Financial Performance - Consolidated revenue for Q1 2024 was $110.3 million, a decrease of 12.7% sequentially and an increase of 21.4% year-over-year[4] - The company reported a net loss of $20.0 million, or a loss of $0.58 per share, compared to a net income of $1.8 million in Q4 2023[9] - Adjusted EBITDA for Q1 2024 was $10.2 million, a decrease of $6.4 million sequentially but an increase of $1.3 million year-over-year[9] - Adjusted net loss for the three months ended March 31, 2024, was $21,639 thousand, resulting in a diluted loss per share of $0.62, compared to an adjusted net income of $1,537 thousand and a diluted earnings per share of $0.04 for the previous quarter[28] - Adjusted EBITDA for the three months ended March 31, 2024, was $10,175 thousand, down from $16,546 thousand in the previous quarter, representing a decrease of approximately 38.4%[29] - Free cash flow for the three months ended March 31, 2024, was negative $8,861 thousand, compared to positive $14,546 thousand in the previous quarter, indicating a significant decline in cash generation[29] Operational Metrics - Net Subsea Product bookings totaled $41.1 million for the quarter[5] - Gross operating margin improved to 28.9%, up from 27.4% in Q4 2023 and 27.9% year-over-year[5] - SG&A expenses were $30.0 million, an increase of $0.2 million sequentially and $7.4 million year-over-year[7] - Engineering and product development expenses rose to $3.7 million, reflecting increased testing and qualifications[8] - Cash used in operations was $4.1 million, a decrease of $30.2 million sequentially and an increase of $48.8 million year-over-year[10] - Capital expenditures for Q1 2024 were $4.8 million, primarily for manufacturing equipment and rental tools[11] Balance Sheet and Assets - Total assets decreased from $1,028,181 thousand on December 31, 2023, to $1,021,027 thousand on March 31, 2024, a decline of approximately 0.7%[28] - Current liabilities increased from $117,703 thousand on December 31, 2023, to $133,556 thousand on March 31, 2024, an increase of approximately 13.5%[28] - Cash, cash equivalents, and restricted cash rose from $191,400 thousand to $202,300 thousand, an increase of about 5.7%[28] - Total stockholders' equity decreased from $881,260 thousand on December 31, 2023, to $857,363 thousand on March 31, 2024, a decline of approximately 2.7%[28] Other Financial Information - The company has suspended earnings guidance updates due to the pending merger with Innovex[12] - The company reported a foreign currency transaction loss of $1,895 thousand for the three months ended March 31, 2024, compared to a gain of $83 thousand in the previous quarter[29] - The company incurred acquisition costs of $19,046 thousand during the three months ended March 31, 2024, reflecting ongoing investment in growth initiatives[29] - Depreciation and amortization expense was $8,432 thousand for the three months ended March 31, 2024, slightly down from $8,487 thousand in the previous quarter[29]

NEW YORK, March 20, 2024 /PRNewswire/ -- Kuehn Law, PLLC, a shareholder litigation law firm, is investigating potential claims related to the below-listed proposed mergers.  Kuehn Law may seek additional disclosures or other relief on behalf of the shareholders of these companies.  Kuehn Law is investigating whether the Boards of the below companies 1) acted to maximize shareholder value, 2) failed to disclose material information, and 3) conducted a fair process:  Dril-Quip has agreed to merge with Innovex ...

Dril-Quip, Inc. (DRQ) and Innovex Downhole Solutions, Inc. have announced a definitive agreement to merge, creating a unique and innovative energy platform. The all-stock transaction, disclosed in a recent press release, positions the combined entity as a frontrunner in innovation, boasting an expanded scale, diverse product portfolio and an extensive geographic footprint.Dril-Quip, renowned for its expertise in developing, manufacturing and providing highly engineered equipment and services for the global ...

HOUSTON--(BUSINESS WIRE)--Dril-Quip, Inc. (NYSE: DRQ), (“Dril-Quip”), a leading developer, manufacturer and provider of highly engineered equipment and services for the global offshore and onshore oil and gas industry, and Innovex Downhole Solutions, Inc. (“Innovex”), a global leading provider of mission-critical technologies and services across the well lifecycle for the oil and gas industry, today announced a definitive agreement under which Dril-Quip and Innovex will merge in an all-stock transaction to ...

