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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(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:
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Title of each class |
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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 October 26, 2023, Dril-Quip, Inc. (“Dril-Quip”) reported third quarter 2023 earnings. For additional information regarding Dril-Quip’s third 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 October 26, 2023, Dril-Quip posted the third 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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Third 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: October 26, 2023
Exhibit 99.1
DRIL-QUIP, INC. ANNOUNCES THIRD QUARTER 2023 RESULTS
Third quarter revenue increased 31% sequentially
Cash from operations of $26.8 million
Successfully completed the acquisition of Great North
HOUSTON, October 26, 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 third quarter of 2023.
Third Quarter Highlights
“Our third quarter delivered strong revenue, both from the addition of Great North, as well as growth driven by key deliveries to customers in markets such as Brazil, the Middle East, and West Africa. After closing on the Great North acquisition in early August, results for that business this quarter were in line with expectations, and we are excited about its continued growth trajectory,” said Jeff Bird, Dril-Quip’s President and Chief Executive Officer. “Free cash flow was very strong this quarter, the highest since 2017, as we improved overall working capital and received a long-awaited U.S. tax refund.”
1
“More recently, capacity constraints in the offshore rig market are introducing headwinds. Multiple customers have delayed product orders and service deliveries due to rig availability delaying drilling schedules, with latest estimates pushing some activity to spring of 2024. This directly impacted the bookings figure in the third quarter, as well as, our mix of Subsea Product and Subsea Service revenue, in comparison to our expectations. The lower Subsea Service revenue ultimately drove lower profitability in the third quarter. Our view that we are in the early innings of a multi-year offshore upcycle and that Dril-Quip’s portfolio is well-positioned for growth remains unchanged. We look forward to updating investors on our 2024 outlook and updates to our strategic initiatives on our year-end earnings conference call in February 2024.”
In conjunction with today’s release, the Company posted a new investor presentation entitled “Q3 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 third quarter of 2023 was $117.2 million, up $27.6 million from the second quarter of 2023 and up $29.1 million compared to the third quarter of 2022. The increase in revenue was primarily driven by the acquisition of Great North in the third quarter which contributed $15.5 million in the quarter and an increase of $11.3 million in our Subsea Products segment as key customer deliveries were made in growing international offshore markets. Well Construction revenues increased $16.2 million sequentially, from $21.4 million to $37.6 million, primarily driven by the acquisition of Great North as well as large bore liner hanger growth in offshore Brazil and West Africa. Subsea Services segment revenue increased 6% year-over-year to $23.7 million, and Subsea Products segment revenue increased 15% compared to the prior year to $55.9 million.
Cost of sales for the third quarter of 2023 was $85.6 million, an increase of $19.9 million sequentially and year-over year. Gross operating margin for the third quarter of 2023 was 27.0%, up from 26.7% for the second quarter of 2023 and up from 25.4% year-over-year. Gross margins increased year-over-year, driven by incremental leverage on higher sales in Well Construction and Subsea Products.
2
Selling, General, Administrative, and Engineering Expenses
Selling, general and administrative (“SG&A”) expenses for the third quarter of 2023 were $27.0 million, an increase of $4.9 million compared to the second quarter of 2023 and an increase of $4.6 million year-over-year. SG&A increased sequentially and year-over-year primarily due the addition of Great North expenses and an increase to the bad debt reserve due to higher activity. Engineering and product development expenses were $3.1 million for the third quarter of 2023, a decrease of $0.1 million from the second quarter of 2023 and an increase of $0.4 million year-over-year. The year-over-year 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 third quarter of 2023, the Company reported net loss of $7.0 million, or a loss of $0.21 per share. This compares to net income of $3.5 million, or $0.10 per share, for the second quarter of 2023 and a net income of $13.3 million, or $0.39 per share, in the prior year period.
