VERNAL, Utah, May 15, 2015 (GLOBE NEWSWIRE) -- Superior Drilling Products, Inc. (NYSE MKT:SDPI) ("SDP" or the "Company"), a provider of drilling products for the oil, natural gas and mining services industries today reported financial results for the first quarter ended March 31, 2015. Financial results include the May 29, 2014 acquisition of Hard Rock Solutions, LLC ("Hard Rock") which included the Drill N Ream™ (DNR) and the January 9, 2015 acquisition of the OrBIT completion drill bit product line.
First Quarter 2015 Highlights
- First quarter 2015 revenue was $4.1 million, up $0.3 million from the prior year's first quarter.
- Drill N Ream™ was used in 185 runs in the quarter, even as rig count declined. Price per run was under pressure given industry conditions.
- Advances were made in the manufacturing and redesign of the OrBIT completion drill bit product.
- Selling, general and administrative (SG&A) expenses were down $321 thousand compared with trailing fourth quarter reflecting cost reductions and expense management.
First Quarter 2015 Results
Organic revenue, which is comprised of custom fabrication and drill bit refurbishing services, was $1.8 million compared with $3.5 million in the 2014 first quarter, a 49% decline. Hard Rock acquisition revenue was $2.2 million consisting of $2.0 million of rental tool revenue and $0.2 million of DNR repair revenue. In the prior year's first quarter, there was $0.3 million in royalty revenue for the Drill N Ream.
During the quarter, SDP averaged 14 customers per month running its well bore conditioning tool, down from 17 in the trailing fourth quarter as customers reduced their drilling activity. Average revenue per run was $11.1 thousand and has declined because of the shorter laterals in the Mid-South and Southwest regions and also due to pricing pressure given the uncertain oil price environment.
Troy Meier, Chairman and CEO of Superior Drilling Products, noted, "These are exciting times for SDP, even within a challenged industry environment given the uncertainty regarding the price of oil. Our customers remain loyal to the DNR and are responding positively to our new products. We are pleased with the progress we are making on both the engineering and manufacturing of the OrBIT and the lab testing of the Strider. While facing new challenges in the oil patch right now, we remain focused on demonstrating the value our tools can create for our customers. Expanding our product offerings and leveraging our field tool distribution infrastructure are key strategic initiatives for 2015."
Cost of revenue was $1.9 million, up from $1.2 million in the first quarter of 2014. The higher cost of revenue reflects the development of the rental tool field sales and distribution infrastructure.
Selling, general and administrative (SG&A) expenses increased $1.0 million to $2.1 million compared with the prior-year period. Approximately $0.5 million was for investments in engineering, sales, marketing and administrative personnel. Research and development costs were up $0.3 million and the costs associated with becoming a public company comprised the remaining increase. When compared with the trailing fourth quarter, SG&A decreased by $0.3 million, reflecting cost containment initiatives underway in response to the decreasing U.S. land drilling rig count.
Depreciation and amortization (D&A) was up $0.8 million to $1.1 million primarily as a result of the acquisition.
Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted to exclude a $0.1 million loss on disposition of property, plant and equipment (PP&E), was $0.2 million, or 4.1% of revenue. The Company believes that when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached tables for important disclosures regarding SDP's use of adjusted EBITDA, as well as a reconciliation of net income to adjusted EBITDA.
Adjusted net loss, also a non-GAAP measure, was $0.4 million, or $0.02 per diluted share, in the first quarter. Adjusted net loss excludes intangible asset amortization expense of $0.6 million after tax. GAAP net loss was $1.0 million, or $0.06 per share. See attached tables for a reconciliation of GAAP net loss to adjusted net income.
Balance Sheet Update
Cash provided by operations in the first quarter was $0.5 million. Cash on hand at March 31, 2015 was $5.8 million, which is unchanged from December 31, 2014 levels.
Total debt as of March 31, 2015 was $23.8 million. Debt, net of cash, was $18.0 million compared with $18.1 million at December 31, 2014.