Dril-Quip, Inc. (DRQ) reported fourth-quarter 2023 adjusted earnings of 4 cents per share, which missed the Zacks Consensus Estimate of 11 cents. The bottom line also declined from the year-ago quarter’s 6 cents.The company’s total quarterly revenues of $126 million increased from the year-ago quarter’s figure of $97 million. The figure, however, missed the Zacks Consensus Estimate of $136 million.Significant rise in total costs and expenses led to weak quarterly earnings.Q4 PerformanceDril-Quip reported ne ...

the power of Disclaimer | Cautionary Statement The information furnished in this presentation contains "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements include, but are not limited to, goals, projections, estimates, expectations, market outlook, forecasts, plans and objectives, including revenue and new product revenue, capital expenditures and other projections, project bookings, bidding and service activity, acquisition opportunities, forecasted su ...

Financial Data and Key Metrics Changes - Total revenue for Q4 2023 was $126.3 million, representing a 31% year-over-year increase and an 8% sequential increase, driven by activity increases in subsea services and the full quarter contribution from Great North [30] - For the full year 2023, revenue was $424.1 million, an increase of 17% year-over-year, with Great North contributing $35.2 million [30] - Adjusted EBITDA for Q4 2023 was $16.5 million, an increase of $4.2 million sequentially and $6.3 million year-over-year, while full year adjusted EBITDA was $46.5 million, a 56% increase year-over-year [32] - Free cash flow for Q4 2023 was $14.5 million, an improvement of $37.3 million year-over-year, while free cash flow for the full year was negative $24.9 million [33] Business Line Data and Key Metrics Changes - Subsea Products revenue increased by 2% year-over-year, while Subsea Services revenue grew by 7% [12] - The Well Construction segment revenue grew 70% year-over-year, reflecting increased activity in Latin America and Saudi Arabia, with a $100 million annual run rate for the legacy TIW business [13] Market Data and Key Metrics Changes - The Canadian onshore market is expected to grow due to increased production from operators and market share expansion, particularly in the Grand Prairie region [9] - International growth is anticipated in key areas such as the Middle East, Latin America, and the U.S., with investments in new facilities and technologies [10][11] Company Strategy and Development Direction - The company is reorganizing its business into product lines, optimizing its footprint, and investing in manufacturing capabilities to drive growth [8] - Strategic investments are being made in key growth markets globally, including Saudi Arabia and Mexico, to support anticipated demand [10][11] - The company plans to discontinue the inclusion of well construction bookings in future disclosures, focusing solely on subsea product bookings [24] Management's Comments on Operating Environment and Future Outlook - The macroeconomic outlook for 2024 and beyond is positive, with expectations for increased offshore project FIDs [27] - Management expressed confidence in accelerating contract awards in 2024 as rig capacity constraints are resolved [9] - The company expects revenue to increase by 15% to 20% in 2024, with Q1 revenue projected between $105 million and $110 million [15] Other Important Information - The company completed the sale of its Houston administration building, generating approximately $23 million, which funded investments in subsea wellhead manufacturing equipment [25] - The investment in upgrading subsea wellhead manufacturing equipment is on schedule and expected to go live in Q2 2024 [26] Q&A Session Summary Question: Can you provide the subsea product bookings for full year 2022 and 2023? - The subsea product bookings for both 2022 and 2023 were approximately $215 million to $217 million, with the 2024 guidance being $200 million to $225 million [18] Question: Will the 24 wells announced for the Woodside Trion development offshore Mexico be included in subsea bookings for Q1? - The MSA for the 24 wells was signed in Q4 and will be called off over the next 1 to 2 years, thus not contributing to immediate bookings [19] Question: Can you clarify the margin guidance for this year? - The difference in margin guidance is attributed to timing on productivity initiatives, which may have been pushed out a quarter [37]