Adjusted EBITDA totaled $12.4 million for the third quarter of 2023 compared to $8.8 million for the second quarter 2023 and $7.0 million in the prior year period. The increase in adjusted EBITDA sequentially and from the year ago period can be attributed to increased revenues and the acquisition of Great North in the third quarter of 2023.
Cash provided by operations was $26.8 million for the third quarter of 2023, an improvement of $15.5 million sequentially and $25.8 million year-over-year. Free cash flow was $21.4 million for the third quarter of 2023, an improvement of $20.3million sequentially and $30.6 million year-over-year. The improvement was primarily driven by the receipt of an U.S. tax refund of $16.8 million and improvements to Days Sales Outstanding in the third quarter, partially offset by an increase in finished goods inventory in anticipation of future growth. Capital expenditures in the third quarter of 2023 were $5.4 million, the majority of which was related to rental tools bound for work already secured. The company utilized $92.3M to complete the acquisition of Great North in the third quarter, including transaction and integration-related costs and customary working capital adjustments. Ending cash, cash equivalents and short-term investments as of September 30, 2023, were $190.0 million. The Company expects free cash flow to be positive in the fourth quarter of 2023.
Share Repurchases
During the third 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 conference call and a webcast to discuss the financial results on October 27, 2023, at 10:00 a.m. Eastern Daylight Time / 9:00 a.m. Central Daylight Time. The presentation is open to all interested parties and may include forward-looking information.
To access the call, please dial in approximately ten minutes before the start of the call.
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Conference Call and Webcast Details
Date / Time: |
Friday, October 27, 2023, at 10:00 a.m. EDT / 9:00 a.m. CDT |
Webcast: |
https://www.webcaster4.com/Webcast/Page/2968/49306 |
U.S. Toll-Free Dial-In: |
888-506-0062 |
International Dial-In: |
973-528-0011 |
Conference ID: |
296785 |
For those unable to participate in the live call, an audio replay will be available following the call through midnight Friday, November 10, 2023. To access the replay, please call 877-481-4010 or 919-882-2331 (International) and enter confirmation code 49306. A replay of the webcast will also be archived shortly after the call and can be accessed on the Company’s website.
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.
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Forward-Looking Statements
Statements contained herein relating to future operations and financial results that are forward-looking statements, including those related to market conditions, benefits of the recently completed acquisition, 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 actions taken by the OPEC and non-OPEC nations to adjust their production levels, risks related to the recently completed acquisition, including the risk that the benefits of the acquisition may not be fully realized or may take longer to realize than expected, that we will fail to successfully integrate the properties and assets into our business and that management attention will be diverted to integration-related issues, 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.
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.
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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
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Dril-Quip, Inc. |
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Comparative Condensed Consolidated Income Statement |
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(Unaudited) |
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Three months ended |
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September 30, 2023 |
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June 30, 2023 |
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September 30, 2022 |
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(In thousands, except per share data) |
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Revenues: |
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Products |
$ |
77,603 |
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$ |
55,828 |
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$ |
58,508 |
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Services |
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27,214 |
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23,733 |
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20,443 |
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Leasing |
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12,427 |
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10,046 |
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9,190 |
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Total revenues |
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117,244 |
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89,607 |
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88,141 |
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Costs and expenses: |
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Cost of sales |
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85,603 |
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65,711 |
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65,710 |
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Selling, general and administrative |
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26,993 |
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22,114 |
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22,431 |
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Engineering and product development |
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3,061 |
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3,202 |
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2,645 |
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Restructuring and other charges |
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2,267 |
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(610 |
) |
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4,101 |
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Gain on sale of property, plant and equipment |
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(1,027 |
) |
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(738 |
) |
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(17,276 |
) |
Acquisition costs |
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5,358 |
