Dril-Quip, Inc. (NYSE:DRQ) Q2 2022 Earnings Conference Call July 29, 2022 10:00 AM ET Company Participants Erin Fazio - Director, Corporate Development, IR & FP&A Jeff Bird - President and CEO Kyle McClure - Vice President and CFO Conference Call Participants Dave Anderson - Barclays Operator Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Dril-Quip Second Quarter 2022 Fireside Chat. [Operator Instructions] At this time, I would like to turn the call over to Ms. Erin Fazio, Dir ...

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 June 30, 2022 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. ...

Dril-Quip, Inc. (NYSE:DRQ) Q1 2022 Earnings Conference Call April 29, 2022 11:00 AM ET Company Participants Jeff Bird - CEO Kyle McClure - CFO Conference Call Participants Tom Curran - Seaport Research Partners Operator Good day and thank you for standing by. Welcome to the Dril-Quip First Quarter 2022 Fireside Chat. I would now like to hand the conference over to your speaker today, Mr. Tom Curran from Seaport Research Partners. Sir, please go ahead. Tom Curran Thank you. Greetings, everyone. Welcome to Dr ...

PART I—FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Balance%20Sheets) Condensed Consolidated Balance Sheets | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | **ASSETS** | | | | Total current assets | $717,376 | $745,549 | | Total assets | $978,110 | $1,010,426 | | **LIABILITIES** | | | | Total current liabilities | $70,321 | $93,663 | | Total liabilities | $90,335 | $113,318 | | **EQUITY** | | | | Total stockholders' equity | $887,775 | $897,108 | [Condensed Consolidated Statements of Income (Loss)](index=4&type=section&id=Statements%20of%20Income%20(Loss)) Condensed Consolidated Statements of Income (Loss) | Metric (in thousands, except per share data) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $83,137 | $81,239 | | Total cost of sales | $63,995 | $56,787 | | Selling, general and administrative | $22,393 | $29,558 | | Engineering and product development | $3,676 | $4,037 | | Restructuring and other charges | $32 | $25,020 | | Operating loss | $(5,591) | $(31,582) | | Loss before income taxes | $(5,442) | $(31,972) | | Income tax provision (benefit) | $3,496 | $2,386 | | Net loss | $(8,938) | $(34,358) | | Basic loss per common share | $(0.26) | $(0.97) | | Diluted loss per common share | $(0.26) | $(0.97) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(8,938) | $(34,358) | | Foreign currency translation adjustments | $2,886 | $(2,090) | | Total comprehensive income (loss) | $(6,052) | $(36,448) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(10,928) | $13,072 | | Net cash provided by (used in) investing activities | $(1,858) | $3,431 | | Net cash used in financing activities | $(5,859) | $(40) | | Effect of exchange rate changes on cash activities | $1,202 | $(205) | | Increase (decrease) in cash and cash equivalents | $(17,443) | $16,258 | | Cash and cash equivalents at end of period | $338,008 | $362,213 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Statements%20of%20Stockholders'%20Equity) Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands, except shares) | Balance at January 1, 2022 | Balance at March 31, 2022 | | :----------------------------------- | :------------------------- | :------------------------ | | Common Stock | $352 | $349 | | Additional Paid-In Capital | $80,254 | $82,781 | | Retained Earnings | $973,087 | $958,344 | | Accumulated Other Comprehensive Losses | $(156,585) | $(153,699) | | Total Stockholders' Equity | $897,108 | $887,775 | | Repurchase of common shares | - | $(5,808) | | Stock-based compensation expense | - | $2,527 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) [1. Organization and Basis of Presentation](index=8&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) The company designs and manufactures engineered drilling equipment for severe service applications across three geographic segments - Dril-Quip's core business involves highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications[29](index=29&type=chunk) - Operations are organized into three geographic segments: **Western Hemisphere**, **Eastern Hemisphere**, and **Asia-Pacific**, with manufacturing facilities in each regional headquarters[29](index=29&type=chunk) [2. Significant Accounting Policies](index=8&type=section&id=2.