Revenue and Sales Performance - In 2023, the company generated revenues of 63.9% from product sales, 24.9% from services, and 11.2% from leasing, compared to 66.5%, 21.9%, and 11.6% in 2022 respectively[220]. - Approximately 74.9% of the company's revenues in 2023 were derived from foreign sales, up from 66.2% in 2022[220]. - Revenues increased by $62.2 million, or approximately 17.2%, to $424.1 million in 2023 from $361.9 million in 2022[234]. - Total revenues for 2023 reached $424.06 million, a 17.1% increase from $361.92 million in 2022[316]. - Total bookings for 2023 were $445.975 million, an increase from $392.816 million in 2022[264]. - The company's product backlog increased to approximately $262.8 million at December 31, 2023, representing a 9.1% increase from $240.9 million at the end of 2022[262]. - The company expects to fill approximately 70% to 80% of the December 31, 2023 product backlog by December 31, 2024[265]. Acquisition and Investment - The company acquired Great North Wellhead for a cash purchase price of approximately $79.8 million, with potential earnout payments of up to $22.8 million based on revenue growth targets[205]. - The Company completed the acquisition of Great North for total consideration of $87.7 million on July 31, 2023, with $14.7 million of acquired intangible assets related to customer relationships[310]. - The acquisition contributed revenues of USD 35.2 million and earnings of USD 2.7 million from August 1, 2023, to December 31, 2023[372]. - The preliminary purchase price allocation identified net identifiable assets acquired at USD 70.9 million and goodwill of USD 16.8 million[375]. - The fair value of the contingent consideration for Great North could range from zero to CAD 30 million, approximately USD 22.8 million, based on future revenues for FY 2024 and 2025[374]. Financial Performance - Net income was approximately $0.6 million in 2023, compared to a net loss of $1.6 million in 2022[245]. - Adjusted EBITDA for 2023 was $46.5 million, compared to $29.8 million in 2022, reflecting improved operational performance[249]. - Operating income for 2023 was $5.28 million, a significant improvement from $454,000 in 2022[316]. - The company reported a gross profit margin of 27.3% in 2023, up from 26.5% in 2022, indicating improved operational efficiency[316]. - The company reported a total comprehensive loss of $931,000 in 2023, compared to a loss of $13.65 million in 2022, indicating reduced losses[320]. - The company’s comprehensive loss for the year ended December 31, 2023, was $135.367 million[332]. Costs and Expenses - Cost of sales increased by $42.6 million, or 16.0%, to $308.5 million in 2023, with cost of sales as a percentage of revenue decreasing to 72.7% from 73.5% in 2022[236]. - Selling, general and administrative expenses rose by approximately $7.3 million, or 7.8%, to $101.5 million in 2023, largely due to the addition of Great North SG&A expenses[237]. - The company incurred acquisition costs related to Great North were approximately $6.5 million in 2023[242]. - The company reported stock-based compensation expenses of $14.895 million for the year ended December 31, 2023[332]. - The company incurred $3.2 million in restructuring and other charges, primarily due to office moves, site cleanup, severance, consulting, and legal fees[394]. Assets and Liabilities - Total assets increased to $1.03 billion in 2023, up from $970 million in 2022, driven by growth in trade receivables and inventories[323]. - The company’s total liabilities increased to $146.92 million in 2023 from $97.60 million in 2022, primarily due to higher accounts payable[323]. - The Company’s consolidated inventory balance was $194.6 million as of December 31, 2023, reduced by a reserve for slow moving, excess, and obsolete inventory of $66.2 million[307]. - Inventory reserves for slow-moving, excess, and obsolete inventories were $66.2 million as of December 31, 2023, down from $75.9 million in 2022[348]. Market Conditions and Risks - The company continues to monitor inflationary pressures and geopolitical conflicts, which may impact financial position and results of operations[211]. - The company has minimal operational exposure in Russia and does not intend to commit further capital towards projects in the region due to ongoing geopolitical tensions[210]. - The company expects continued pressure on crude oil and natural gas prices, which may affect drilling and production activities in the future[212]. - A sensitivity analysis indicated that a 10% adverse movement in foreign currency exchange rates could result in a decrease in revenues of approximately $20.9 million and a decrease in net income of approximately $1.0 million for 2023[285]. Operational Insights - The average contracted offshore rig count increased by 7.1% from 519 rigs in 2022 to 556 rigs in 2023, with 146 floating rigs and 410 jack-up rigs[219]. - The company accounted for 75 projects using the over time method in 2023, representing approximately 25.5% of total revenues, down from 34.7% in 2022[223]. - The Company recognizes leasing revenues from the rental of running tools on a day rate basis over lease terms generally between one to three months[280]. - Rework and reconditioning service revenues are recorded using the over time method, with payments received after services are performed, typically billed monthly[279]. Strategic Initiatives - The company entered into a collaboration agreement with Aker Solutions to provide subsea injection systems for carbon capture projects, enhancing its technological capabilities[208]. - The company reorganized its structure into three reportable business segments: Subsea Products, Subsea Services, and Well Construction, reflecting a strategic alignment with its business strategy[335].

