Dril-Quip, Inc. Announces Results for Third Quarter 2017

HOUSTON, Oct. 27, 2017 /PRNewswire/ -- Dril-Quip, Inc. (NYSE: DRQ) today reported operational and financial results for the third quarter of 2017.

Blake DeBerry, Dril-Quip's President and Chief Executive Officer, commented, "Despite the fact our markets remained challenging, in the third quarter we generated Adjusted EBITDA of $13.7 million and Free Cash Flow of $29.4 million.  This increased our already significant cash position to $473 million at September 30, 2017.  This cash balance, coupled with our debt-free balance sheet, positions us to continue to execute our long-term, forward focused strategy. Looking ahead, we believe oil prices and the offshore rig environment will remain uncertain into 2018.  However, we are seeing early signs of increased activity in our markets and as the industry rebounds, we expect the new products we are launching will meaningfully increase our total available market and contribute substantially to Dril-Quip's revenue in the future."

In conjunction with today's release, the Company posted a new investor presentation entitled "Q3 2017 Supplemental Earnings Information" to its website, www.dril-quip.com, in the Presentations section under the Investors tab.

Third Quarter Segment Review and Financial Discussion

Consolidated revenues in the quarter were down $27.6 million, or 22%, largely in line with Company guidance. Also consistent with that prior guidance, Dril-Quip does not expect fourth quarter 2017 revenues to materially change from the third quarter. Bookings remained muted as they have been throughout 2017.

Western Hemisphere revenue declined sequentially $13 million, or 18%.  This decline was driven by lower subsea wellhead and fabricated joint revenues in the United States and slower than expected customer approvals in Brazil.  Additionally, the disruption caused by Hurricane Harvey accounted for approximately $2.5 million in delayed revenues.

Eastern Hemisphere revenue declined sequentially by $4.5 million, or 15%, as a number of customer delivery dates peaked in the second quarter of 2017.

Asia-Pacific revenue declined sequentially by $10.1 million, or 36%, as work on the Kangean project in Indonesia slowed as it nears completion.  Additionally, the region did not benefit from the call-out work it experienced in the second quarter of 2017.

Dril-Quip's largest markets remain offshore, harsh, deepwater environments and the Company believes it is at or near the trough today in terms of the activity in those markets.  However, recent industry consensus forecasts a longer and shallower recovery for oil prices and Dril-Quip's primary end markets.  This outlook necessitated a review of the usefulness of the Company's fixed assets and inventory which resulted in a pre-tax $61 million non-cash impairment charge in the third quarter of 2017.

Consolidated Adjusted EBITDA fell 29% sequentially in the third quarter of 2017 on lower revenues offset in part by continuing savings from the Company's cost reduction initiatives.  These improvements include TIW, where the Company is in the early stages of both cross-selling efforts and cost synergies.  TIW revenues increased 4% sequentially and the Adjusted EBITDA loss narrowed to $1 million.  Dril-Quip expects to see continued sequential improvement in TIW results in the coming quarters with meaningful improvement expected by mid-2018.  The Company believes cost synergies, once fully executed, should yield approximately $8 million to $10 million annualized.

Balance Sheet

Dril-Quip's cash on hand grew to $473 million resulting from $29.4 million of Free Cash Flow in the quarter.  This increase, combined with the Company's debt-free balance sheet, provides both financial and operational flexibility through the current downturn and will allow the Company to quickly capitalize on opportunities when the market rebounds.

New Products

The Company is encouraged by the early acceptance of new products introduced in 2017.  Dril-Quip licensed the new boltless DXe Wellhead Connector and expects further gains in market share in the coming months. Additionally, the Company recently received technical acceptance from a large customer of the new HPHT BigBore IIe Wellhead System.  Dril-Quip expects a meaningful contribution from the new products being launched, including increases to addressable market, market share and future revenues.

The Company's investments in research and development remain strong and are made possible because of a strong, debt-free balance sheet.  This robust cash position will allow management and the Board to continue to execute on Dril-Quip's long-term, forward-focused strategy of pursuing acquisitions, investing in research and development and opportunistically repurchasing shares

Dril-Quip is a leading manufacturer of highly engineered drilling and production equipment for use onshore and offshore, but which is particularly well suited for use in deep-water, harsh environment and severe service applications. 

Forward-Looking Statements
Statements contained herein relating to future operations and financial results that are forward-looking statements, including those related to market conditions, anticipated revenues, cost synergies, possible acquisitions, share repurchases and expectations regarding operating results, are based upon certain assumptions and analyses made by the management of the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors. These statements are subject to risks beyond the Company's control, including, but not limited to, the volatility of oil and natural gas prices and cyclicality of the oil and gas industry, project terminations, suspensions or scope adjustments to contracts, uncertainties regarding the effects of new governmental regulations, the Company's international operations, operating risks, and other factors detailed in the Company's public filings with the Securities and Exchange Commission.  Investors are cautioned that any such statements are not guarantees of future performance and actual outcomes may vary materially from those indicated.

Non-GAAP Financial Information
Adjusted net income, Adjusted diluted EPS, Free Cash Flow, and Adjusted EBITDA are non-GAAP measures.

Adjusted net income and diluted adjusted net income per common share are defined as net income (loss) and earnings per share, respectively, excluding the impact of foreign currency gains or losses as well as other significant non-cash items and certain charges and credits. 

Free Cash Flow is defined as net cash provided by operating activities less net cash used in the purchase of property, plant, and equipment.

Adjusted EBITDA is defined as net income excluding income taxes, interest income and expense, depreciation and amortization expense, non-cash gains or losses from foreign currency exchange rate changes as well as other significant non-cash items and items that can be considered non-recurring.

The Company believes that these non-GAAP measures enable it to evaluate more effectively the operations period over period and identify operating trends by removing the effect of its capital structure from its operating structure.  In addition, the Company believes that these measures are a supplemental measurement tool used by analysts and investors to help evaluate overall operating performance, ability to pursue and service possible debt opportunities and make future capital expenditures.  Adjusted Net Income, Adjusted EBITDA, and Free Cash Flow do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income and net cash provided by operating activities, as measured under U.S. generally accepted accounting principles.

See tables below for additional information concerning non-GAAP financial information, including a reconciliation of the non-GAAP financial information presented in this press release to the most directly comparable financial information presented in accordance with GAAP. Non-GAAP financial information supplements should be read together with, and are not an alternative or substitute for, the Company's financial results reported in accordance with GAAP. Because non-GAAP financial information is not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures.

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SOURCE Dril-Quip, Inc.