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1,134 |
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- |
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Foreign currency transaction loss (gain) |
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1,060 |
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(4,812 |
) |
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(1,901 |
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Total costs and expenses |
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123,315 |
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86,001 |
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75,710 |
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Operating income (loss) |
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(6,071 |
) |
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3,606 |
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12,431 |
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Interest income, net |
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(2,312 |
) |
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(1,979 |
) |
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(248 |
) |
Income tax provision (benefit) |
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3,275 |
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2,102 |
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(610 |
) |
Net income (loss) |
$ |
(7,034 |
) |
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$ |
3,483 |
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$ |
13,289 |
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Net income (loss) per share |
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Basic |
$ |
(0.21 |
) |
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$ |
0.10 |
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$ |
0.39 |
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Diluted |
$ |
(0.21 |
) |
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$ |
0.10 |
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$ |
0.39 |
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Depreciation and amortization |
$ |
7,899 |
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$ |
7,049 |
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$ |
7,123 |
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Capital expenditures |
$ |
5,430 |
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$ |
10,187 |
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$ |
10,283 |
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Weighted Average Shares Outstanding |
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Basic |
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34,132 |
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34,130 |
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33,948 |
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Diluted |
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34,132 |
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34,490 |
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34,232 |
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7
Dril-Quip, Inc. |
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Comparative Condensed Consolidated Balance Sheets |
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(Unaudited) |
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September 30, 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 |
$ |
181,072 |
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$ |
264,804 |
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Short-term investments |
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8,911 |
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32,232 |
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Other current assets |
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519,057 |
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452,988 |
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PP&E, net |
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211,806 |
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181,270 |
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Other assets |
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86,722 |
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38,657 |
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Total assets |
$ |
1,007,568 |
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$ |
969,951 |
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Liabilities and Equity: |
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Current liabilities |
$ |
106,735 |
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$ |
87,555 |
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Deferred income taxes |
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12,114 |
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3,756 |
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Other long-term liabilities |
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18,257 |
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6,288 |
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Total liabilities |
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137,106 |
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97,599 |
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Total stockholders equity |
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870,462 |
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872,352 |
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Total liabilities and equity |
$ |
1,007,568 |
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$ |
969,951 |
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Dril-Quip, Inc. |
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Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share to Adjusted Diluted Earnings (Loss) per Share |
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Adjusted Net Income (Loss) and EPS: |
Three months ended |
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September 30, 2023 |
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June 30, 2023 |
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September 30, 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) |
$ |
(7,034 |
) |
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$ |
(0.21 |
) |
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$ |
3,483 |
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|
$ |
0.10 |
|
|
$ |
13,289 |
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|
$ |
0.39 |
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Adjustments (after tax): |