Exhibit 99.1 DRIL-QUIP, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 RESULTS Annual revenue increases double digits year-over-year Full year cash provided by operations increases $44.5 million year-over-year Company provides fiscal 2024 financial outlook HOUSTON, February 26, 2024 — Dril-Quip, Inc. (NYSE: DRQ), (the "Company" or "Dril-Quip"), a developer, manufacturer and provider of highly engineered equipment, service, and innovative technologies for use in the energy industry, today reported operatio ...

PART I—FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Dril-Quip's unaudited condensed consolidated financial statements, highlighting net loss and increased assets and liabilities due to the Great North acquisition [Condensed Consolidated Balance Sheets](index=3&type=section&id=Balance%20Sheets) This section provides a snapshot of Dril-Quip's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | Total Assets | $1,007,568 | $969,951 | $37,617 | 3.9% | | Cash and cash equivalents | $181,072 | $264,804 | $(83,732) | -31.6% | | Goodwill | $16,237 | $- | $16,237 | N/A | | Intangible assets | $42,504 | $23,348 | $19,156 | 82.0% | | Total Liabilities | $137,106 | $97,599 | $39,507 | 40.5% | | Total Stockholders' Equity | $870,462 | $872,352 | $(1,890) | -0.2% | [Condensed Consolidated Statements of Income (Loss)](index=5&type=section&id=Statements%20of%20Income%20(Loss)) This section details Dril-Quip's financial performance over periods, showing revenues, expenses, and net income or loss Condensed Consolidated Statements of Income (Loss) Highlights (in thousands, except per share data) | Metric | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Revenues | $117,244 | $88,141 | $297,716 | $265,256 | | Total Costs and Expenses | $123,315 | $75,710 | $296,993 | $262,285 | | Operating income (loss) | $(6,071) | $12,431 | $723 | $2,971 | | Net income (loss) | $(7,034) | $13,289 | $(1,240) | $(1,219) | | Basic EPS | $(0.21) | $0.39 | $(0.04) | $(0.04) | - Acquisition costs were **$5,358 thousand** for the three months and **$6,492 thousand** for the nine months ended September 30, 2023, significantly impacting expenses[13](index=13&type=chunk) - Gain on sale of property, plant and equipment decreased from **$17,276 thousand** in Q3 2022 to **$1,027 thousand** in Q3 2023[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents Dril-Quip's total comprehensive income or loss, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $(7,034) | $13,289 | $(1,240) | $(1,219) | | Foreign currency translation adjustments | $(4,489) | $(10,487) | $(8,369) | $(19,829) | | Total comprehensive income (loss) | $(11,523) | $2,802 | $(9,609) | $(21,048) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Statements%20of%20Cash%20Flows) This section outlines Dril-Quip's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Nine months ended September 30, in thousands) | Activity | 2023 | 2022 | | :--------------- | :---------- | :---------- | | Operating activities | $(18,404) | $(19,167) | | Investing activities | $(62,716) | $(20,464) | | Financing activities | $(41) | $(20,881) | | Decrease in cash and cash equivalents | $(83,732) | $(65,172) | - Net cash used in investing activities significantly increased due to the **$82,287 thousand** acquisition of Great North, net of cash acquired[21](index=21&type=chunk) - Net cash used in financing activities decreased substantially as no common shares were repurchased in the nine months ended September 30, 2023, compared to **$20,807 thousand** in 2022[21](index=21&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Statements%20of%20Stockholders'%20Equity) This section details changes in Dril-Quip's stockholders' equity, including retained earnings and comprehensive losses Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Sep 30, 2023 | Jan 1, 2023 | Sep 30, 2022 | | :-------------------------- | :----------- | :---------- | :----------- | | Total Stockholders' Equity | $870,462 | $872,352 | $862,916 | | Retained Earnings | $948,928 | $950,168 | $951,070 | | Accumulated Other Comprehensive Losses | $(176,978) | $(168,609) | $(176,414) | - Net loss for the nine months ended September 30, 2023, was **$1,240 thousand**, contributing to the decrease in retained earnings[24](index=24&type=chunk) - Foreign currency translation adjustments resulted in an **$8,369 thousand** loss for the nine months ended September 30, 2023[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization and Basis of Presentation](index=9&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) This note outlines Dril-Quip's business segments and the basis for preparing its condensed consolidated financial statements - Dril-Quip reorganized its structure in Q1 2023 into three reportable business segments: Subsea Products, Subsea Services, and Well Construction[28](index=28&type=chunk) - Segment operating results for prior year comparative periods have been restated to reflect this change from previous geographic segments[28](index=28&type=chunk) [2. Significant Accounting Policies](index=10&type=section&id=2.