom) 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. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
About Us The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Who We Are | Dril-Quip Overview Dril-Quip, Inc. is a leading developer of innovative technologies for the energy industry, designing and manufacturing best-in-class products for traditional oil and gas, and certain energy transition applications. Western Hemisphere Eastern Hemisphere Asia Pacific 65% 20% 15% Subsea Products Subsea Services Well Construction 54% 26% 20% Notes: As of 5/1/23 $885M Market Cap1 Houston, TX Headquarters $362.1 Million 2022 Revenue NYSE since 1997 DRQ Operations 18 Countries Global Employees +1,000 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Our History| Dril-Quip Over the Years 1980s 1990s 2000s 2010s 2020s 1981 Dril-Quip is founded 1986 15,000 psi Subsea Wellhead Systems Introduced 1990 Singapore manufacturing facility opens 1990 1st Subsea completion delivered 2021 Announces collaboration agreement with OneSubsea 2021 Launches ESG platform 2022 JANUARY Jeff Bird and Kyle McClure become CEO & CFO, respectively FEBRUARY “Operational Excellence” program begins – streamlining leadership, operations, and optimizing company footprint Announced CCUS collaboration agreement with Aker Solutions JUNE Announced Decarbonization Targets 1997 Dril-Quip goes public (NYSE: DRQ) 2016 Dril-Quip acquires TIW 1983 First international manufacturing facility opens (Scotland) 2009 20,000 psi Subsea Wellhead Systems introduced 2000 Brazil Manufacturing facility established The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Investment Thesis | Why Dril-Quip Dril-Quip provides a balanced investment proposition to growth and value investors, supported by a long history of commanding premium valuation. Leader in Design & Manufacturing Footprint in Key Offshore Drilling Markets Organizational Alignment Strong Financial Profile Attractive Balance Sheet Manufacturer of highly engineered drilling & production equipment Competing in attractive long-term growth markets Small, self-contained teams that share a common strategy and control of own destiny Continued progression on key organic initiatives that will drive profitable growth One of very few oilfield service companies with balance sheet optionality The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Operations | Global Footprint Dril-Quip is well positioned to serve the needs of the global energy industry with major manufacturing facilities in the United States (Texas), Scotland, Brazil and Singapore; and service facilities in Australia, Ecuador, Mexico, Norway, China, Egypt, Saudi Arabia Ghana, and Qatar. Engineering, Manufacturing, Sales & Service Sales and/or Service Sales Representatives Center of Excellence and World Headquarters Houston, Texas Center of Excellence Aberdeen, Scotland Center of Excellence Singapore Center of Excellence Macaé, Brazil The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Customers | Extensive Customer Portfolio Our products are used by major integrated, independent, and foreign national energy companies throughout the world, and we are known for solving customers’ most challenging problems with equipment that performs reliably, safely, and cost-effectively in deepwater, harsh environments, and severe service applications. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Macro Environment | Constructive Market & Outlook Increasing tender volume and average quote value remains above pre-pandemic levels Compelling supply and demand fundamentals in traditional energy requirements and energy transition needs Supportive commodity prices and stability favorable for durable investment Oil & Gas demand is strong and showing resilience in uncertain economic conditions regionally International Energy Agency forecast Oil & Gas demand growth of 2.0 million barrels per day to 101.9 million total barrels per day in 2023 Tight supply, modest production and growing demand indicate ongoing investment Energy security spurring investment, projects, partnerships and increased offshore exploration Focus on decarbonization supporting R&D and ongoing investment across the space Notes: 1Based on exploration drilling forecast combined with tree forecasts from Rystad Energy The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Macro Environment | Growth in Offshore Drilling Demand Dril-Quip is well positioned to capitalize on a constructive offshore market with strong growth trends in Brazil, the Middle East, Norway, Latin America, and in reemerging markets such as West Africa. Notes: Western Hemisphere includes North and South America Eastern Hemisphere includes Europe and Africa Asia-Pacific includes Pacific Rim, Southeast Asia, Australia, India, and the Middle East 2022 Revenue $362 Million 12% Growth Western Hemisphere Represented 65% of total revenue for FY 2022 Strong growth in Brazil from Petrobras, which plans to invest $78 billion between 2023 – 2027 with plans to drill ~350 wells Guyana and Suriname in the early stages of development for DRQ with follow on orders expected in 2023 and beyond Asia-Pacific Represented 15% of total revenue for FY 2022 Upswing in activity in the region, particularly in Middle East is expected to drive demand for subsea products and well construction Eastern Hemisphere Represented 20% of total revenue for FY 2022 Long-term CCUS potential through our partnership with Aker Solutions Activity in Norway is seeing an uptick in demand due to energy security concerns The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Our Strategy | What Makes Dril-Quip Different Highly engineered, innovative solutions designed to withstand the harshest subsea environments, saving customers time and money on rigs Award-winning drilling and production products and services are utilized to provide total solutions for offshore field developments Long operating history and a clean balance sheet with zero debt provides strong financial stability Total Solutions Engineering & Innovation Financial Stability The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Operational Excellence Initiatives | Progress Update Footprint Rationalization $5 million - $10 million expected annual savings Additional progress has been made on footprint optimization plan to improve efficiency and reduce excess capacity Closed on the sale of Houston aftermarket facility for gain on sale of $6.7 million On track for the sale of a third Houston property during 2023 Manufacturing Investments $10 million - $15 million expected annual savings Through operational excellence initiatives and realignment efforts, foundation of strong product-line focused teams have been established Provides greater visibility, accountability, and improved ability to make smart, high ROI investment decisions Approved $22 million wellhead manufacturing AFE - expected delivery in Q4’23 will drive savings 2023 2023 Exit 2024 Exit ~35% Gross Margins Improvement The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Strategic Operating Products & Services The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Business supported by Dril-Quip’s expansion into high-growth decarbonization opportunities in our Energy Transition offering longer term. Our Business | Strategic Operating Product & Services Dril-Quip is in the process of streamlining operations and leadership around more focused and integrated product and service lines in a manner that aligns with the strategy. Subsea Products Subsea Services Well Construction Market leader in subsea wellhead equipment and technology, manufacturing highly engineered, field-proven products with wide array of deepwater drilling equipment and technology that meets the requirements for harsh subsea environments Provider of high-level aftermarket support and technical services with field technicians that support the full lifecycle management of regulatory and industry standards, as well as offering clients comprehensive industry training programs Drilling and productions solutions provider for onshore and offshore markets, supplying consumable and rental well construction products for the global energy market and offering highly experienced personnel with extensive operational knowledge and engineering expertise The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Robust Product Offering | Equipment Wide range of innovative products serving the energy industry, even in the harshest environments. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Our Business | Portfolio Positioned for Both On- & Off-shore PRODUCTS & SERVICES EXPOSURE PRIMARY MARKETS SUBSEA PRODUCTS Subsea Wellheads Specialty Connectors & Associated Pipes Subsea Production Systems Mudline Hanger Systems Production Riser Systems Dry Tree Systems Subsea Manifolds U.S. Gulf of Mexico, Mexico, Brazil, Trinidad & Tobago United Kingdom, Norway Saudi Arabia, Ghana China, Indonesia, Australia 54% 2022 % OF TOTAL REVENUE WELL CONSTRUCTION Liner Hangers & Expandable Liner Systems Specialty Well Construction Completion Packers Safety & Kelly Valves Window Cutting Products Rental & Service Deepwater Gulf of Mexico Latin America Brazil Ecuador Mexico Guyana Saudi Arabia 20% 2022 % OF TOTAL REVENUE SUBSEA SERVICES Technical Advisor Assistance Leasing of Subsea Equipment Reconditioning Storage & Maintenance Rental Tools U.S. Gulf of Mexico, Mexico, Brazil, Trinidad & Tobago United Kingdom, Norway Saudi Arabia, Ghana China, Indonesia, Australia 26% 2022 % OF TOTAL REVENUE The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Wellheads Field-proven wellhead system specially designed to meet the many challenges of working in shallow or deep-water environments and shallow or ultra-deep well applications Connectors & Surface Equipment Specialty connector suite of products that meet the varying casing challenges faced across well applications. Solutions focused surface and capital drilling equipment that offer thee appropriate balance of technology and economy. Subsea Production Systems Innovative drilling and production products providing comprehensive field development solutions Production Trees, Manifolds, Connection & Control Systems, Production PLEM’s, PLET’s, Flowline Jumpers Initiatives & Accolades 673 Patents Tier 1 wellhead provider Executing collaboration agreements Targeting shallow water and CCUS opportunities through SBTe offering Our Business | Subsea Products Profile Manufacturer of highly engineered, field-proven products with a wide array of deepwater drilling equipment and technology that meets the requirements for harsh subsea environments. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Aftermarket Capabilities Partners with customers throughout the lifecycle including full installation, strip-down, inspection, testing, assembly capabilities In-house machining capabilities for manufacturing and repairing from the smallest components to full subsea tree blocks Comprehensive engineering, project and back-office support functions for seamless and continuous customer support Ability to serve customers and projects in the harshest environments Initiatives & Accolades Highly reactive support for equipment installation Global network of trained technicians and specialized tooling Dedicated facilities for refurbishment and rework Our Business | Subsea Services Profile Provider of high-level aftermarket support and technical services with field technicians that support the full installation and lifecycle management of regulatory and industry standards, as well as offering industry training programs. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Big Bore Expandable Liner Hangers -XPak De® Disruptive new product introduction Converting market from wellhead equipment Can be run with any wellhead provider Improved margins and revenue volume Excellent customer value proposition Expandable Liner Hangers – XPakTM Features innovative liner top anchor/sealing device, providing unmatched reliability Robust system suitable for HTHP and challenging applications Established technology with limited competitors Conventional Liner Hangers Established field-proven products are widely accepted Casing Hardware & Well Services Providing accessories to liner hanger operations & long-string cementing Well intervention and slot recovery Tubular Running Services Initiatives & Accolades 382 Patents Gaining share in key markets (Brazil, Guyana, US, Mexico) Converting from conventional to expandable liner hangers Focus on expanding presence in Saudi Arabia Targeting $100M annual revenue run-rate Our Business | Well Construction Profile Well Construction provides solutions for onshore and offshore markets, supplying consumable and rental products for the global energy market and offering highly experienced personnel with extensive expertise. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Energy Transition | Long-Term Opportunity Helping our customers adapt and evolve to the Energy Transition, while positioning DRQ to support these long-term, robust opportunities. Positive reduction of carbon footprint Measurement/audit of carbon footprint across our product portfolio Next generation Power of e™ incorporating Green by DesignTM Carbon conscious R&D Measurement of carbon footprint reduction per project Carbon footprint decision metric incorporated across operations Next generation Power of e™ incorporating Green by DesignTM innovation philosophy Low Carbon Solutions Focus on CCUS markets Positive impact to carbon footprint through innovative technology application Develop adjacent markets to derive value eVolving industry Less steel/materials Less transportation Efficient operations Effective manufacturing Increased competitiveness Lower carbon footprint The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
ESG | Our Commitment to Responsible Growth At Dril-Quip, we believe technological innovation is key to improving energy efficiency and providing people around the world with universal access to reliable, affordable, clean energy. By doing so, we seek to stimulate economic growth and enhance the standard of living for all, improving health and creating employment opportunities globally. With an “A” rating from MSCI ESG, Dril-Quip’s approach to developing products that align with our commitment to UN Sustainable Development Goals (SDGs) is straightforward: We continuously engage with customers to understand their strategic priorities around energy efficiency and carbon emission reduction. We invest heavily in R&D as innovation has been central to technologies we have been bringing to the marketplace since 1981 and incorporate the evaluation of climate change risks and opportunities in our R&D processes. We innovate based on customer feedback and continuously improve our product portfolio. We empower customers to minimize health and safety risks while reducing their carbon footprint. We support our local communities by fostering the availability of clean, affordable energy to all. For more information on Dril-Quip’s commitment to responsible growth, please see one first-ever CSR report by visiting HERE. