SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No
As of April 25, 2022, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was
TABLE OF CONTENTS
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Page |
PART I |
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Item 1. |
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6 |
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7 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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29 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31, |
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December 31, |
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(In thousands, except per share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade receivables, net |
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Unbilled receivables |
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Inventories, net |
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Prepaids and other current assets |
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Total current assets |
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Operating lease right of use assets |
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Property, plant and equipment, net |
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Deferred income taxes |
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Intangible assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued income taxes |
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Contract liabilities |
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Accrued compensation |
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Operating lease liabilities |
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Other accrued liabilities |
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Total current liabilities |
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Deferred income taxes |
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Income tax payable |
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Operating lease liabilities, long-term |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock: |
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Common stock: |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive losses |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
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Three months ended |
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March 31, |
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2022 |
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2021 |
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(In thousands, except per share data) |
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Revenues: |
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Products |
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$ |
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$ |
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Services |
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Leasing |
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Total revenues |
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Cost and expenses: |
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Cost of sales: |
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Products |
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Services |
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Leasing |
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Total cost of sales |
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Selling, general and administrative |
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Engineering and product development |
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Restructuring and other charges |
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Gain on sale of property, plant and equipment |
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Foreign currency transaction (gains) and losses |
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( |
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Total costs and expenses |
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Operating loss |
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Interest income |
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Interest expense |
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Loss before income taxes |
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( |
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Income tax provision (benefit) |
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Net loss |
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$ |
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$ |
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Loss per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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Three months ended |
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March 31, |
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2022 |
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2021 |
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(In thousands) |
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Net income (loss) |
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$ |
( |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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( |
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Total comprehensive income (loss) |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three months ended |
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March 31, |
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2022 |
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2021 |
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(In thousands) |
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Operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Restructuring and other charges |
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Gain on sale of property, plant and equipment |
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( |
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Deferred income taxes |
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( |
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Changes in operating assets and liabilities: |
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Trade receivables, net |
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Unbilled receivables |
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( |
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Inventories, net |
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( |
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Prepaids and other assets |
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( |
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Accounts payable and accrued expenses |
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( |
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Net cash provided by (used in) operating activities |
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Investing activities |
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Purchase of property, plant and equipment |
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( |
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Proceeds from sale of property, plant and equipment |
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Net cash provided by (used in) investing activities |
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( |
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Financing activities |
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Repurchase of common shares |
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( |
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Other |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash activities |
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( |
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Increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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Common Stock |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Losses |
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Total |
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(In thousands, except shares) |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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( |
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- |
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( |
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Comprehensive loss |
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( |
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Repurchase of common shares ( |
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( |
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- |
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( |
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- |
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( |
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Stock-based compensation expense |
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- |
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- |
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- |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Balance at January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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( |
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( |
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Net loss |
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- |
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- |
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( |
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- |
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( |
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Comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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Stock-based compensation expense |
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- |
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- |
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- |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
DRIL-QUIP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered drilling and production equipment that is well suited primarily for use in deepwater, harsh environment and severe service applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors, diverters and safety valves. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies and drilling contractors throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of the Company’s products.
The Company’s operations are organized into
The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements as of that date. In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair statement of the financial position as of March 31, 2022 and the results of operations and comprehensive income (loss) for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and comprehensive income (loss) for the three months ended March 31, 2022 and cash flows for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
2. Significant Accounting Policies
Principles of Consolidation
Use of Estimates
8
Revenue Recognition
The Company generates revenues through the sale of products, the sale of services and the leasing of running tools. The Company normally negotiates contracts for products, including those accounted for under the over-time method, rental tools and services separately. Modifications to the scope and price of sales contracts may occur in the form of variations and change orders. For all product sales, it is the customer’s decision as to the timing of the product installation, as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory assistance services. The customer may instead choose to use a third party or its own personnel.
Leasing revenues
The Company earns leasing revenues from the rental of running tools. Revenues from rental of running tools are recognized on a day rate basis over the lease term, which is generally between one to three months.
On April 30, 2021, as a result of lower activity stemming from the COVID-19 pandemic, AFGlobal Corporation provided a 90-day written notice of termination of the lease agreement between the Company and AFGlobal in relation to the Company’s forge facility and equipment at its Houston Eldridge campus. As a result of the lease termination, the Company had approximately $
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, receivables and payables. The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature.