%20Significant%20Accounting%20Policies) This note describes the key accounting principles and methods used in preparing Dril-Quip's financial statements - Reclassified approximately **$5.5 million** of accrued bonus from other accrued liabilities to accrued compensation for the year ended December 31, 2022, with no impact on consolidated financial statements[33](index=33&type=chunk) Restructuring and Other Charges (in thousands) | Period | 2023 | 2022 | | :------------------- | :--- | :--- | | Three months ended Sep 30 | $2,267 | $4,101 | | Nine months ended Sep 30 | $3,375 | $9,898 | - The company did not purchase any shares under its **$100.0 million** share repurchase plan for the three and nine months ended September 30, 2023[48](index=48&type=chunk) [3. Business Acquisitions](index=13&type=section&id=3.%20Business%20Acquisitions) This note details Dril-Quip's acquisition of Great North Wellhead and Frac, including purchase price and goodwill recognition - Acquired 100% of Great North Wellhead and Frac on July 31, 2023, for approximately **$79.8 million** (CAD **$105 million**)[52](index=52&type=chunk) - Great North contributed **$15.5 million** in revenues and **$1.6 million** in earnings to Dril-Quip from August 1 to September 30, 2023[53](index=53&type=chunk) - Goodwill of **$16.8 million** was recognized from the acquisition, attributable to expected synergies and intangible assets not qualifying for separate recognition[58](index=58&type=chunk) [4. Fair Value Measurements](index=14&type=section&id=4.%20Fair%20Value%20Measurements) This note describes Dril-Quip's fair value measurements, particularly for contingent purchase consideration liabilities - Level 3 financial instruments primarily consist of contingent purchase consideration liabilities related to the Great North acquisition[60](index=60&type=chunk) - The fair value of contingent consideration recognized on the acquisition date was **$3.6 million**, estimated using a Monte-Carlo valuation model based on Level 3 inputs[55](index=55&type=chunk) Contingent Consideration Measured at Fair Value (in thousands) | Date | Total | Level 3 | | :------------------- | :---- | :------ | | September 30, 2023 | $3,460 | $3,460 | [5. Revision to Previously Reported Financial Information](index=15&type=section&id=5.%20Revision%20to%20Previously%20Reported%20Financial%20Information) This note details accounting errors identified in Q2 2023 and their impact on previously reported financial statements - Identified accounting errors in Q2 2023 related to an indemnification receivable and duplicate billing errors impacting prior periods (2021, 2022)[63](index=63&type=chunk) Impact of Errors on Condensed Consolidated Statement of Income (Loss) for Three Months Ended September 30, 2022 (in thousands, except per share data) | Metric | As Reported | Adjustments | As Revised | | :-------------------------- | :---------- | :---------- | :--------- | | Restructuring and other charges | $2,180 | $1,921 | $4,101 | | Operating income (loss) | $14,352 | $(1,921) | $12,431 | | Net income (loss) | $15,210 | $(1,921) | $13,289 | | Basic EPS | $0.45 | $(0.06) | $0.39 | Impact of Errors on Condensed Consolidated Statement of Income (Loss) for Nine Months Ended September 30, 2022 (in thousands, except per share data) | Metric | As Reported | Adjustments | As Revised | | :-------------------------- | :---------- | :---------- | :--------- | | Restructuring and other charges | $7,977 | $1,921 | $9,898 | | Operating income (loss) | $4,892 | $(1,921) | $2,971 | | Net income (loss) | $702 | $(1,921) | $(1,219) | | Basic EPS | $0.02 | $(0.06) | $(0.04) | [6. Revenue Recognition](index=16&type=section&id=6.%20Revenue%20Recognition) This note outlines Dril-Quip's revenue recognition policies and disaggregates revenue by product and service categories Revenues from Contracts with Customers (in thousands) | Category | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Products | $77,603 | $58,508 | $192,677 | $176,129 | | Total Services | $27,214 | $20,443 | $72,228 | $57,538 | - Remaining performance obligations from over-time product lines totaled **$41.8 million** as of September 30, 2023, with approximately **98.6%** expected to be recognized within the next 12 months[72](index=72&type=chunk) [7. Stock-Based Compensation and Stock Awards](index=17&type=section&id=7.