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|
|
|
|
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|
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|
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Reverse the effect of foreign currency transaction loss (gain) |
|
837 |
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|
|
0.02 |
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|
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(3,801 |
) |
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|
(0.11 |
) |
|
|
(1,502 |
) |
|
|
(0.04 |
) |
Restructuring and other charges, including severance |
|
2,036 |
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|
|
0.06 |
|
|
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(14 |
) |
|
|
- |
|
|
|
3,240 |
|
|
|
0.09 |
|
Gain on sale of property, plant and equipment |
|
(811 |
) |
|
|
(0.02 |
) |
|
|
(583 |
) |
|
|
(0.02 |
) |
|
|
(13,648 |
) |
|
|
(0.40 |
) |
Adjusted net income (loss) |
$ |
(4,972 |
) |
|
$ |
(0.15 |
) |
|
$ |
(915 |
) |
|
$ |
(0.03 |
) |
|
$ |
1,379 |
|
|
$ |
0.04 |
|
8
Dril-Quip, Inc. |
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Reconciliation of Net Income (Loss) to Adjusted EBITDA |
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Adjusted EBITDA: |
Three months ended |
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September 30, 2023 |
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June 30, 2023 |
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September 30, 2022 |
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(In thousands) |
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Net income (loss) |
$ |
(7,034 |
) |
|
$ |
3,483 |
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|
$ |
13,289 |
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Add: |
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|
|
|
|
|
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|
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Interest income, net |
|
(2,312 |
) |
|
|
(1,979 |
) |
|
|
(248 |
) |
Income tax provision (benefit) |
|
3,275 |
|
|
|
2,102 |
|
|
|
(610 |
) |
Depreciation and amortization expense |
|
7,899 |
|
|
|
7,049 |
|
|
|
7,123 |
|
Restructuring and other charges |
|
2,267 |
|
|
|
(610 |
) |
|
|
4,101 |
|
Acquisition costs |
|
5,358 |
|
|
|
1,134 |
|
|
|
- |
|
Gain on sale of property, plant and equipment |
|
(1,027 |
) |
|
|
(738 |
) |
|
|
(17,276 |
) |
Foreign currency transaction loss (gain) |
|
1,060 |
|
|
|
(4,812 |
) |
|
|
(1,901 |
) |
Stock compensation expense |
|
2,576 |
|
|
|
2,566 |
|
|
|
2,569 |
|
Other |
|
309 |
|
|
|
592 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
12,371 |
|
|
$ |
8,787 |
|
|
$ |
7,047 |
|
Dril-Quip, Inc. |
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Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow |
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|
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Free Cash Flow: |
Three months ended |
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September 30, 2023 |
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|
June 30, 2023 |
|
|
September 30, 2022 |
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|||
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(In thousands) |
|
|||||||||
Net cash provided by operating activities |
$ |
26,805 |
|
|
$ |
11,282 |
|
|
$ |
1,042 |
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Less: |
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|
|
|
|
|
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|
|||
Purchase of property, plant and equipment |
|
(5,430 |
) |
|
|
(10,187 |
) |
|
|
(10,283 |
) |
Free cash flow |
$ |
21,375 |
|
|
$ |
1,095 |
|
|
$ |
(9,241 |
) |
9
Investor Presentation Third Quarter 2023
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.
About Us
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 10/17/23 $884 Million Market Cap1 Houston, TX Headquarters $361.9 Million 2022 Revenue NYSE since 1997 DRQ Operations 19 Countries Global Employees 1,356
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 2023 Dril-Quip acquires Great North Wellhead
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
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), Canada, 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 Great North, Center of Excellence Edmonton, Alberta
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.
Macro Environment | 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 growth 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
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
Our Strategy | What Makes Dril-Quip Different Highly engineered, innovative solutions designed to withstand the harshest environments, saving customers time and money Award-winning drilling and production products and services are utilized to provide total solutions for field developments Long operating history and a clean balance sheet with zero debt provides strong financial stability Total Solutions Engineering & Innovation Financial Stability
Commercial Excellence| Growth Update 2023 2024 2025 & Beyond Brazil Growth – Subsea Wellheads & Liner Hangers Latin America Expansion – Great North Wellheads Saudi Arabia Growth – Liner Hangers & Great North Wellheads 1 2 3 Focusing on core growth markets globally.
Operational Excellence Initiatives | Progress Update Footprint & Business Unit Restructuring $5 million expected annual savings Wellhead Manufacturing Investment $10 million expected annual savings 2023 2024 Targeting >20% Adjusted EBITDA Margin Best Cost Region Supply Chain $10 million - $15 million expected annual savings 2025 Targeting >10% Adjusted EBITDA Margin Targeting 15%-18% Adjusted EBITDA Margin Driving organizational culture of continuous productivity improvement.
Strategic Operating Products & Services
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, completions 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
Robust Product Offering | Equipment Wide range of innovative products serving the energy industry, even in the harshest environments.
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 WELL CONSTRUCTION Liner Hangers & Expandable Liner Systems Multi-frac Well Connectors Conventional Wellhead Thermal Wellhead Specialty Well Construction Completion Packers Safety & Kelly Valves Rental & Service Canada Deepwater Gulf of Mexico Latin America Brazil Ecuador Mexico Saudi Arabia Namibia 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 Our Business | Portfolio Positioned for Both On- & Off-shore
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 meet the requirements for harsh subsea environments.
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 offer industry training programs.
