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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the Quarterly Period Ended September 30, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Commission file number 001-13439

 

DRIL-QUIP, INC.

(Exact name of registrant as specified in its charter)

 

 

delaware

 

74-2162088

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6401 N. ELDRIDGE PARKWAY

HOUSTON, texas

77041

(Address of principal executive offices) (Zip Code)

(713) 939-7711

(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

Common Stock, $0.01 par value per share

DRQ

New York Stock Exchange

 

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.    Yes       No  

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).    Yes       No  

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

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 26, 2020, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 35,095,795.

 

 


TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

PART I

Item 1.

Condensed Consolidated Financial Statements

3

 

Balance Sheets

3

 

Statements of Income (Loss)

4

 

Statements of Comprehensive Income (Loss)

5

 

Statements of Cash Flows

6

 

Statements of Stockholders' Equity

7

 

Notes to Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 6.

Index to Exhibits

34

 

Signatures

35

 

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

359,171

 

 

$

398,946

 

Trade receivables, net

 

 

93,502

 

 

 

107,626

 

Unbilled receivables

 

 

145,349

 

 

 

140,534

 

Inventories, net

 

 

219,007

 

 

 

205,062

 

Prepaids and other current assets

 

 

45,973

 

 

 

28,321

 

Total current assets

 

 

863,002

 

 

 

880,489

 

Operating lease right of use assets

 

 

7,221

 

 

 

5,144

 

Property, plant and equipment, net

 

 

239,591

 

 

 

258,497

 

Deferred income taxes

 

 

9,325

 

 

 

8,936

 

Goodwill

 

 

-

 

 

 

7,947

 

Intangible assets

 

 

29,895

 

 

 

32,245

 

Other assets

 

 

10,505

 

 

 

13,307

 

Total assets

 

$

1,159,539

 

 

$

1,206,565

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

51,186

 

 

$

46,324

 

Accrued income taxes

 

 

6,783

 

 

 

4,561

 

Contract liabilities

 

 

7,134

 

 

 

6,901

 

Accrued compensation

 

 

8,290

 

 

 

13,599

 

Operating lease liabilities

 

 

1,257

 

 

 

1,314

 

Other accrued liabilities

 

 

26,332

 

 

 

24,241

 

Total current liabilities

 

 

100,982

 

 

 

96,940

 

Deferred income taxes

 

 

3,657

 

 

 

4,150

 

Income tax payable

 

 

9,253

 

 

 

8,868

 

Operating lease liabilities, long-term

 

 

5,952

 

 

 

3,801

 

Other long-term liabilities

 

 

2,133

 

 

 

2,105

 

Total liabilities

 

 

121,977

 

 

 

115,864

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock: 10,000,000 shares authorized at $0.01 par value (none issued)

 

 

-

 

 

 

-

 

Common stock:

 

 

 

 

 

 

 

 

100,000,000 shares authorized at $0.01 par value, 35,093,933 and 35,859,540

shares issued and outstanding at September 30, 2020 and December 31, 2019

 

 

363

 

 

 

371

 

Additional paid-in capital

 

 

62,331

 

 

 

52,870

 

Retained earnings

 

 

1,136,517

 

 

 

1,181,023

 

Accumulated other comprehensive losses

 

 

(161,649

)

 

 

(143,563

)

Total stockholders' equity

 

 

1,037,562

 

 

 

1,090,701

 

Total liabilities and stockholders' equity

 

$

1,159,539

 

 

$

1,206,565

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

66,451

 

 

$

81,851

 

 

$

197,142

 

 

$

224,518

 

Services

 

 

17,778

 

 

 

17,884

 

 

 

57,342

 

 

 

52,936

 

Leasing

 

 

7,066

 

 

 

8,492

 

 

 

23,255

 

 

 

28,899

 

Total revenues

 

 

91,295

 

 

 

108,227

 

 

 

277,739

 

 

 

306,353

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

50,550

 

 

 

58,632

 

 

 

153,926

 

 

 

163,750

 

Services

 

 

9,125

 

 

 

8,451

 

 

 

28,035

 

 

 

27,906

 

Leasing

 

 

7,536

 

 

 

8,940

 

 

 

23,591

 

 

 

27,615

 

Total cost of sales

 

 

67,211

 

 

 

76,023

 

 

 

205,552

 

 

 

219,271

 

Selling, general and administrative

 

 

20,843

 

 

 

29,105

 

 

 

68,832

 

 

 

77,411

 

Engineering and product development

 

 

3,983

 

 

 

3,754

 

 

 

14,882

 

 

 

12,531

 

Impairments

 

 

-

 

 

 

-

 

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

602

 

 

 

546

 

 

 

34,902

 

 

 

3,961

 

(Gain) loss on sale of assets

 

 

14

 

 

 

(280

)

 

 

(538

)

 

 

(1,483

)

Foreign currency transaction (gains) and losses

 

 

746

 

 

 

(1,143

)

 

 

(1,679

)

 

 

(2,079

)

Total costs and expenses

 

 

93,399

 

 

 

108,005

 

 

 

329,670

 

 

 

309,612

 

Operating income (loss)

 

 