%20Significant%20Accounting%20Policies) This note outlines key accounting policies, including revenue recognition, and details a new share repurchase plan - The Board of Directors authorized an incremental **$100 million** share repurchase plan on February 22, 2022, bringing the cumulative authorized amount to approximately **$118 million**[36](index=36&type=chunk) - For the three months ended March 31, 2022, the Company repurchased **273,629 shares** at an average price of approximately **$21.20 per share**, totaling approximately **$5.8 million**[36](index=36&type=chunk) - Revenues are generated from the sale of products, services, and the leasing of running tools, with recognition based on contract terms[32](index=32&type=chunk)[33](index=33&type=chunk) [3. Revenue Recognition](index=10&type=section&id=3.%20Revenue%20Recognition) This section details revenue by segment and type, contract balances, and remaining performance obligations Revenue by Geographic Segment and Type (Q1 2022) | Revenue Type (in thousands) | Western Hemisphere 2022 | Eastern Hemisphere 2022 | Asia-Pacific 2022 | Total 2022 | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | :--------- | | Product Revenues | $36,661 | $11,783 | $7,198 | $55,642 | | Service Revenues | $11,585 | $3,262 | $2,652 | $17,499 | | Total | $48,246 | $15,045 | $9,850 | $73,141 | Contract Balances | Contract Balances (in thousands) | December 31, 2021 | March 31, 2022 | | :------------------------------- | :---------------- | :------------- | | Contract Assets | $97,716 | $104,101 | | Contract Liabilities | $9,222 | $5,028 | - The aggregate amount of the transaction price allocated to remaining performance obligations from over-time product lines was **$86.5 million** as of March 31, 2022, with approximately **93.4%** expected to be recognized over the next 12 months[44](index=44&type=chunk) [4. Stock-Based Compensation and Stock Awards](index=11&type=section&id=4.%20Stock-Based%20Compensation%20and%20Stock%20Awards) This note reports the stock-based compensation expense for the first quarters of 2022 and 2021 Stock-Based Compensation Expense | Metric (in millions) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $2.5 | $3.2 | [5. Inventories, net](index=11&type=section&id=5.%20Inventories,%20net) This note provides a detailed breakdown of the company's inventory components and related allowances Inventory Components | Inventory Component (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Raw materials and supplies | $28,609 | $27,398 | | Work in progress | $27,096 | $28,361 | | Finished goods | $211,226 | $218,946 | | Total inventory (gross) | $266,931 | $274,705 | | Less: allowance for slow moving and excess inventory | $(125,642) | $(128,981) | | Total inventory (net) | $141,289 | $145,724 | [6. Impairment, Restructuring and Other Charges](index=12&type=section&id=6.%20Impairment,%20Restructuring%20and%20Other%20Charges) This note details a significant reduction in restructuring charges in Q1 2022 compared to Q1 2021 - No significant restructuring costs were incurred under the 2021 global strategic plan during the three months ended March 31, 2022[48](index=48&type=chunk) Restructuring and Other Charges | Charge Type (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Inventory write-down | $- | $19,300 | | Severance | $32 | $2,700 | | Other | $- | $3,000 | | Total | $32 | $25,000 | [7. Intangible Assets](index=12&type=section&id=7.%20Intangible%20Assets) This note provides a breakdown of intangible assets, including trademarks, patents, and customer relationships Net Book Value of Intangible Assets | Intangible Asset (in thousands) | Net Book Value (March 31, 2022) | Net Book Value (December 31, 2021) | | :------------------------------ | :------------------------------ | :--------------------------------- | | Trademarks | $6,512 | $6,655 | | Patents | $2,669 | $2,772 | | Customer relationships | $16,414 | $16,912 | | Organizational costs | $89 | $107 | | Total | $25,684 | $26,446 | [8. Asset Backed Loan (ABL) Credit Facility](index=13&type=section&id=8.