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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)
(
(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.
☑ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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 October 24, 2023, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was
TABLE OF CONTENTS
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Page |
PART I |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
32 |
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Item 4. |
33 |
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PART II |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 5. |
35 |
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Item 6. |
36 |
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37 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, |
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December 31, |
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(In thousands, except per share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Trade receivables, net |
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Unbilled receivables |
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Inventories, net |
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Prepaid expenses |
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Other current assets |
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Assets held for sale |
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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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Goodwill |
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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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Nine months ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(In thousands, except per share data) |
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Revenues: |
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Products |
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$ |
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$ |
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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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Acquisition costs |
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Foreign currency transaction loss (gain) |
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( |
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( |
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Total costs and expenses |
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Operating income (loss) |
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( |
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Interest income, net |
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( |
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( |
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( |
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Income (loss) before income taxes |
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( |
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Income tax provision (benefit) |
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( |
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Net income (loss) |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Net income (loss) per common share: |
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Basic |
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$ |
( |
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$ |
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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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$ |
( |
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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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Nine months ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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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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$ |
( |
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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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( |
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( |
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( |
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Total comprehensive income (loss) |
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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.
5
DRIL-QUIP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine months ended |
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September 30, |
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2023 |
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2022 |
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(In thousands) |
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Cash flows from 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 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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( |
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Gain on sale of property, plant and equipment |
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( |
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( |
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Acquisition costs |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Trade receivables, net |
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( |
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Unbilled receivables |
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( |
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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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( |
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Other, net |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Acquisition of Great North, net of cash acquired |
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( |
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Purchase of short-term investments |
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( |
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( |
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Maturities of short-term investments |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from 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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( |
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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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( |
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Decrease in cash and cash equivalents |
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( |
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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 July 1, 2023 |
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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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Stock-based compensation expense |
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- |
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- |
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- |
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Balance at September 30, 2023 |
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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, 2023 |
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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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Stock-based compensation expense |
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- |
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- |
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- |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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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 July 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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( |
) |
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( |
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Net income |
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- |
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- |
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- |
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Comprehensive income |
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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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Other |
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- |
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( |
) |
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- |
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Balance at September 30, 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, 2022 |
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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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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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Other |
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- |
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( |
) |
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- |
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- |
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( |
) |
Balance at September 30, 2022 |
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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 for both offshore and onshore 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.
During the quarter ended March 31, 2023, the Company reorganized its structure in order to streamline operations and leadership around more focused and integrated product and service lines to align with its business strategy. To reflect the Company’s new organizational structure, the Company changed presentation of its segments in 2023 into the following
The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2022 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 September 30, 2023 and the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. 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 and nine months ended September 30, 2023 and cash flows for the nine months ended September 30, 2023 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, 2022.
Revision to Previously Reported Financial Information
In conjunction with our close process for the second quarter of 2023, we identified accounting errors related to an indemnification receivable and duplicate billing errors impacting prior periods. In the third quarter of 2022, due to the expiration of the statute of limitations of an Uncertain Tax Position (“UTP”), we released the liability for this UTP, but failed to write-off the related indemnification receivable previously obtained from the seller of an acquired business, resulting in an overstatement of operating income during the period. In addition, the Company identified billing errors in 2022 and 2021 that resulted in an overstatement of revenue and trade receivables.
We have assessed these errors, individually and in the aggregate, and concluded that they were not material to any prior annual or interim period. However, the aggregate amount of the prior period errors would have been material to our current interim condensed consolidated statements of income and to our anticipated full year results and therefore, we have revised our previously issued financial information. For more details, see “Revision to Previously Reported Financial Information,” Note 5 of Notes to the Condensed Consolidated Financial Statements.
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2. Significant Accounting Policies
Principles of Consolidation
Reclassifications
We reclassified approximately $
Use of Estimates
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.
Cash and Cash Equivalents
Short-term investments that have a maturity of three months or less from the date of purchase are classified as cash equivalents. The Company invests excess cash in interest bearing accounts, money market mutual funds and funds which invest in U.S. Treasury obligations and repurchase agreements backed by U.S. Treasury obligations. The Company’s investment objectives continue to be the preservation of capital and the maintenance of liquidity.
The Company’s ABL Credit Facility, dated February 23, 2018, as amended, was terminated effective February 22, 2022. We opened a new cash collateral account with JPMorgan Chase Bank, N.A., in which cash was transferred to facilitate our existing letters of credit. As of September 30, 2023, the cash balance in that account was approximately $
Short-term Investments
Short-term investments that have a maturity greater than three months and less than a year from the date of purchase are comprised primarily of time deposits, certificates of deposit, commercial paper, bonds and notes, substantially all of which are denominated in U.S. dollars and are stated at cost plus accrued interest, which approximates fair value. The Company expects to hold all of its Short-term investments to maturity.
For purposes of the condensed consolidated financial statements, the Company does not consider Short-term investments to be cash equivalents.
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