%20Stock-Based%20Compensation%20and%20Stock%20Awards) This note details Dril-Quip's stock-based compensation expense and related stock award information Stock-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :------------------- | :--- | :--- | | Three months ended Sep 30 | $2,600 (approx.) | $2,600 (approx.) | | Nine months ended Sep 30 | $7,700 (approx.) | $7,700 (approx.) | [8. Inventories, net](index=17&type=section&id=8.%20Inventories,%20net) This note provides a breakdown of Dril-Quip's inventory, including raw materials, work in progress, and finished goods Inventories, net (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :---------------------- | :----------- | :----------- | | Raw materials and supplies, net | $34,057 | $21,956 | | Work in progress, net | $34,056 | $38,263 | | Finished goods, net | $115,137 | $85,785 | | Total inventory, net | $183,250 | $146,004 | [9. Assets Held for Sale](index=17&type=section&id=9.%20Assets%20Held%20for%20Sale) This note details Dril-Quip's assets classified as held for sale, including the sale of an aftermarket facility - Assets held for sale balance was **$10.8 million** as of September 30, 2023, down from **$19.4 million** at December 31, 2022[10](index=10&type=chunk)[77](index=77&type=chunk) - Sold aftermarket facility in March 2023 for approximately **$14.5 million**, realizing a gain of approximately **$5.9 million**[76](index=76&type=chunk) - The remaining balance of **$10.8 million** comprises the corporate administrative building, which the Company expects to sell within a year[77](index=77&type=chunk) [10. Restructuring and Other Charges](index=18&type=section&id=10.%20Restructuring%20and%20Other%20Charges) This note details Dril-Quip's restructuring and other charges, including severance and other related expenses Restructuring and Other Charges (in thousands) | Component | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Severance | $504 | $- | $504 | $32 | | Long-lived asset write-down | $- | $- | $- | $5,055 | | Other | $1,763 | $4,101 | $2,871 | $4,811 | | Total | $2,267 | $4,101 | $3,375 | $9,898 | - A **$2.3 million** restructuring liability related to the Well Construction business was released in Q2 2023, partially offsetting current year costs[78](index=78&type=chunk) - Accrued liability balance for restructuring and other charges decreased from **$3,802 thousand** at January 1, 2023, to **$902 thousand** at September 30, 2023[80](index=80&type=chunk) [11. Goodwill and Intangible Assets](index=18&type=section&id=11.%20Goodwill%20and%20Intangible%20Assets) This note provides information on Dril-Quip's goodwill and intangible assets, primarily from the Great North acquisition - Goodwill balance increased to **$16.2 million** as of September 30, 2023, from **$0** at December 31, 2022, due to the Great North acquisition[81](index=81&type=chunk) Net Intangible Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------ | :----------- | :----------- | | Trademarks | $9,391 | $6,036 | | Patents | $5,539 | $2,356 | | Customer relationships | $27,574 | $14,916 | | Organizational costs | $- | $40 | | Total Net Book Value | $42,504 | $23,348 | [12. Business Segments](index=19&type=section&id=12.%20Business%20Segments) This note presents Dril-Quip's financial performance disaggregated by its Subsea Products, Subsea Services, and Well Construction segments - Company reorganized into Subsea Products, Subsea Services, and Well Construction segments in Q1 2023, with prior period results restated[85](index=85&type=chunk) Revenue by Business Segment (Three months ended September 30, in thousands) | Segment | 2023 | 2022 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Subsea Products | $55,427 | $48,496 | $6,931 | 14.3% | | Subsea Services | $24,176 | $22,276 | $1,900 | 8.5% | | Well Construction | $37,641 | $17,369 | $20,272 | 116.7% | | Total Revenue | $117,244 | $88,141 | $29,103 | 33.0% | Operating Income (Loss) by Business Segment (Three months ended September 30, in thousands) | Segment | 2023 | 2022 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Subsea Products | $954 | $18,007 | $(17,053) | -94.7% | | Subsea Services | $885 | $676 | $209 | 30.9% | | Well Construction | $6,353 | $2,066 | $4,287 | 207.5% | | Corporate | $(14,263) | $(8,318) | $(5,945) | 71.5% | | Total Operating Income (Loss) | $(6,071) | $12,431 | $(18,502) | -148.8% | [13. Income Tax](index=20&type=section&id=13.%20Income%20Tax) This note details Dril-Quip's effective tax rate and significant income tax refunds received or expected Effective Tax Rate | Period | 2023 | 2022 | | :------------------- | :----- | :----- | | Three months ended Sep 30 | (87.1)% | (4.8)% | | Nine months ended Sep 30 | 116.0% | 131.7% | - Received **$16.8 million** in income tax refunds in Q3 2023, including interest, related to prior year tax returns[92](index=92&type=chunk) - An additional **$5.4 million** refund related to prior year returns has been approved and is expected in Q4 2023[176](index=176&type=chunk) [14. Contingencies](index=21&type=section&id=14.