Subsequent to the end of the first quarter, the Company took several actions to improve the flexibility of its balance sheet and lock in fixed interest rates given the current low rate environment, which are reflected on the balance sheet as of March 31, 2015. The Company refinanced the $5 million term loan on its Vernal property extending its term to August 2018 at a 5.25% rate. Additionally, the Hard Rock Note was restructured at a new fixed annual interest rate of 5.25% and the schedule of payments were amended reducing the 2015 payment to $2.5 million and requiring two annual payments of $2.5 million in January and July of 2016 and 2017.
Capital expenditures for the first quarter were $0.2 million, which is down significantly from $2.6 million in the trailing fourth quarter. For 2015, capital expenditures are expected to be approximately $800 thousand to $1 million, the majority of which is expected to occur in the second half.
2015 Outlook
Mr. Meier concluded, "The volatility with the price of oil and resultant uncertainties continue to reduce our visibility. The U.S. drill rig count is down over 50% in just a four month time frame. Our goal remains to grow revenue with the DNR by increasing our market penetration even within a reduced addressable market. Combined with revenue from our new products, we hope to offset the weakness in our organic business, which we expect will remain 50% to 60% below last year. If we can achieve this revenue goal, we believe we can achieve better than 20% EBITDA margin for the year. More importantly, we are proactively positioning our products with customers and prospects so that when they regain more confidence with market stabilization, we are able to rapidly deploy products and return to growth."
Given the timing of the roll out of new products, revenue in 2015 is expected to be heavily weighted in the second half of the year.
Webcast and Conference Call
The Company will host a conference call and live webcast today at 10:00 am MT (12:00 pm ET) to provide a strategic update and outlook as well as review the operating results for its first quarter 2015. The discussion will be accompanied by a slide presentation that will be made available immediately prior to the conference call on SDP's website at www.sdpi.com/events_presentations.html. A question-and-answer session will follow the formal presentation.
The conference call can be accessed by calling (201) 689-8470. Alternatively, the webcast can be monitored on Superior Drilling Products' website at www.sdpi.com/events_presentations.html.
To listen to the archived call, dial (858) 384-5517 and enter replay number 13607512. A telephonic replay will be available from approximately 1:00 pm MT (3:00 pm ET) on the day of the call through Friday, May 22, 2015. A transcript of the call will be available for download from the SDP website once available.
About Superior Drilling Products, Inc.
Superior Drilling Products, Inc. is an innovative, cutting-edge drilling tool technology company. The Company manufactures, repairs, sells and rents drilling tools. SDP manufactures and markets drill string tools, including the patented Drill-N-Ream™ well bore conditioning tool, for the oil, natural gas and mining services industries. In addition, SDP is a manufacturer and refurbisher of PDC (polycrystalline diamond compact) drill bits for a leading oil field services company. SDP operates a state-of-the-art drill tool machining facility manufacturing for its customer's custom products and solutions for the drilling industry. The Company's strategy is to leverage its technological expertise in drill tool technology and innovative, precision machining to broaden its drill tool technology offerings for rent or sale, while establishing an effective sales and logistics infrastructure through which it can provide proprietary tools to exploration and production companies and drill rig operators.
Additional information about the Company can be found at its website: www.sdpi.com.