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Performance The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Recent Highlights | First Quarter 2023 Ongoing upcycle in the offshore market continues to create strong demand 9% year-over-year revenue growth in Q1 Announced segment reporting changes to align with the Company’s strategy and create better visibility into the business Progress continues to be made on organic improvement initiatives Closed on sale of Houston aftermarket facility during Q1, and the Company remains on track for the sale of a third Houston property by the end of 2023 Successfully installed two 15,000 psi HorizontalBoreTM Subsea Trees at the Woodside Shenzi North oil and gas field in the U.S. Gulf of Mexico in collaboration with global controls technology company Proserv First Quarter Revenue $90.9 Million +9% YoY Net Income $2.3 Million +11.2 Million YoY Adjusted EBITDA $8.8 Million +$3.2 Million YoY Bookings $53.5 Million -20% YoY Gross Margin 28% +489 BPs YoY The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Re-segmentation| New Operating Segments Announced New operating segments effective Q1 2023 provides better visibility into Dril-Quip’s business and aligns financial reporting with the Company’s internal operating structure Subsea Products In-line with prior year Includes: Subsea Wellheads, Specialty Connectors & Associated Pipes, Subsea Production Systems, Mudline Hanger Systems, Production Riser Systems, Dry Tree Systems, and Subsea Manifolds Well Construction 38% YoY growth Includes: Liner Hangers & Expandable Liner Systems, Specialty Downhole Tools, Completion Packers, Safety & Kelly Valves, Window Cutting Products, and Rental & Service Subsea Services 10% YoY growth Includes: Technical Advisor Assistance, Leasing of Subsea Equipment, Reconditioning, Storage & Maintenance, and Rental Tools Q1 2023 Revenue $90.9 Million 9% YoY Growth The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Results | Quarterly and Full Year Quarter (USD$ millions) Full Year (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. Revenue Adj. EBITDA -6% +12% -15% +97% The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Statistical Results | Backlog, Bookings, MSAs Backlog for Q1’23 decreased by 2% compared to Q4’22 and increased by 6% year-over-year as product bookings increased due to improving market conditions. Expected to fill ~70% - 80% of current backlog in 2023, with the remaining amount consisting of longer-term projects Dril-Quip currently has ~70 open MSAs Historical Backlog Trends (USD$ millions) -2% Historical Booking Trends (USD$ millions) +19% -20% The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Balance Sheet | Providing Ample Flexibility Strong balance sheet with ample liquidity and zero debt provides flexibility to support our growth strategy. NET DEBT $254.3 Million CASH, CASH EQUIVALENTS & INVESTMENTS1 1: As of March 31, 2023 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Capital Allocation | Priorities for Delivering ROI Demonstrating financial discipline in the pursuit of high-return opportunities that support long-term growth, while preserving our balance sheet strength and financial flexibility. High Return Organic Investments Disciplined M&A Preserve Financial Flexibility Shareholder Returns Prioritize investment into high ROI projects Support organic growth initiatives Manufacturing, R&D, etc. Technology bolt-ons to enhance existing business Deals of scale that align with selective M&A criteria Diversifying end market exposure with energy adjacent opportunities Working capital to support operations growth Free cash flow generation focused Continue to maintain strong balance sheet Focused on delivering sustainable, long-term growth Return cash to shareholders as appropriate 1 2 3 4 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
M&A | Disciplined Framework Primary considerations for disciplined M&A STRATEGIC CRITERIA FINANCIAL CRITERIA ACQUISITION TARGETS Increases scale of operations Expanded geographic footprint Aligns with DRQ core competencies Above average long-term growth projections Capable of delivering consistently high margins High return on capital Technology bolt-ons to enhance existing business Deals of scale that aligns with selective M&A criteria Diversifying end market exposure with energy adjacent opportunities