%20Contingencies) This note describes Dril-Quip's legal proceedings, including the favorable outcome of the FMC Technologies lawsuit - FMC Technologies' lawsuit alleging misappropriation of trade secrets was affirmed in favor of Dril-Quip by the First District of Texas Court of Appeals on August 10, 2023[95](index=95&type=chunk) - FMC has until November 24, 2023, to file a petition for review with the Texas Supreme Court[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Dril-Quip's financial condition, operational results, and business environment, including segment performance, non-GAAP measures, and liquidity [Forward-Looking Statements](index=22&type=section&id=Forward-Looking%20Statements) This section highlights that statements not based on historical facts are forward-looking and subject to risks and uncertainties - Statements in the report that are not historical facts are forward-looking and involve substantial risks and uncertainties[99](index=99&type=chunk)[100](index=100&type=chunk) - Key factors that could impact future results include OPEC+ actions, general economic conditions (inflation, interest rates), risks related to the Great North acquisition, and the global energy sector transition[100](index=100&type=chunk) [Overview](index=23&type=section&id=Overview) This section provides a general description of Dril-Quip's business, products, and operational segments - Dril-Quip designs, manufactures, sells, and services highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications[103](index=103&type=chunk) - The company operates in three business segments: Subsea Products, Subsea Services, and Well Construction[104](index=104&type=chunk) [Recent Developments](index=23&type=section&id=Recent%20Developments) This section highlights Dril-Quip's recent acquisition of Great North Wellhead and Frac, including its terms - On July 31, 2023, Dril-Quip acquired Great North Wellhead and Frac for CAD **$105 million**, with potential earnout payments up to CAD **$30 million** based on future revenue growth targets for 2024 and 2025[105](index=105&type=chunk) [Business Environment](index=23&type=section&id=Business%20Environment) This section discusses the external factors influencing Dril-Quip's operations, including oil prices and rig counts Brent Crude Oil Price per Barrel (Average) | Period | 2023 | 2022 | | :------------------- | :----- | :----- | | Three months ended Sep 30 | $86.65 | $100.71 | | Nine months ended Sep 30 | $81.99 | $105.00 | - Offshore Rig Count (Mobile Offshore Drilling Units) increased by **4.8%** to **544 contracted rigs** (144 floating, 400 jack-up) as of September 30, 2023, from 519 rigs in 2022[119](index=119&type=chunk) - Product backlog at September 30, 2023, was approximately **$211.1 million**, compared to **$240.9 million** at December 31, 2022[124](index=124&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section analyzes Dril-Quip's financial performance, detailing revenue, cost of sales, and operating income by segment Revenue by Business Segment (Three months ended September 30, in millions) | Segment | 2023 | 2022 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Subsea Products | $55.4 | $48.5 | $6.9 | 14.3% | | Subsea Services | $24.1 | $22.3 | $1.8 | 8.1% | | Well Construction | $37.7 | $17.3 | $20.4 | 117.9% | | Total Revenue | $117.2 | $88.1 | $29.1 | 33.0% | Operating Income (Loss) by Business Segment (Three months ended September 30, in millions) | Segment | 2023 | 2022 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Subsea Products | $1.0 | $18.0 | $(17.0) | -94.4% | | Subsea Services | $0.9 | $0.7 | $0.2 | 28.6% | | Well Construction | $6.3 | $2.1 | $4.2 | 200.0% | | Corporate | $(14.3) | $(8.4) | $(5.9) | 70.2% | | Total Operating Income (Loss) | $(6.1) | $12.4 | $(18.5) | -149.2% | - Cost of sales as a percentage of revenue decreased to **73.0%** from **74.6%** for the three months ended September 30, 2023, primarily due to a favorable product mix and savings from business transformation initiatives[141](index=141&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, such as Adjusted EBITDA, used to evaluate performance - Adjusted EBITDA is used as a key non-GAAP financial measure to evaluate operating performance, excluding interest, taxes, depreciation, amortization, and other significant non-cash items[166](index=166&type=chunk)[167](index=167&type=chunk) Adjusted EBITDA (in thousands) | Period | 2023 | 2022 | | :------------------- | :----- | :----- | | Three months ended Sep 30 | $12,371 | $7,047 | | Nine months