Safe Harbor Regarding Forward Looking Statements
This news release contains "forward-looking statements" within the meaning of the safe harbor provisions, 15 U.S.C. § 78u-5, of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included in this release, regarding our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects, plans and objectives of management, are forward-looking statements. The use of words "could," "believe," "anticipate," "intend," "estimate," "expect," "may," "continue," "predict," "potential," "project", "forecast," "should" or "plan, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Certain statements in this release may constitute forward-looking statements, including statements regarding the Company's financial position, market success with specialized tools, effectiveness of its sales efforts, success at developing future tools, and the Company's effectiveness at executing its business strategy and plans. These statements reflect the beliefs and expectations of the Company and are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, our business strategy and prospects for growth; our cash flows and liquidity; our financial strategy, budget, projections and operating results; the amount, nature and timing of capital expenditures; the availability and terms of capital; competition and government regulations; and general economic conditions. These and other factors could adversely affect the outcome and financial effects of the Company's plans and described herein. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by the Company in this news release is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
| Superior Drilling Products, Inc. | ||
| Consolidated Statements of Operations | ||
| (unaudited) | ||
| For the Three Months | ||
| Ended March 31, | ||
| 2015 | 2014 | |
| Revenue | $ 4,074,617 | $ 3,733,667 |
| Operating costs and expenses | ||
| Cost of revenue | 1,921,430 | 1,233,372 |
| Selling, general & administrative | 2,057,380 | 1,055,266 |
| Depreciation & amortization | 1,148,496 | 320,567 |
| Total operating expenses | 5,127,306 | 2,609,205 |
| Operating (loss) income | (1,052,689) | 1,124,462 |
| Operating margin | -25.8% | 30.1% |
| Other income (expense) | ||
| Interest income | 73,275 | -- |
| Interest expense | (560,426) | (310,839) |
| Other income | 72,060 | 97,478 |
| Loss on disposition of assets | (55,220) | -- |
| Change in guaranteed debt | -- | (45,834) |
| Total other expense | (470,311) | (259,195) |
| (Loss) income before income taxes | (1,523,000) | 865,267 |
| Income tax benefit | (479,912) | -- |
| Net (loss) income | $ (1,043,088) | $ 865,267 |
| Basic loss per common share | $ (0.06) | N/A * |
| Basic weighted average common shares outstanding | 17,291,646 | -- |
| Diluted loss per common share | $ (0.06) | N/A * |
| Diluted weighted average common shares outstanding | 17,291,646 | -- |
| * Information not comparable for the three months ended March 31, 2014 as a result of the Reorganization of the Company on May 22, 2014. | ||
| Superior Drilling Products, Inc. | ||
| Condensed Consolidated Balance Sheet | ||
| (unaudited) | ||
|
March 31, 2015 |
December 31, 2014 |
|
| ASSETS | ||
| Current assets | ||
| Cash | $ 5,772,966 | $ 5,792,388 |
| Accounts receivable | 3,543,425 | 4,403,001 |
| Prepaid expenses | 100,252 | 163,934 |
| Inventory | 1,475,039 | 1,219,079 |
| Deferred tax asset | 271,149 | 271,298 |
| Other current assets | 71,602 | 45,000 |
| Total current assets | 11,234,433 | 11,894,700 |
| Property, plant and equipment, net | 15,595,032 | 15,963,629 |
| Intangible assets, net | 12,861,111 | 13,472,778 |
| Goodwill | 7,802,903 | 7,802,903 |
| Note receivable | 8,296,717 | 8,296,717 |
| Other assets | 58,056 | 112,606 |
| Total assets | 55,848,252 | 57,543,333 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | 750,061 | 893,376 |
| Accrued expenses | 1,998,128 | 1,967,090 |
| Income tax payable | 2,000 | 1,000 |
| Current portion of capital lease obligation | 302,049 | 292,979 |
| Current portion of related party debt | 505,841 | 492,452 |
| Current portion of long-term debt | 5,508,032 | 10,720,243 |
| Total current liabilities | 9,066,111 | 14,367,140 |