Impairment of Long-Lived Assets
Long-lived assets, including property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate our property and equipment and definite-lived intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Should the review indicate that the carrying value is not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgements regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result.
Restructuring and Other Charges
During the first quarter of 2022, the Company did not incur any significant costs under the 2021 global strategic plan. During the first quarter of 2021, the Company incurred costs under the former 2018 global strategic plan as the Company exited from certain underperforming countries and markets and shifted from manufacturing in-house to a vendor outsourcing model which resulted in inventory write-downs, severance charges and other charges consisting of facilities-related restructuring charges and professional fees. These charges are reflected as "Restructuring and other charges" in our condensed consolidated statements of income (loss).
Repurchase of Equity Securities
On February 22, 2022, the Board of Directors authorized an incremental $
The repurchase plans have no set expiration date and any repurchased shares are expected to be cancelled. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate the Company to acquire any amount of common stock and may be modified or superseded at any time at the Company’s discretion.
For the three months ended March 31, 2022, the Company purchased
For the three months ended March 31, 2021, the Company purchased
9
Earnings Per Share
Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed considering the dilutive effect of stock awards using the treasury stock method.
In each relevant period, the net income used in the basic and dilutive earnings per share calculations is the same.
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Three months ended |
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March 31, |
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2022 |
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2021 |
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(In thousands) |
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Weighted average common shares outstanding – basic |
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Dilutive effect of common stock awards |
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Weighted average common shares outstanding – diluted |
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For the three months ended March 31, 2022 and 2021, the Company has excluded the following common stock options and awards because their impact on the income/(loss) per share is anti-dilutive (in thousands on a weighted average basis):
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Three months ended |
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March 31, |
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2022 |
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2021 |
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(In thousands) |
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Director stock awards |
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Stock options |
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Performance share units |
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Restricted stock awards |
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3. Revenue Recognition
Revenues from contracts with customers (excludes leasing) consisted of the following:
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Three months ended March 31, |
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Western |
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Eastern |
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Asia- |
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Total |
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2022 |
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2021 |
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2022 |
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2021 |
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2022 |
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2021 |
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2022 |
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2021 |
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(In thousands) |
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Product Revenues |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Service Revenues |
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Total |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Contract Balances
Balances related to contracts with customers consisted of the following:
Contract Assets (amounts shown in thousands)
Contract Assets at December 31, 2021 |
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$ |
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Additions |
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Transfers to Trade Receivables, Net |
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( |
) |
Contract Assets at March 31, 2022 |
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$ |
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10
Contract Liabilities (amounts shown in thousands)
Contract Liabilities at December 31, 2021 |
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$ |
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Additions |
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Revenue Recognized |
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( |
) |
Contract Liabilities at March 31, 2022 |
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$ |
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Contract assets include unbilled accounts receivable associated with contracts accounted for under the over-time accounting method which were approximately $
Obligations for returns and refunds were considered immaterial as of March 31, 2022.
Remaining Performance Obligations
The aggregate amount of the transaction price allocated to remaining performance obligations from our over-time product lines was $
The Company applies the practical expedient available under the revenue standard and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
4. Stock-Based Compensation and Stock Awards
During the three months ended March 31, 2022, the Company recognized approximately $
5. Inventories, net
Inventories consist of the following:
|
|
March 31, |
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|
December 31, |
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||
|
|
2022 |
|
|
2021 |
|
||
|
|
(In thousands) |
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|||||
Raw materials and supplies |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: allowance for slow moving and excess inventory |
|
|
( |
) |
|
|
( |
) |
Total inventory |
|
$ |
|
|
$ |
|
11
6. Impairment, Restructuring and Other Charges
Restructuring and Other Charges
During the three months ended March 31, 2022, the Company did not incur any significant costs under the 2021 global strategic plan.
During the three months ended March 31, 2021, the Company incurred costs under our former 2018 global strategic plan to realign manufacturing facilities globally. These charges were primarily related to the restructuring of our downhole tools business where we exited certain underperforming countries and markets and shifted from manufacturing in-house to a vendor sourcing model which resulted in non-cash inventory write downs of $
The following table summarizes the components of charges included in "Restructuring and other charges" in our condensed consolidated statements of income (loss) for the three months ended March 31, 2022 and 2021 (in thousands):
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|
Three months ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Inventory write-down |
|
$ |
|
|
$ |
|
||
Severance |
|
|
|
|
|
|
||
Long-lived asset write-down |
|
|
|