Expandable Liner Hangers – XPakTM & Big Bore XPak De® Features innovative liner top anchor/sealing device, providing unmatched reliability Robust system suitable for HTHP and challenging applications Established technology with limited competitors Conventional & Thermal Wellhead Products Technical, engineered-to-order wellheads used in heavy oil and thermal production locations Rental Completion Solutions Multi-Well Frac ConnectorTM Missile Frac Solution Dart & Frac Ball Launchers Casing Hardware & Well Services Providing accessories to liner hanger operations & long-string cementing Well intervention and slot recovery Tubular Running Services Initiatives & Accolades 388 patents Gaining share in key markets (Brazil, Canada, Namibia, US, Mexico) Converting from conventional to expandable liner hangers Focus on expanding presence in Saudi Arabia Integrating Great North into portfolio and expanding reach internationally 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. *Splits inclusive of Great North Wellhead 2023 Proforma Impact 10% 90%
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
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.
Financial Performance
Recent Highlights | Third Quarter 2023 Ongoing upcycle in the offshore market continues to create strong demand. Second consecutive quarter of positive cash flow from operations and positive free cash flow; highest quarterly free cash flow amount since 2017 of $21.4 million First delivery of XPak DETM liner hangers for exploratory projects in West Africa Participation in a geothermal project in New Zealand through our connector product line Remain on track to complete footprint optimization initiatives by year end 2023 Successfully completed the acquisition of Great North which contributed $15.5 million to third quarter revenue Third Quarter Revenue $117.2 Million +33% YoY Net Loss $7.0 Million -$20.3 Million YoY Adjusted EBITDA $12.4 Million +$5.3 Million YoY Bookings $46.5 Million -25% YoY Gross Margin 27.0% +154 BPs YoY
Financial Results| Operating Segment Update New operating segments effective in 2023 provide better visibility into Dril-Quip’s business and align financial reporting with the Company’s internal operating structure. Subsea Products 15% YoY growth Includes: Subsea Wellheads, Specialty Connectors & Associated Pipes, Subsea Production Systems, Mudline Hanger Systems, Production Riser Systems, Dry Tree Systems, and Subsea Manifolds Well Construction 117% YoY growth Includes: Liner Hangers & Expandable Liner Systems, Onshore Wellheads, Specialty Downhole Tools, Safety & Kelly Valves, and Rental & Service Subsea Services 6% YoY growth Includes: Technical Advisor Assistance, Leasing of Subsea Equipment, Reconditioning, Storage & Maintenance, and Rental Tools Q3 2023 Revenue $117.2 Million +33% YoY Growth
Financial Results | Quarterly and Full Year Quarter (USD$ 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 +31% +12% +41% +97%
Statistical Results | Backlog, Bookings, MSAs Backlog for Q3’23 decreased 17% compared to Q2’23 and decreased by 1% year-over-year as capacity constraints in the offshore rig market are introducing headwinds Dril-Quip currently has ~70 open MSAs Subsea Products book-to-bill ratio of 0.3x for the third quarter of 2023. Historical Backlog Trends (USD$ millions) Historical Booking Trends (USD$ millions) +19% -36% +15% -17%
Balance Sheet | Providing Ample Flexibility Strong balance sheet with ample liquidity and zero debt provides flexibility to support our growth strategy. DEBT $190.0 Million CASH, CASH EQUIVALENTS & INVESTMENTS1 1: As of September 30, 2023
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
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 align with selective M&A criteria Diversifying end-market exposure with energy adjacent opportunities
Outlook | Fourth Quarter Updates Revenue Bookings Capex FCF $115 million - $125 million $75 million - $100 million ~ $10 million Greater than $0 Adj. EBITDA Margins of 14% - 16%
Appendix dril-quip.com | NYSE: DRQ
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
Financial Statements | Income Statement
Financial Statements | Balance Sheet
Financial Statements | Non-GAAP Financial Measures
Financial Statements | Non-GAAP Financial Measures
Financial Statements | Non-GAAP Financial Measures
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)
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