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]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 001-13439 DRIL-QUIP, INC. (Exact name of registrant as specified in its charter) | Delaware | 74-2162088 | | --- | -- ...

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)

Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $117.2 million, an increase of 33% year-over-year and 31% sequentially, driven by strong organic growth and the addition of Great North [36][17] - Adjusted EBITDA for the quarter was $12.4 million, an increase of $5.3 million from the previous year and up $3.6 million sequentially [23][44] - Gross margins improved to 27%, up approximately 150 basis points year-over-year, attributed to the addition of Great North and operational efficiency initiatives [8][44] - Cash provided by operations was $26.8 million, an improvement of $15.5 million sequentially and $26 million from the prior year [49] - Free cash flow for the third quarter was positive at $21.4 million, marking the highest figure since 2017 [49] Business Line Data and Key Metrics Changes - Subsea Products revenue increased 15% year-over-year and 25% sequentially, driven by customer milestones in Europe [7] - Subsea Services revenue increased 6% year-over-year and 3% sequentially, although growth was expected to be double digits sequentially [7] - Well Construction segment grew 117% year-over-year and 76% sequentially, reflecting the addition of Great North and increased activity in key regions [22] Market Data and Key Metrics Changes - The company ended the quarter with approximately $200 million in backlog, supported by over 70 open Master Service Agreements (MSAs) [18] - Key markets showing strength included Latin America, the Middle East, and Africa, with notable wins in the Ivory Coast [17][5] Company Strategy and Development Direction - The company completed its first acquisition since 2016 with Great North, which has been financially accretive and adds exposure to a top-producing region [4] - The integration of Great North is largely complete, with supply chain optimization plans underway [4] - The company is focused on cross-selling opportunities between Great North and Drill-Quip products, anticipating incremental revenue [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged customer-specific headwinds due to rig availability and FPSO delivery timing, impacting higher-margin service segment revenue [58] - The outlook for Q4 2023 includes expected revenue in the range of $115 million to $125 million and bookings of $75 million to $100 million [24] - Management expressed optimism for 2024, citing constructive market conditions and positive early indications from customers [14] Other Important Information - The company expects to see a strong revenue ramp in Q4, driven by large orders including subsea trees [10][53] - Selling, general, and administrative expenses increased 22% sequentially to $27 million, driven by Great North expenses and an increase in bad debt reserve [34] - The company anticipates approximately $10 million in CapEx for Q4 2023, concluding investments in Houston manufacturing equipment [40] Q&A Session Summary Question: Can you expand on the FPSO delivery timing and its impact? - Management noted that FPSO delivery timing delays were primarily related to Brazil, affecting call-offs [26] Question: What gives confidence in the fourth quarter bookings guidance of $75 million to $100 million? - Management indicated good visibility to the ramp, largely dependent on FID timing for several customers [28] Question: Any preliminary thoughts on bookings for 2024? - Management expressed optimism for increased bookings in 2024 as rig availability improves and FPSOs are delivered [31]

Investor Presentation Second Quarter 2023 Disclaimer | Cautionary Statement Although Dril-Quip believes that all such statements contained in this presentation are based on reasonable assumptions, there are numerous variables of an unpredictable nature or outside of Dril-Quip's control that could affect Dril-Quip's future results and the value of its shares. Each investor must assess and bear the risk of uncertainty inherent in the forward-looking statements contained in this presentation. Use of Website MI ...