(2,104

)

 

 

222

 

 

 

(51,931

)

 

 

(3,259

)

Interest income

 

 

188

 

 

 

1,906

 

 

 

2,047

 

 

 

6,592

 

Interest expense

 

 

(138

)

 

 

(26

)

 

 

(538

)

 

 

(148

)

Income (loss) before income taxes

 

 

(2,054

)

 

 

2,102

 

 

 

(50,422

)

 

 

3,185

 

Income tax provision (benefit)

 

 

(16,380

)

 

 

3,412

 

 

 

(30,908

)

 

 

8,864

 

Net income (loss)

 

$

14,326

 

 

$

(1,310

)

 

$

(19,514

)

 

$

(5,679

)

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

(0.04

)

 

$

(0.55

)

 

$

(0.16

)

Diluted

 

$

0.41

 

 

$

(0.04

)

 

$

(0.55

)

 

$

(0.16

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,049

 

 

 

35,559

 

 

 

35,255

 

 

 

35,827

 

Diluted

 

 

35,249

 

 

 

35,559

 

 

 

35,255

 

 

 

35,827

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Net income (loss)

 

$

14,326

 

 

$

(1,310

)

 

$

(19,514

)

 

$

(5,679

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

4,845

 

 

 

(9,621

)

 

 

(18,086

)

 

 

(10,311

)

Total comprehensive income (loss)

 

$

19,171

 

 

$

(10,931

)

 

$

(37,600

)

 

$

(15,990

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(19,514

)

 

$

(5,679

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,721

 

 

 

25,155

 

Release of contingent consideration

 

 

-

 

 

 

(2,001

)

Stock-based compensation expense

 

 

9,461

 

 

 

15,746

 

Impairments

 

 

7,719

 

 

 

-

 

Restructuring and other charges

 

 

34,902

 

 

 

162

 

Gain on sale of assets

 

 

(538

)

 

 

(1,483

)

Deferred income taxes

 

 

(2,116

)

 

 

(534

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

8,705

 

 

 

7,727

 

Unbilled receivables

 

 

(4,815

)

 

 

(43,193

)

Inventories, net

 

 

(38,475

)

 

 

(15,624

)

Prepaids and other assets

 

 

(23,185

)

 

 

12,744

 

Accounts payable and accrued expenses

 

 

(1,169

)

 

 

13,667

 

     Other, net

 

 

2

 

 

 

(63

)

Net cash provided by (used in) operating activities

 

 

(4,302

)

 

 

6,624

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(10,243

)

 

 

(8,620

)

Proceeds from sale of equipment

 

 

3,646

 

 

 

2,401

 

Net cash used in investing activities

 

 

(6,597

)

 

 

(6,219

)

Financing activities

 

 

 

 

 

 

 

 

Repurchase of common shares

 

 

(25,000

)

 

 

(5,365

)

Proceeds from exercise of stock options

 

 

-

 

 

 

2,327

 

Other

 

 

(176

)

 

 

(239

)

Net cash used in financing activities

 

 

(25,176

)

 

 

(3,277

)

Effect of exchange rate changes on cash activities

 

 

(3,700

)

 

 

(2,126

)

Decrease in cash and cash equivalents

 

 

(39,775

)

 

 

(4,998

)

Cash and cash equivalents at beginning of period

 

 

398,946

 

 

 

418,100

 

Cash and cash equivalents at end of period

 

$

359,171

 

 

$

413,102

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at July 1, 2020

 

$

363

 

 

$

59,327

 

 

$

1,122,191

 

 

$

(166,494

)

 

$

1,015,387

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,845

 

 

 

4,845

 

Net income

 

 

-

 

 

 

-

 

 

 

14,326

 

 

 

-

 

 

 

14,326

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,171

 

Stock option expense

 

 

-

 

 

 

3,004

 

 

 

-

 

 

 

-

 

 

 

3,004

 

Balance at September 30, 2020

 

$

363

 

 

$

62,331

 

 

$

1,136,517

 

 

$

(161,649

)

 

$

1,037,562

 

 

 

Balance at January 1, 2020

 

$

371

 

 

$

52,870

 

 

$

1,181,023

 

 

$

(143,563

)

 

$

1,090,701

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,086

)

 

 

(18,086

)

Net loss

 

 

-

 

 

 

-

 

 

 

(19,514

)

 

 

-

 

 

 

(19,514

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(37,600

)

Repurchase of common stock (808,389 shares)

 

 

(8

)

 

 

-

 

 

 

(24,992

)

 

 

-

 

 

 

(25,000

)

Stock option expense

 

 

-

 

 

 

9,461

 

 

 

-

 

 

 

-

 

 

 

9,461

 

Balance at September 30, 2020

 

$

363

 

 

$

62,331

 

 

$

1,136,517

 

 

$

(161,649

)

 

$

1,037,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

 

 

 

 

(In thousands, except shares)

 

 

 

 

 

Balance at July 1, 2019

 

$

376

 

 

$

43,053

 

 

$

1,199,502

 

 

$

(145,803

)

 

$

1,097,128

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,621

)

 

 

(9,621

)

Net loss

 

 

-