ended Sep 30 | $29,996 | $19,546 | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Dril-Quip's cash flow, capital expenditures, and overall ability to meet its financial obligations Cash Flows by Activity (Nine months ended September 30, in thousands) | Activity | 2023 | 2022 | | :--------------- | :---------- | :---------- | | Operating activities | $(18,404) | $(19,167) | | Investing activities | $(62,716) | $(20,464) | | Financing activities | $(41) | $(20,881) | - Net cash used in investing activities increased primarily due to the **$82.3 million** acquisition of Great North[175](index=175&type=chunk) - Capital expenditures for the nine months ended September 30, 2023, were **$21.0 million**, including **$7.7 million** for machinery and equipment and **$10.7 million** for rental tools[175](index=175&type=chunk) - Received an income tax refund of approximately **$16.8 million** in July 2023, with an additional **$5.4 million** expected in Q4 2023[176](index=176&type=chunk) [Critical Accounting Estimates](index=33&type=section&id=Critical%20Accounting%20Estimates) This section confirms no material changes in Dril-Quip's critical accounting estimates during the reporting period - There were no material changes in critical accounting estimates during the nine months ended September 30, 2023[183](index=183&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Dril-Quip faces market risks from interest rate and foreign exchange fluctuations, reporting a foreign currency pre-tax loss in Q3 2023 - The Company is exposed to market risks related to interest rate changes on its short-term investments and fluctuations in foreign exchange rates[184](index=184&type=chunk) - The Company does not engage in any material hedging transactions, forward contracts, or currency trading[184](index=184&type=chunk)[187](index=187&type=chunk) - Foreign currency pre-tax loss of approximately **$1.1 million** during the three months ended September 30, 2023, compared to a gain of **$1.9 million** in the same period of 2022[186](index=186&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded Dril-Quip's disclosure controls and procedures were effective, with no material changes in internal control - The Company's disclosure controls and procedures were effective as of September 30, 2023[189](index=189&type=chunk) - There has been no material change in the Company's internal control over financial reporting during the three months ended September 30, 2023[190](index=190&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 14 for legal proceedings, highlighting the favorable outcome of the FMC Technologies lawsuit - For a description of the Company's legal proceedings, refer to 'Contingencies,' Note 14 to the Notes to Condensed Consolidated Financial Statements[193](index=193&type=chunk) - The FMC Technologies lawsuit alleging misappropriation of trade secrets was affirmed in favor of Dril-Quip by the First District of Texas Court of Appeals on August 10, 2023[95](index=95&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors previously disclosed in Dril-Quip's Annual Report on Form 10-K for 2022 - There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[194](index=194&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) Rule 10b5-1 trading plans were adopted by key executives and a director in Q3 2023 for common share sales in 2024 - Rule 10b5-1 trading plans were adopted in the third quarter of 2023 by Jeffrey J. Bird (President, CEO, and Director), Kyle F. McClure (VP and CFO), James C. Webster (VP, General Counsel and Secretary), and Terence B. Jupp (Director)[196](index=196&type=chunk) - These plans are for selling common shares, with durations from January 1, 2024, through April 5, 2024, subject to certain conditions[196](index=196&type=chunk) [Item 6. Index to Exhibits](index=37&type=section&id=Item%206.%20Index%20to%20Exhibits) This section indexes exhibits filed with the Form 10-Q, including corporate documents, acquisition agreements, and certifications - Includes the Restated Certificate of Incorporation and Amended and Restated Bylaws[199](index=199&type=chunk) - Lists the Share Purchase Agreement for Great North, dated July 31, 2023[199](index=199&type=chunk) - Contains certifications from Jeffrey J. Bird (CEO) and Kyle F. McClure (CFO) under Rule 13a-14(a)/15d-14(a) and Section 1350[199](index=199&type=chunk) [Signatures](index=38&type=section&id=Signatures) The report was signed on November 1, 2023, by Kyle F. McClure, Vice President – Chief Financial Officer - The report was signed on November 1, 2023[203](index=203&type=chunk) - Signed by Kyle F. McClure, Vice President – Chief Financial Officer, as the Principal Financial Officer and Duly Authorized Signatory[203](index=203&type=chunk)