Dril-Quip, Inc. (NYSE:DRQ) Q2 2023 Earnings Conference Call August 1, 2023 9:00 AM ET Company Participants Erin Fazio - Corporate Finance Director Jeff Bird - President, Chief Executive Officer Kyle McClure - Vice President, Chief Financial Officer Conference Call Participants Operator Good morning, and welcome to Dril-Quip's Second Quarter 2023 Earnings and Great North Acquisition Update Call. At this time, all participants are in a listen-only mode and there will be a question-and-answer session opportuni ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I) [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) Presents Q2 2023 unaudited condensed consolidated financial statements, detailing financial position, performance, and cash flows, with accompanying notes - In Q1 2023, the company reorganized its structure, changing reportable business segments from geographic to three product and service lines: **Subsea Products, Subsea Services, and Well Construction**, with prior year data restated[28](index=28&type=chunk)[70](index=70&type=chunk) - Accounting errors from prior periods, related to an indemnification receivable and duplicate billings, were corrected and revised in the current report to avoid material misstatement of interim results[30](index=30&type=chunk)[31](index=31&type=chunk)[50](index=50&type=chunk) - Post-period, on July 31, 2023, a Dril-Quip subsidiary acquired **Great North Wellhead** for **CAD $105 million** cash, with potential earnout payments up to **CAD $30 million**[83](index=83&type=chunk) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Balance%20Sheets) As of June 30, 2023, total assets increased slightly to $979.7 million, total liabilities rose to $100.3 million, and stockholders' equity reached $879.4 million, while cash decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $755,156 | $750,024 | | Cash and cash equivalents | $236,490 | $264,804 | | Trade receivables, net | $135,504 | $90,861 | | Inventories, net | $164,523 | $146,004 | | **Total Assets** | **$979,666** | **$969,951** | | **Total Current Liabilities** | $88,124 | $87,555 | | **Total Liabilities** | **$100,257** | **$97,599** | | **Total Stockholders' Equity** | **$879,409** | **$872,352** | [Condensed Consolidated Statements of Income (Loss)](index=4&type=section&id=Statements%20of%20Income%20(Loss)) The company achieved a net income of $3.5 million in Q2 2023, a turnaround from a $5.6 million loss in Q2 2022, driven by lower charges and gains on asset sales Statement of Income (Loss) Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $89,607 | $93,978 | $180,472 | $177,115 | | **Operating Income (Loss)** | $3,606 | $(3,869) | $6,794 | $(9,460) | | **Net Income (Loss)** | **$3,483** | **$(5,570)** | **$5,794** | **$(14,508)** | | **Diluted EPS** | $0.10 | $(0.16) | $0.17 | $(0.42) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Statements%20of%20Comprehensive%20Income%20(Loss)) Q2 2023 saw a total comprehensive loss of $1.0 million, primarily due to a $4.5 million foreign currency translation loss offsetting net income Comprehensive Income (Loss) (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $3,483 | $(5,570) | $5,794 | $(14,508) | | Foreign currency translation adjustments | $(4,454) | $(12,228) | $(3,880) | $(9,342) | | **Total Comprehensive Income (Loss)** | **$(971)** | **$(17,798)** | **$1,914** | **$(23,850)** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to $41.6 million in H1 2023, while investing activities provided $14.1 million, leading to a $28.3 million decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(41,638) | $(20,209) | | Net cash provided by (used in) investing activities | $14,066 | $(2,847) | | Net cash used in financing activities | $(22) | $(9,740) | | **Decrease in cash and cash equivalents** | **$(28,314)** | **$(34,667)** | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to $879.4 million by June 30, 2023, driven by net income and stock-based compensation, partially offset by foreign currency adjustments - For the six months ended June 30, 2023, the company did not repurchase any common shares, compared to repurchasing **430,730 shares** for **$9.7 million** in the same period of 2022[24](index=24&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) Notes detail strategic reorganization, prior period error revisions, revenue recognition, restructuring charges, and significant subsequent events including an acquisition and tax refund - The aggregate transaction price for remaining performance obligations from over-time product lines was **$55.4 million** as of June 30, 2023, with **85.3%** expected to be recognized within the next 12 months[57](index=57&type=chunk) - In Q2 2023, the company recorded a net credit of **$0.6 million** in restructuring charges, primarily due to a **$2.3 million** release of a restructuring liability related to its Well Construction business[64](index=64&type=chunk)[66](index=66&type=chunk) - In July 2023, the company received a **$16.8 million** income tax refund, with an additional **$5.4 million** refund approved and being processed[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's return to profitability in Q2 and H1 2023, driven by product mix, cost savings, and asset sales, alongside increased backlog and liquidity - The company's product backlog increased to approximately **$252.0 million** at June 30, 2023, up from **$240.9 million** at December 31, 2022[111](index=111&type=chunk) Backlog and Bookings (in thousands) | Metric | Q2 2023 | Q1 2023 | | :--- | :--- | :--- | | Beginning Backlog | $235,145 | $240,865 | | Total Bookings | $106,443 | $85,145 | | Total Revenue | $89,607 | $90,865 | | **Ending Backlog** | **$251,981** | **$235,145** | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $3,483 | $(5,570) | $5,794 | $(14,508) | | **Adjusted EBITDA** | **$8,787** | **$9,340** | **$17,625** | **$12,499** | - Net cash used in operating activities increased to **$41.6 million** in H1 2023 from **$20.2 million** in H1 2022, primarily due to changes in working capital, including a significant increase in trade receivables[168](index=168&type=chunk)[169](index=169&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks involve interest rate changes on investments and foreign exchange rate fluctuations, with no material changes since year-end 2022 - The company is exposed to foreign exchange rate risk, which resulted in a pre-tax gain of **$4.8 million** in Q2 2023 and **$3.7 million** for the first six months of 2023[180](index=180&type=chunk)[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **effective** as of June 30, 2023[184](index=184&type=chunk) - No changes occurred in the company's internal control over financial reporting during Q2 2023 that materially affected, or are reasonably likely to materially affect, these controls[185](index=185&type=chunk) [PART II - OTHER INFORMATION](index=32&type=section&id=PART%20II) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending a favorable jury verdict on appeal in a trade secret lawsuit against FMC Technologies, with other legal actions deemed immaterial - In the FMC Technologies lawsuit, a jury found in favor of Dril-Quip, and the company intends to vigorously defend the verdict on appeal[80](index=80&type=chunk)[188](index=188&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) During Q2 2023, no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Index%20to%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and Inline XBRL documents