%20Asset%20Backed%20Loan%20(ABL)%20Credit%20Facility) The company terminated its ABL Credit Facility and established a new restricted cash collateral account - The ABL Credit Facility was terminated effective February 22, 2022[52](index=52&type=chunk) - A new cash collateral account was established with JPMorgan Chase Bank, N.A., with approximately **$7.1 million** transferred to cover existing letters of credit, which is now considered restricted cash[52](index=52&type=chunk) [9. Geographic Areas](index=13&type=section&id=9.%20Geographic%20Areas) This note provides a breakdown of financial performance by the company's three geographic segments Financial Performance by Geographic Segment (Q1 2022) | Metric (in thousands) | Western Hemisphere 2022 | Eastern Hemisphere 2022 | Asia-Pacific 2022 | Total 2022 | | :-------------------- | :---------------------- | :---------------------- | :---------------- | :--------- | | Total Revenues | $57,356 | $17,562 | $14,151 | $83,137 | | Income (loss) before income taxes | $8,553 | $75 | $340 | $(5,442) | Total Assets | Asset Category (in thousands) | March 31, 2022 | December 31, 2021 | | :---------------------------- | :------------- | :---------------- | | Total long-lived assets | $260,734 | $264,877 | | Total assets | $978,110 | $1,010,426 | - During Q1 2022, there were no asset write-downs, unlike Q1 2021 which saw **$19.3 million** in non-cash inventory write-downs due to a shift to vendor outsourcing[56](index=56&type=chunk) [10. Income Tax](index=14&type=section&id=10.%20Income%20Tax) This note discusses the significant change in the effective tax rate and the company's foreign earnings reinvestment policy Effective Tax Rate | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | **(64.2)%** | **(7.5)%** | - The change in effective tax rate was primarily due to changes in income in foreign jurisdictions, valuation allowances in the U.S., foreign inclusions, and nondeductible compensation[57](index=57&type=chunk) - The company reversed its indefinite reinvestment assertion for foreign earnings, resulting in a deferred foreign tax liability of **$3.3 million** as of March 31, 2022[57](index=57&type=chunk) [11. Contingencies](index=14&type=section&id=11.%20Contingencies) This note addresses the status of the FMC Technologies, Inc. lawsuit regarding trade secret misappropriation - In the FMC Technologies, Inc. lawsuit, the jury returned a verdict in favor of Dril-Quip on April 29, 2021; FMC filed an appeal which the company intends to vigorously defend[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, cash flows, and key business trends [Forward-Looking Statements](index=15&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements regarding future results, expenditures, market conditions, and the impact of external factors like COVID-19 and the energy transition[62](index=62&type=chunk) - These statements are based on assumptions and involve substantial risks, with actual future results potentially differing materially from expectations[62](index=62&type=chunk) [Overview](index=16&type=section&id=Overview) - Dril-Quip designs, manufactures, and services highly engineered drilling and production equipment for severe service applications, serving major oil and gas companies globally[65](index=65&type=chunk) [Business Environment](index=16&type=section&id=Business%20Environment) - Dril-Quip entered a collaboration agreement with Aker Solutions ASA in Q1 2022 to offer subsea injection systems for carbon capture, utilization, and storage (CCUS) projects[66](index=66&type=chunk) - The Russia-Ukraine invasion in February 2022 led to sanctions and increased uncertainty, potentially affecting the global supply chain despite Dril-Quip's minimal operational exposure in Russia[66](index=66&type=chunk)[68](index=68&type=chunk) - Crude oil prices rebounded sharply in Q1 2022, but recovery in the subsea market generally lags[66](index=66&type=chunk)[68](index=68&type=chunk) [Oil and Gas Prices](index=17&type=section&id=Oil%20and%20Gas%20Prices) - The company's business is substantially dependent on the condition of the oil and gas industry and capital expenditures by oil and gas companies[68](index=68&type=chunk) Brent Crude Oil Price per Barrel | Brent Crude Oil Price per Barrel | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Low | $78.25 | $50.37 | | High | $133.18 | $69.95 | | Average | $100.87 | $61.04 | | Closing | $107.29 | $63.52 | [Offshore Rig Count](index=17&type=section&id=Offshore%20Rig%20Count) - As of March 31, 2022, the total contracted offshore rig count for the company's geographic regions was **491**, an increase of **3.4%** from 475 rigs as of March 31, 2021[71](index=71&type=chunk) Contracted Offshore Rig Count | Rig Type / Region | 2022 Floating Rigs | 2022 Jack-up Rigs | 2021 Floating Rigs | 2021 Jack-up Rigs | | :---------------- | :----------------- | :---------------- | :----------------- | :---------------- | | Western Hemisphere | 56 | 41 | 55 | 43 | | Eastern Hemisphere | 50 | 61 | 41 | 52 | | Asia-Pacific | 29 | 255 | 33 | 249 | | Total | 135 | 357 | 129 | 344 | [Regulation](index=18&type=section&id=Regulation) - Demand for the company's products is affected by industry regulations, including tariffs on steel imports and the implications of Brexit[72](index=72&type=chunk) - The imposition of additional tariffs or trade restrictions could increase raw material costs or affect product markets, with the ultimate impact remaining uncertain[72](index=72&type=chunk) [Backlog and Revenues](index=19&type=section&id=Backlog%20and%20Revenues) - Product backlog increased to **$220.9 million** at March 31, 2022, from **$210.1 million** at December 31, 2021[74](index=74&type=chunk) - For Q1 2022, **66.9%** of revenues came from products, **21.0%** from services, and **12.0%** from leasing, with international sales accounting for approximately **62.8%** of total revenues[75](index=75&type=chunk) Backlog and Bookings | Metric (in thousands) | March 31, 2022 | December 31, 2021 | March 30, 2021 | | :-------------------- | :------------- | :---------------- | :------------- | | Beginning Backlog | $210,119 | $179,012 | $195,650 | | Total Bookings | $93,952 | $109,019 | $82,250 | | Total Revenue | $83,137 | $77,912 | $81,239 | | Ending Backlog | $220,934 | $210,119 | $196,661 | [Results of Operations](index=21&type=section&id=Results%20of%20Operations) - Total revenues increased by **$1.9 million (2.3%)** to **$83.1 million** in Q1 2022, driven by increased subsea equipment and leasing revenues[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Cost of sales increased by **$7.2 million (12.7%)** to **$64.0 million** in Q1 2022, primarily due to unfavorable product mix and increased transportation costs[82](index=82&type=chunk) - Selling, general and administrative expenses decreased by **$7.2 million (24.2%)** to **$22.4 million** in Q1 2022, mainly due to lower legal and consulting fees[82](index=82&type=chunk) - Net loss significantly reduced to **$8.9 million** in Q1 2022 from **$34.4 million** in Q1 2021, primarily due to lower restructuring charges and SG&A expenses[82](index=82&type=chunk) Key Metrics as a Percentage of Revenues | Metric (as % of revenues) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Products | 66.9% | 68.4% | | Services | 21.1% | 21.8% | | Leasing | 12.0% | 9.8% | | Total cost of sales | 77.0% | 69.9% | | Selling, general and administrative | 26.9% | 36.4% | | Engineering and product development | 4.4% | 5.0% | | Restructuring and other charges | 0.0% | 30.8% | | Operating loss | (6.7)% | (38.9)% | | Net income (loss) | (10.8)% | 42.2% | [Non-GAAP Financial Measures - Adjusted EBITDA](index=23&type=section&id=Non-GAAP%20Financial%20Measures) - Adjusted EBITDA is used to evaluate and compare operating results by removing the effect of capital structure and certain non-cash items[84](index=84&type=chunk)[85](index=85&type=chunk) Adjusted EBITDA Reconciliation | Metric (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(8,938) | $(34,358) | | Adjusted EBITDA | $3,159 | $8,046 | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash used in operating activities was **$10.9 million** in Q1 2022, a **$24.0 million** decrease from Q1 2021, primarily due to changes in operating assets and liabilities[88](index=88&type=chunk) - Capital expenditures were **$2.1 million** in Q1 2022, mainly for rental tools and machinery[88](index=88&type=chunk) - The ABL Credit Facility was terminated, and a new cash collateral account was opened holding approximately **$7.1 million** as restricted cash[89](index=89&type=chunk) - The Board authorized an incremental **$100 million** share repurchase plan, and the company repurchased **273,629 shares** for **$5.8 million** in Q1 2022[90](index=90&type=chunk) Summary of Cash Flow Activities | Cash Flow Activity (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(10,928) | $13,072 | | Investing activities | $(1,858) | $3,431 | | Financing activities | $(5,859) | $(40) | | Increase (decrease) in cash | $(17,443) | $16,258 | [Other Matters](index=25&type=section&id=Other%20Matters) - The company may engage in discussions for acquisitions or joint ventures, with timing and funding being unpredictable[93](index=93&type=chunk) [Critical Accounting Judgments](index=25&type=section&id=Critical%20Accounting%20Judgments) - There were no material changes in critical accounting judgments and assumptions during the three months ended March 31, 2022[94](index=94&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily from interest rate and foreign exchange rate fluctuations [Foreign Exchange Rate Risk](index=25&type=section&id=Foreign%20Exchange%20Rate%20Risk) - The company is exposed to foreign exchange rate risk due to international operations and does not engage in material hedging transactions[96](index=96&type=chunk) Foreign Currency Pre-tax (Gain)/Loss | Metric (in millions) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Foreign currency pre-tax (gain)/loss | $1.3 (gain) | $(1.4) (loss) | [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and reports no material changes in internal control - The company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2022[97](index=97&type=chunk) - There were no material changes in the company's internal control over financial reporting during the three months ended March 31, 2022[97](index=97&type=chunk) PART II—OTHER INFORMATION [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 12 (Contingencies) for a description of the company's legal proceedings - For a description of the company's legal proceedings, refer to Note 12, 'Contingencies,' in the Notes to Condensed Consolidated Financial Statements[100](index=100&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors disclosed in the Annual Report, specifically addressing risks from the Russia-Ukraine conflict [Risks Related to Business, Operations and Industry](index=26&type=section&id=Risks%20Related%20to%20Business,%20Operations%20and%20Industry) - The Russia-Ukraine invasion has led to sanctions which could adversely affect oil and gas customers and the global supply chain, increasing market instability[102](index=102&type=chunk) - The company does not intend to commit further capital towards projects in Russia, and the full impact of the conflict remains unknown[102](index=102&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes the repurchase of common stock during the first quarter of 2022 Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price paid per Share | Maximum Dollar Value of Shares that May Yet be Purchased (in millions) | | :-------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------- | | January 1 - 31, 2022 | 273,629 | $21.20 | $18.5 | | February 1 - 28, 2022 | - | - | $118.5 | | March 1 - 31, 2022 | - | - | $118.5 | | Total | 273,629 | $21.20 | $118.5 | [Item 6. Index to Exhibits](index=28&type=section&id=Item%206.%20Index%20to%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL interactive data files - The report includes exhibits such as the Restated Certificate of Incorporation, Bylaws, Certifications, and various Inline XBRL documents[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Signatures](index=29&type=section&id=Signatures) This section contains the authorized signature for the Form 10-Q report - The report was signed by Kyle F. McClure, Vice President – Chief Financial Officer, on April 28, 2022, as the duly authorized signatory[120](index=120&type=chunk)

Dril-Quip, Inc. (NYSE:DRQ) Q4 2021 Earnings Conference Call February 24, 2022 10:00 AM ET Company Participants Blake Holcomb - Director, Investor Relations and Corporate Planning Jeff Bird - President and Chief Executive Officer Kyle McClure - Vice President and Chief Financial Officer Conference Call Participants Taylor Zurcher - Tudor, Pickering, Holt Operator Welcome to the Dril-Quip Q4 and Full Year 2021 Earnings Call. My name is Daryl and I will be your operator for today’s call. [Operator Instructions ...

