July 15, 2024

VIA EDGAR

U.S. Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, DC 20549 Attn: Becky Chow

Re: Dril-Quip, Inc.
Form 10-K/A for Fiscal Year Ended December 31, 2023 Response dated July 8, 2024
File No. 001-13439
 

Dear Ms. Chow:

On behalf of Dril-Quip, Inc., a Delaware corporation (the “Company”), set forth below are responses of the Company to the comments of the staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) contained in the letter dated July 12, 2024 regarding the Company’s Annual Report on Form 10-K/A (the “Form 10-K/A”) filed with the Commission on July 8, 2024.

To facilitate your review, we have reproduced the text of the Staff’s comments in boldfaced print below, followed by the Company’s response to each comment.

 

Form 10-K/A for Fiscal Year Ended December 31, 2023

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 41

 

 

Gibson, Dunn & Crutcher LLP
811 Main Street Suite 3000 | Houston, TX 77002-6117 | T: 346.718.6600 | F: 346.718.6620 | gibsondunn.com

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Response:

We respectfully acknowledge the Staff’s comment and advise the Staff that we considered updating our current MD&A for the year ended December 31, 2022, compared to the year ended December 31, 2021 to discuss the restatement. The first paragraph of Item 7 in our Form 10-K/A for the year ended December 31, 2023 (“2023 10-K/A”) states “This discussion should be read in conjunction with the Company’s consolidated financial statements and notes…”; we believe readers will refer to our consolidated financial statements and notes presented in the 2023 10-K/A when reading our MD&A. We believe that the Explanatory Note, Footnote 9, and Footnote 21 in our 2023 10-K/A identify the misclassification of the inventory write-down charges of $67 million in Restructuring and other charges and the subsequent correction to include them in Cost of Sales. Further, the inventory write-downs associated with the restructuring plans were specifically discussed in our Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) in connection with Restructuring and Other Charges. We believe that any user who refers to our results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, incorporated by reference from our 2022 Form 10-K, will also refer to our financial statements and notes included in the 2023 10-K/A to have an understanding of the Company’s financial position, results of operations, comprehensive income (loss) and cash flows. Additionally, given that year ended 2021 results will not be presented in future filings, the Company does not believe revising its historic MD&A would be relevant or decision-useful to any investors or users of our historic financial statements.

 

Response:

We respectfully acknowledge the Staff’s comment and advise the Staff that we define Adjusted EBITDA 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 2021 inventory write-downs of approximately $67 million were significant non-cash items that meet the Company’s definition of Adjusted EBITDA. Additionally, the inventory write-downs were not routine adjustments to reflect inventory at the lower of cost or net realizable value due to normal obsolescence, damage or

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typical changes in market conditions. Rather, these write-downs were due to a strategic shift from an in-house manufacturing model to outsourcing production and the discontinuation of certain product categories as a part of global restructuring efforts triggered by our strategic pivot to vendor outsourcing and the termination of specific product lines.

Adjusted EBITDA is provided in our 2023 10-K/A to evaluate and compare our operational results across periods by excluding the impact of our capital structure and specific items affecting the comparability of operating results. These write-downs are non-cash, non-recurring, and non-normal expenses, consistent with the criteria outlined in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. Inventory write-downs arising from normal business activities that are not related to the restructuring plans have not been adjusted for in our Adjusted EBITDA calculations. Our approach to Adjusted EBITDA aims to segregate operational expenses from unusual charges to maintain transparency and comparability in our financial reporting.

The write-downs in question are atypical and not part of our ongoing business operations. Consequently, we believe including these non-recurring inventory write-downs in the reconciliation to Adjusted EBITDA prevents distortion of our underlying profitability metrics and ensures a more accurate comparison across reporting periods.

Item 11. Executive Compensation, page 90

 

Response:

We respectfully acknowledge the Staff’s comment and advise the Staff that Dril-Quip determined that the disclosure regarding the restatement included in its Form 8-K filed on July 8, 2024 and its Form 10-K/A filed on July 8, 2024 included sufficient information for investors to understand that the restatement did not impact any incentive-based compensation subject to the policy. Specifically, the only incentive-based compensation since the adoption of that policy effective on October 2, 2023 (and therefore subject to the policy) were (i) stock performance units that vested at 0% payout on October 28, 2023 and (ii) bonuses awarded for 2023 based on

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2023 Adjusted EBITDA and bookings, neither of which was related to or impacted by the restatement for the fiscal year ended December 31, 2021. Dril-Quip plans to disclose that the compensation committee of Dril-Quip reviewed the restated financials and concluded that there was no recovery of erroneously awarded compensation required under the policy because the restated financials did not impact any incentive-based compensation received on or after October 2, 2023 in its next proxy statement when it incorporates its executive compensation disclosures.

Please direct any questions concerning this letter to the undersigned at (346) 718‑6888 or gspedale@gibsondunn.com.

Very truly yours,

/s/ Gerald M. Spedale

Gerald M. Spedale

GIBSON, DUNN & CRUTCHER LLP

cc: James C. Webster, Vice President, General Counsel and Secretary

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