2023 Outlook | Profitable Growth Well positioned to continue to capitalize on the constructive offshore drilling market in 2023. ANNUAL REVENUE PRODUCT BOOKINGS ADJUSTED EBITDA CAPITAL EXPENDITURES 10% Growth over 2022 10% to 20% Growth over 2022 40% to 60% Incremental Margins $25 million to $30 million The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Appendix dril-quip.com | NYSE: DRQ The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Management | Result Driven Management Team Jeffrey J. Bird President and Chief Executive Officer Kyle F. McClure Vice President and Chief Financial Officer Stephen J. Chauffe Vice President — Well Construction John Mossop Vice President – Technology and Energy Transition Mahesh R. Puducheri Vice President — Chief Human Resources Officer Mark Tripsa Vice President — Integrated Supply Chain Don M. Underwood Vice President — Subsea Products James C. Webster Vice President, General Counsel and Secretary Bruce Witwer Vice President — Subsea Services The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Statements | Income Statement Dril-Quip, Inc. Comparative Condensed Consolidated Income Statement (Unaudited) Three months ended March 31, 2023 December 31, 2022 March 31, 2022 (In thousands, except per share data) Revenues: Products $ 59,246 $ 64,713 $ 55,642 Services 21,281 21,657 17,499 Leasing 10,338 10,444 9,996 Total revenues 90,865 96,814 83,137 Costs and expenses: Cost of sales 65,502 66,567 63,995 Selling, general and administrative 22,585 26,877 22,393 Engineering and product development 3,399 2,699 3,676 Restructuring and other charges 1,718 3,466 32 Gain on sale of property, plant and equipment (6,647) (2,249) (114) Foreign currency transaction (gain) loss 1,120 1,818 (1,254) Total costs and expenses 87,677 99,178 88,728 Operating income (loss) 3,188 (2,364) (5,591) Interest income 2,827 3,310 203 Interest expense (80) 68 (54) Income tax provision 3,624 1,266 3,496 Net income (loss) $ 2,311 $ (252) $ (8,938) Income (Loss) per share Basic $ 0.07 $ (0.01) $ (0.26) Diluted $ 0.07 $ (0.01) $ (0.26) Depreciation and amortization $ 6,889 $ 7,079 $ 7,559 Capital expenditures $ 5,424 $ 5,154 $ 2,066 Weighted Average Shares Outstanding Basic 34,128 34,038 34,494 Diluted 34,489 34,038 34,494 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Statements | Balance Sheet Dril-Quip, Inc. Comparative Condensed Consolidated Balance Sheets (Unaudited) March 31, 2023 December 31, 2022 (In thousands) Assets: Cash and cash equivalents $ 235,343 $ 264,804 Short-term investments 18,921 32,232 Other current assets 497,847 455,552 PP&E, net 183,285 181,270 Other assets 40,000 38,657 Total assets $ 975,396 $ 972,515 Liabilities and Equity: Current liabilities $ 83,360 $ 87,555 Deferred Income taxes 4,025 3,756 Other long-term liabilities 7,633 6,288 Total liabilities 95,018 97,599 Total stockholders equity 880,378 874,916 Total liabilities and equity $ 975,396 $ 972,515 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Statements | Non-GAAP Financial Measures Dril-Quip, Inc. Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share and Adjusted Diluted Earnings (Loss) per Share Adjusted Net Income (Loss) and EPS: Three months ended March 31, 2023 December 31, 2022 March 31, 2022 Effect on net income (loss) (after-tax) Impact on diluted earnings (loss) per share Effect on net income (loss) (after-tax) Impact on diluted earnings (loss) per share Effect on net income (loss) (after-tax) Impact on diluted earnings (loss) (In thousands, except per share amounts) Net income (loss) $ 2,311 $ 0.07 $ (252) $ (0.01) $ (8,938) $ (0.26) Adjustments (after tax): Reverse the effect of foreign currency transaction (gain) loss 885 0.03 1,436 0.04 (991) (0.03) Restructuring and other costs, including severance 1,357 0.04 2,738 0.08 2 5 – Gain on sale of property, plant and equipment (5,251) (0.15) (1,777) (0.05) (90) – Adjusted net income (loss) $ (698) $ (0.01) $ 2,145 $ 0.06 $ (9,994) $ (0.29) The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Statements | Non-GAAP Financial Measures Dril-Quip, Inc. Reconciliation of Net Income (Loss) to Adjusted EBITDA Adjusted EBITDA: Three months ended March 31, 2023 December 31, 2022 March 31, 2022 (In thousands) Net income (loss) $ 2,311 $ (252) $ (8,938) Add: Interest (income) expense, net (2,747) (3,378) (149) Income tax provision (benefit) 3,624 1,266 3,496 Depreciation and amortization expense 6,889 7,069 7,559 Restructuring and other costs, including severance 1,718 3,466 3 2 Gain on sale of property, plant and equipment (6,647) (2,249) (114) Foreign currency transaction (gain) loss 1,120 1,818 (1,254) Stock compensation expense 2,577 2,694 2,527 Adjusted EBITDA $ 8,845 $ 10,434 $ 3,159 The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Statements | Non-GAAP Financial Measures Dril-Quip, Inc. Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Free Cash Flow: Three months ended March 31, 2023 December 31, 2022 March 31, 2022 (In thousands) Net cash used in operating activities $ (52,920) $ (17,604) $ (10,928) Less: Purchase of property, plant and equipment (5,424) (5,154) (2,066) Free cash flow $ (58,344) $ (22,758) $ (12,994) The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
Financial Metrics | Definitions 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 & Short-Term Investments / 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) The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.
© 2022 Dril-Quip®, Inc. All Rights Reserved. The power of e © 2022 Dril-Quip®, Inc. All Rights Reserved.