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, 2021 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 (State or other ...

Financial Data and Key Metrics Changes - Bookings for the third quarter were at the lower end of the expected range of $40 million to $60 million, indicating a cautious outlook [6] - Revenue was in line with expectations, but EBITDA was impacted by one-time items and margin pressure [6] - Free cash flow remained strong, reflecting management's focus on cash generation [7] Business Line Data and Key Metrics Changes - The downhole tools group achieved a record quarter, marking the highest performance since its acquisition in 2016 [7] - There was improvement in aftermarket and leasing revenues, signaling a potential pickup in activity as customers resume operations [7] Market Data and Key Metrics Changes - Positive signs were noted in the offshore rig market, with increased quotation activity and longer contract requests [8] - Recovery signs were observed in the Gulf of Mexico, particularly among independent operators responding to higher commodity prices [11] - Brazil's subsea market showed strong recovery with multiple tenders awarded, while the UK and Norway markets also demonstrated positive trends [12][13] Company Strategy and Development Direction - The company is optimistic about future growth, expecting bookings to increase by 20% to 25% in 2022 compared to 2021 [20] - Focus on capital discipline and working capital management is expected to influence customer ordering behavior [15] - The company is exploring collaboration opportunities and energy transition projects, particularly in carbon capture and geothermal [49][55] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in various markets, although caution remains regarding larger project sanctions due to energy transition considerations [16][17] - The company is holding excess costs in anticipation of a recovery, estimating $20 million to $30 million in excess costs currently [25] - Future revenue growth is expected to manifest in the latter half of 2022 or early 2023, with normalized margins projected to return to the low-20s percentage [74] Other Important Information - The company is actively managing inflation impacts from rising material and freight costs, implementing price increases where necessary [27][28] - Collaboration agreements with other firms are being pursued to enhance operational efficiency and market reach [32][35] Q&A Session Summary Question: What are the expectations for order growth outside the current range? - Management believes that the high end of the $40 million to $60 million range could be achieved in Q4, depending on independent operators' project activity [18] Question: Are there any large projects being tracked? - Two significant projects are being monitored: a Petrobras development tender and a collaboration agreement with CNOOC [22] Question: How is the company addressing rising material and freight prices? - The company is implementing price increases in the downhole tools segment and expects to pass on a 10% price increase in the subsea segment [27][28] Question: What is the outlook for capital allocation and potential M&A? - The company is considering stock buybacks and exploring M&A opportunities, emphasizing the need for consolidation in the industry [58][60] Question: How is the company approaching energy transition? - The company is focusing on carbon capture and geothermal projects, with a dedicated team to explore these opportunities [49][55]

Financial Performance - Total revenue for the three months ended September 30, 2021, was $82.997 million, an increase from $80.797 million for the previous quarter [123]. - Total revenues decreased by $8.3 million, or approximately 9.1%, to $83.0 million for the three months ended September 30, 2021, compared to $91.3 million for the same period in 2020 [140]. - For the nine months ended September 30, 2021, revenues decreased by $32.7 million, or approximately 11.8%, to $245.0 million from $277.7 million for the same period in 2020 [147]. - The company recorded a net loss of approximately $64.6 million for the nine months ended September 30, 2021, compared to a net loss of $19.5 million for the same period in 2020 [154]. - Net loss was approximately $11.1 million for the three months ended September 30, 2021, compared to a net income of $14.3 million for the same period in 2020 [146]. - Adjusted EBITDA for the nine months ended September 30, 2021 was $14.6 million, down from $22.7 million for the same period in 2020, reflecting a decrease of approximately 