| Deferred tax liability | 263,516 | 744,577 |
| Capital lease obligation, less current portion | 499,043 | 578,273 |
| Related party debt, less current portion | 984,862 | 1,117,820 |
| Long-term debt, less current portion | 15,959,020 | 10,669,311 |
| Total liabilities | 26,772,552 | 27,477,121 |
| Commitments and contingencies | ||
| Stockholders' equity | ||
| Common stock - $0.001 par value; 100,000,000 shares authorized; 17,291,646 and 17,291,646 shares outstanding, respectively | 17,292 | 17,292 |
| Additional paid-in-capital | 30,868,186 | 30,815,608 |
| Retained earnings | (1,809,778) | (766,690) |
| Total stockholders' equity | 29,075,700 | 30,066,210 |
| Total liabilities and stockholders' equity | $ 55,848,252 | $ 57,543,331 |
| Superior Drilling Products, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (unaudited) | ||
| For the Three Months Ended | ||
| March 31, | ||
| 2015 | 2014 | |
| Cash Flows From Operating Activities | ||
| Net (loss) income | (1,043,088) | 865,267 |
| Adjustments to reconcile net income to net cash used in operating activities: | ||
| Depreciation and amortization expense | 1,148,496 | 320,567 |
| Amortization of debt discount | 226,000 | 95,608 |
| Deferred tax benefit | (480,912) | -- |
| Common stock issued for services | 52,577 | -- |
| Change in guaranteed debt | -- | 45,834 |
| Loss on disposition of assets | 55,220 | -- |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 859,576 | 438,100 |
| Inventory | (255,960) | -- |
| Prepaid expenses and other current assets | 37,080 | (127,996) |
| Other assets | 54,550 | 273,082 |
| Accounts payable and accrued expenses | (111,278) | 110,597 |
| Other liabilities | -- | 15,000 |
| Net Cash Provided by Operating Activities | 542,261 | 2,036,059 |
| Cash Flows From Investing Activities | ||
| Purchases of property, plant and equipment | (223,452) | (52,776) |
| Net Cash Used in Investing Activities | (232,452) | (52,776) |
| Cash Flows From Financing Activities | ||
| Principal payments on debt | (268,071) | (951,079) |
| Principal payments on capital lease obligations | (70,160) | (61,995) |
| Proceeds received from borrowings on debt | -- | 2,000,000 |
| Capital distributions | -- | (1,115,800) |
| Net Cash (Used in) Financing Activities | (338,231) | (128,874) |
| Net (Decrease) Increase in Cash | (19,422) | 1,854,409 |
| Cash at Beginning of Period | 5,792,388 | 11,256 |
| Cash at End of Period | 5,772,966 | 1,865,665 |
| Superior Drilling Products, Inc. | ||
| Adjusted EBITDA(1) Reconciliation | ||
| (unaudited) | ||
|
Three Months Ended March 31, |
||
| 2015 | 2014 | |
| GAAP net (loss) income | $ (1,043,088) | $ 865,267 |
| Add back: | ||
| Income tax (benefit) expense | (479,912) | -- |
| Interest expense, net | 487,151 | 310,839 |
| Depreciation and amortization | 1,148,496 | 320,567 |
| Loss on sale of PP&E | 55,220 | -- |
| Non-GAAP Adjusted EBITDA(1) | $ 167,867 | $ 1,496,673 |
| (1) Adjusted EBITDA represents net income adjusted for income taxes, interest, depreciation and amortization and other items as noted in the reconciliation table. The Company believes Adjusted EBITDA is an important supplemental measure of operating performance and uses it to assess performance and inform operating decisions. However, Adjusted EBITDA is not a GAAP financial measure. The Company's calculation of Adjusted EBITDA should not be used as a substitute for GAAP measures of performance, including net cash provided by operations, operating income and net income. The Company's method of calculating Adjusted EBITDA may vary substantially from the methods used by other companies and investors are cautioned not to rely unduly on it. | ||
| Superior Drilling Products, Inc. | ||||
| GAAP Net (Loss) Income to Non-GAAP Adjusted Net Income Reconciliation | ||||
| (unaudited) | ||||
|
Three Months Ended March 31, |
||||
| 2015 | 2014 | |||
| $ |
per diluted share |
$ |
per diluted share |
|
| GAAP net (loss) income | $ (1,043,088) | $ (0.06) | $ 865,267 | NM |
| Add back: | ||||
| Intangible amortization | 617,669 | $ 0.04 | 28,876 | NM |
| Non-GAAP adjusted net (loss) income | $ (425,419) | $ (0.02) | $ 894,143 | NM |