35.7% [156]. Revenue Breakdown - For the nine months ended September 30, 2021, the company derived 67.4% of its revenues from product sales, 22.3% from services, and 10.3% from leasing [126]. - Approximately 64.5% of the company's revenues for the nine months ended September 30, 2021, were derived from foreign sales [126]. - The company accounted for 29 projects using over-time accounting for the three months ended September 30, 2021, representing approximately 24.9% of total revenues [129]. Operational Challenges - The ongoing COVID-19 pandemic has significantly reduced global economic activity and demand for oil and gas, impacting the Company's operations and supply chain [96]. - The Company expects the constraints imposed by the pandemic to slow research and development activities and qualification efforts with customers [102]. - The Company continues to face risks and uncertainties that could materially affect its operational and financial performance, including potential contract terminations and market volatility [97]. - The Company has taken steps to implement safety measures and retain employees during the pandemic, including on-site vaccination administration [98]. - The company adjusted its workforce in response to ongoing market conditions related to the COVID-19 pandemic [161]. Tax and Financial Management - The Company deferred approximately $2.9 million in FICA cash tax payments to 2021 and 2022 due to the Payroll Tax Deferral provided by the CARES Act [99]. - The effective income tax rate fluctuates based on changes in pretax income in jurisdictions with varying statutory tax rates [136]. Cost Management - Cost of sales decreased by $4.4 million, or approximately 6.5%, to $62.8 million for the three months ended September 30, 2021 [140]. - Selling, general and administrative expenses increased by $4.4 million, or 21.2%, to $25.3 million for the three months ended September 30, 2021 [141]. - Selling, general and administrative expenses increased by $15.6 million, or approximately 22.6%, to $84.4 million for the nine months ended September 30, 2021 [147]. - Engineering and product development expenses decreased by approximately $3.6 million, or 24.3%, to $11.3 million for the nine months ended September 30, 2021 [149]. Cash Flow and Liquidity - Cash flows from operating activities for the nine months ended September 30, 2021 were $33.7 million, a significant improvement compared to cash used in operating activities of $4.3 million for the same period in 2020 [165]. - The company had approximately $375.2 million in cash and cash equivalents as of September 30, 2021, with an additional availability of $31.1 million under the ABL Credit Facility [160]. Market Conditions and Future Outlook - The average Brent Crude oil price is projected to be approximately $71 per barrel in 2021 and $72 per barrel in 2022, compared to an average of $41.69 per barrel in 2020 [104]. - The Company anticipates that the uncertainty in the sustainability of current oil prices will continue to negatively impact oil and gas activities [102]. - The Company continues to explore potential acquisitions and joint ventures, although the timing and success of such efforts remain unpredictable [172]. Foreign Exchange Risks - The Company does not engage in any material hedging transactions, forward contracts, or currency trading to mitigate foreign exchange risks [175]. - The Company’s foreign subsidiaries may have monetary assets and liabilities not denominated in their functional currency, exposing them to currency exchange rate fluctuations [176]. - There is no assurance that the Company will be able to protect itself against future currency fluctuations [176]. - The Company has operations in various countries and conducts business in multiple currencies, increasing exposure to foreign exchange rate risk [176]. - There have been no material changes in market risks for the Company since December 31, 2020 [175].

Dril-Quip, Inc. (NYSE:DRQ) Q2 2021 Earnings Conference Call July 30, 2021 11:00 AM ET Company Participants Blake DeBerry - CEO & Director Raj Kumar - CFO & VP Conference Call Participants Daniel Burke - Johnson Rice & Company Operator Good day and thank you for standing by. Welcome to Drill-Quip Second Quarter 2021 Fireside Chat. At this time all participants' lines are open. [Operator Instructions]. I would now like to hand the call over to your speaker today. Mr. Daniel Burke. Please go ahead. Daniel Burk ...

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 June 30, 2021 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. ...